How to Fix Common Sales Tax Problems in QuickBooks Desktop

Handling sales tax is a crucial bookkeeping function for businesses using QuickBooks Desktop. Issues in the setup or calculation of sales tax records can impact regulatory compliance and increase the risk of penalties.

QuickBooks Desktop users often encounter a range of sales tax issues that can disrupt business productivity. Often, due to differences in tax rate, incorrect setup, or transaction entry issues. Due to sales tax issues in QuickBooks Desktop, penalties, late tax filings, cash flow issues, and compliance risks are expected.

This guide shares the clear steps to determine the causes, implement fixes, and ensure sales tax compliance.

Common Sales Tax Problems and Their Solutions

QuickBooks Desktop sales tax errors span from display issues to inaccurate calculations. However, certain issues are resolved via precise troubleshooting steps.

Here is the list of the common sales tax issues with efficient solutions:

1. Invoice Prints “T” despite Sales Tax being turned off

In this error, the invoice prints “T” next to the taxable amount, even when sales tax is deactivated. This generally happens due to a corrupted invoice template. A basic solution is to reset or recreate the invoice template.

Here is the list of advanced solutions for better results:

• Prepare a new template.
  • Click the “Lists” option.
  • Now, choose the “Templates” option.
  • Choose the “Template” dropdown and then select the “New” tab.
  • Choose the template type and then click the “OK” button.
  • Add a template name and save the changes.
• Prepare a copy of the current template.
  • Click the “Lists” option.
  • Now, choose the “Templates” option.
  • Mark the invoice template currently in use.
  • Choose the “Template” dropdown and then select the “Duplicate” option.
  • Choose the “Invoice” button and then click the “OK” tab.
  • Open an invoice and use the copied template.
• Use the template as the default.
  • Click the “Lists” option.
  • Now, choose the “Templates” option.
  • Click the invoice template twice.
  • Choose the option “Additional Customisations”.
  • Click the “Default” option and then choose the “OK” button.
  • Choose the “Ok” button once more to save the changes.

2. Sales Tax Payable does not update correctly after recording payments using Write Checks

In this error, incorrect sales tax payable balances are recorded via the “Write Checks” window. It is advised to record sales tax payments via the Pay Sales Tax screen. Furthermore, for sales tax payments, “Write Checks” should not be used.

Here is the list of the advanced solutions to resolve the previously recorded payments:

• Take a company file backup.
  • Take a complete backup of the QuickBooks company file before making any changes.
• Find the inaccurate payments.
  • Click the “Lists” option and choose the “Chart of Accounts” tab.
  • Access the bank account kept for sales tax payments.
  • Classify the sales tax payments recorded via Write Checks.
• Add sales tax payments properly again.
  • Click the “Vendors” option.
  • Now, click the “Sales Tax” option.
  • Next, click the “Pay Sales Tax” option.
  • Choose the right “Pay From Account”.
  • Verify that the Ending Bank Balance displays adequate funds.
  • Add the check date. Begin with the oldest payment first.
  • Choose the period end date in the “Show sales tax due through” field.
  • In the “Starting Check No.” field, add the original check number.
  • In the “Pay” column, choose the tax items.
  • When needed, change the amount in the “Amount Paid” option.
  • Confirm the original payment aligns with the total matches.
  • Choose the “OK” button.
  • Select the “Keep Number” option when notified of repeated check numbers.
  • Perform the same steps again for every wrong payment.
• Erase Original Inaccurate Transactions.
  • Click the “Lists” option.
  • Now, click the option “Chart of Accounts”.
  • Access the bank account register.
  • Find both transactions that share the same payment date.
  • Detect the payment entered twice with the type “TAXPMT”.
  • Select the “TAXPMT” entry, mark it as cleared, and choose the “Record” option.
  • Change check numbers when more than one agency is active.
  • Choose the original BILLPMT or CHK entry.
  • Click the “Edit” option.
  • Now, click the “Delete Check” option.
  • Erase the associated bills when BILLPMT entries appear.
  • Perform the steps again for every rectified payment.
• Confirm the Rectification.
  • Start the “Sales Tax Liability Report” from the present date.
  • Match the report balance with the Sales Tax Payable account.
  • For every tax agency, start “Vendor Balance Detail”.
  • Start “Transaction List by Vendor” to verify no repeated payments are present.

Once all the steps are implemented, Sales Tax Payable shows the right balance. Tax payments match the liability and vendor reports.

3. Warning: You must specify a vendor name for the sales tax account

While preparing a journal entry, ensure to add the right vendor name in the “Customer: Job” column. This principle should be implemented while writing a check where the Sales Tax Payable account is used. This step guarantees precise tax monitoring, reporting, and correct vendor balance updates.

4. Negative Sales Tax payable on the cash basis Balance Sheet report

When the sales tax payment basis and the report basis fail to match, this issue usually occurs. QuickBooks displays accrual and cash account timing differences, which often result in a negative balance.

This issue generally arises when sales tax follows the accrual method, while the Balance Sheet displays a cash method. To fix this issue, set the right sales tax basis.

Here are the steps to set the correct sales tax basis in QuickBooks:

• Sign in as Administrator.
• Change to Single-user mode.
• Head to the “Edit” option and click the “Preferences” tab.
• Choose the “Sales Tax” option and then click the “Company Preferences” tab.
• Select the right option under the segment “When do you owe sales tax?”
• Choose the “OK” button.

5. Deactivated Sales Tax items affect a Sales Tax Group

QuickBooks does not erase an inactive Sales Tax Item from the Sales Tax Group. The deactivated item remains connected with the group. Due to this, accurate tax calculation on transactions is not possible. The inactive items need to be erased from the group manually.

Here are the steps to remove inactive sales tax items from the Sales Tax Group:

• Click the “Lists” menu and choose the option “Item List”.
• Click twice on the tab, “Sales Tax Group”.
• Mark the deactivated sales tax item.
• Click the keys “Ctrl+ Delete”.
• Choose the “OK” button.

Note: Previously created invoices with the old tax group remain the same.

6. Error while Preparing a Credit Memo

While generating a “Credit Memo” from an invoice, users may experience an “Error” message. This issue arises when the Sales Tax feature is deactivated in the company file.

Here are the steps to resolve this error and allow sales tax to generate the Credit Memo:

• Activate Sales tax by heading to the “Edit” button.
• Now, click the “Preference” tab.
• Choose the “Sales Tax” button.
• Now, click the “Company Preferences” tab.
• Select the “Yes” button to opt for the option “Do you charge sales tax?”
• Generate the “Credit Memo”.
• Deactivate Sales Tax by getting back to Preferences and choosing the “No” button.

7. Warning: This Item Is Used in Customer Data and Cannot Be Deleted

While erasing a sales tax item, users get a warning message, “This item is used in customer data. It cannot be deleted. This is due to the reason that the sales tax item is linked to one or more customers.

Here are the steps to resolve this error:

1. Erase the Sales Tax Item from Customers

To find and update impacted customers, access the Customer Contact List report. Here are the steps to use the report and remove the sales tax item from customers:

• Head to the “Reports” option.
• Now, click the “Lists” tab and select the option “Customer Contact List”.
• Choose the “Customise Report” option.
• Choose the option “Tax Item” from the existing columns.
• To categorize customers linked to the item, select the “Tax Item” option in the “Sort By” segment.
• Choose the “OK” button.
• Click twice on a customer allocated to the sales tax item.
• Now, use the “Sales Tax Settings” tab.
• Erase the tax item or choose a new one.
• Perform the same steps for all the listed customers.

2. Erase the Sales Tax Item

• Once the item is erased from all customers, perform the following steps:
• Head to the “Lists” section and choose the option “Item List”.
• Now, on the sales tax item, select it and then right-click.
• Choose the “Delete” option. After the item is not used by any customer, QuickBooks will enable removal without issues.

8. Sales tax line item not visible while printing invoices

In this error, sales tax is printed on invoices as a new line. This happens when the “Description” field has details for the Sales tax Item.

Here are the steps to add a description to the sales tax item:

• Head to the “Lists” option.
• Now, click the “Item List” tab.
• In the “Description” section, add “Sales Tax”.
• Choose the “OK” button. Once the update is done, the sales tax line item is printed properly on invoices.

9. Message: “Your existing credit with [Vendor Name] is sufficient to pay your sales tax due.”

This error message is displayed by QuickBooks while clearing sales tax from the Pay Sales Tax screen. This error occurs when a sales tax discount uses a new vendor name instead of the sales tax item. In some cases, due to vendor discrepancy, QuickBooks records the complete payment and overlooks the discount.

Here is the recommended solution to resolve this error:

• Head to the “Lists” option.
• Now, click the “Chart of Accounts” option.
• Access the “Sales Tax Payable” account register.
• Find and choose the last added sales tax payment.
• Click the “Edit” option and select the “Delete Sales Tax Payment” tab.
• Now, choose the “OK” button.
• Ensure the Sales Tax Payable register window is running.
• Head to the “Vendors” option.
• Now, click the “Sales Tax” tab and then the “Pay Sales Tax” option.
• Confirm the vendor name related to the sales tax item.
• Choose the “OK” button to shut down the screen.
• Head back to the “Sales tax Payable” register.
• Identify the discount entry and change the Vendor Name to the sales tax item vendor.
• Choose the “Record” option.
• Head back to the “Vendors” option.
• Now, click the “Sales Tax” option, and then the “Pay Sales Tax” button.
• For both the sales tax item and the discount, check the Pay column.
• Choose the “OK” button to finish the payment properly.

Conclusion

Precise sales tax management guarantees proper financial records. In addition, it ensures proper compliance with related tax laws. However, business experience with sales tax issues in QuickBooks has led to errors. In this guide, all such errors along with the solutions have been shared.

Still, if there is any query or confusion, feel free to reach out to our QuickBooks Support team.

Frequently Asked Questions