How Do I Collect and Track Sales Tax?

The first step to collect and track sales tax in QuickBooks is to enable the preference to do so.

On the Edit->Preferences menu, select the Company Preferences tab on the Sales Tax submenu.

Click Yes on the Do you charge sales tax? preference.

Once the preference is set, you use:

  • sales tax codes to specify whether a customer or item is or is not taxable
  • sales tax items to specify the sales tax applicable to a customer or invoice
  • sales tax groups to combine multiple sales tax items into a combined rate for a customer or invoice

To collect and track sales tax, you’ll need to create at least 1 sales tax item, which you can do directly from the Preferences window.

If you are changing your sales tax preference after you’ve already created customers, inventory, or non-inventory parts, you’ll be given the opportunity to change the tax status of those existing customers and items.  When the Updating Sales Tax window appears, choose what you’d like to update and click Ok.

This update process will update all customers and all items that are either an inventory part or non-inventory part, so make your decision to update carefully.  Decide based on the characteristics for the bulk of your customers or inventory items, because the exceptions will have to be reviewed and changed individually.

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