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Tackling Changes In Sales Tax Rates in QuickBooks

In California, the sales tax rate is going down by 0.25% statewide effective January, 2017. It has been noticed that your bookkeeping clients who file sales taxes, can make the rate changes in their QuickBooks files. However, this is more complicated than it seems.

To Edit or To Replace in QuickBooks :

There are two opinions on the preferred method of changing sales tax rates in QuickBooks. One is, you can either edit the existing sales tax rate to the new rate, or you can make the current rate Inactive, and create a new sales tax rate.

Recommended preference has always been the latter, as you work exclusively in QuickBooks Desktop, and want to preserve the integrity of the sales tax reports, so this is the best option by making old rates Inactive and creating the new rates as required.

By this way, you are able to run a Sales Tax Liability or other report of a previous period. You are looking for what has truly been posted to each of the sales tax rates, and don’t run the risk of obscuring the data with the edited rate which has been changed in mid-stream.

Once you edit the sales tax rate of an existing Sales Tax Item or a Component, that change will affect the QuickBooks Online and QuickBooks Desktop in the same way, in two functions. One is, old transactions are not affected by the new rate and the other is, new transactions will use the same new rate.

But, QuickBooks Online and QuickBooks Desktop are different in how the changes to sales tax rates affect the memorized transactions. When you edit the Sales Tax rate Component in QuickBooks Online, then the rate used in a memorized transaction will be updated, but in QuickBooks Desktop, the memorized transactions are not affected by the change.

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In any case, a little change in the rate of a Sales Tax Item/Component, as recommended by Intuit, seems like a logical choice. However, there are a few reasons why the users of QuickBooks may want to go for a different method when the rate of sales tax changes.

  • Some businesses have the fixed price contracts. Like in California, the State Board of Equalization which is the sales tax authority allows the seller to use old sales tax rate for the transactions. The BOE’s Publication 9 and Publication-46 and the other states may have similar regulations.
  • Some businesses record the sales for the current period and the quotations for the new period together. Thus, both – ‘old rate’ and the ‘new rate’ are required to use on sales and Estimate or Sales Order transactions.

This may happen to the product-based businesses. Like, one sale ships today, so that the invoice or sales receipt would use the current sales tax rate on the invoice. However, another sale will ship after the rate change date, so that the Estimate/Sales Order would use new sales tax rate.

  • Some businesses need ‘retroactive’ accounting. These are the businesses, that will correct the prior period sales transactions and add it to the back-dated transactions into the reporting period. Definitely, this is not ideal, but still, there are many bookkeepers who have clients like this. In that case, the bookkeeper needs to have both, the ‘old rate’ as well as the ‘new rate’ available.

If your client falls into one of the above categories, then it is recommended that no changes should be made to the RATE of the sales tax items or the components. If you will follow our recommendation and you have the Sales Tax Groups or the memorized transaction, then make sure you edit as appropriate.

We can anticipate a number of technical details about editing the old and adding the new, and everyone are going to do it differently, like those who set up the Sales Tax Groups v/s the single rate items. There is also a query regarding renaming the old rate item. We’ve seen so many different ways to edit the old rates. Each business owner or QuickBooks Advisor will have to make their own choice.

There is always the option available to export the Customer list to Excel, edit each rate, then re-import the list to QuickBooks. It is recommended to choose to alert the clients during the first quarter of the year in a particular, so they will have to pay attention to each of the sales forms they create, and it is suggested that they first edit each record of the Customer to the new sales tax rate prior creating a sales form.

We all have some decisions to make regarding how we want to approach the changes to the sales tax of our clients. Hopefully, now you have some food for the thought in order to help in making your own decisions. Besides all that, you are allowed to avail an array of benefits from hosted QuickBooks.

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Author Profile

Angeela Palin
Angeela Palin
Angeela is Techarex Networks' Content Marketing Associate for Intuit products. She has worked as an eCommerce and Marketing Strategist for the last five years, helping businesses with software implementation for Customer Service, CRM and Email Marketing. Angeela thrives in helping companies find the right software solution for their projects. Aside from his obvious passion for Marketing, Angella admits to being a foodie and travel enthusiast.

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