Ask the Accountant…
Question: I’ve heard that QuickBooks Online automatically calculates sales tax. How does that work?
Answer: Sales tax is calculated automatically in QBO, which is a big advantage and saves a great deal of time and effort to keep your sales tax rates current as you must do in QuickBooks Desktop.
The sales tax calculation is based on the “Ship To” address in your customer’s invoice. The sales tax will only calculate correctly if you have the full and correct “Ship To” address in the invoice. In fact, if you do not have a “Ship To” address entered (as happens often), integrations with other industry systems of that estimate/sales order or Invoice may not work.
In our industry, we always need to scrutinize the sales tax before sending an invoice to a customer. QBO has a button under the Sales Tax amount that says “See the Math.” If you click on that, you can see the various rates, such as the State, County, and Local components as applicable that have been used in the calculations. If a “Ship To” address is not a valid address (transposed street number or invalid zip code), the sales tax may calculate incorrectly or incompletely. It’s always best to review the sales tax before invoicing the client.
All in all, the automated sales tax in QBO is a significant feature, but don’t assume it is always correct.
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