Friday, June 5, 2015

How To Record Use Tax in QuickBooks Online for Sales Tax Reporting

Who Pays Use Tax? Well, it depends on the state, but according to Arizona, where I am located:

1. Any person who uses, stores or consumes any tangible personal property upon which tax has not been collected by a retailer shall pay use tax. 

2. An out-of-state retailer or utility business making sales of tangible personal property to Arizona purchasers must register with the department for the collection of the use tax. 

3. An Arizona purchaser is liable for use tax on goods purchased from an out-of-state vendor that did not collect the use tax. For individual income taxpayers, please see Pub 610A, Arizona Use Tax for Individual Income Taxpayers. 

4. Arizona purchasers are liable for use tax if they purchase goods using a resale certificate, and the goods are subsequently used, stored or consumed in Arizona contrary to the purpose stated on the certificate. 

5. The use tax also applies to purchases on which another state's sales tax or other excise tax was imposed if the rate of that tax is less than the Arizona use tax rate. 

A lot of my clients have inventory and sometimes they will use a product to replace a faulty product or one under warranty for a customer. And since they don't pay sales tax on the purchase of the product, when they consume it they have to pay the state for the sales tax on the cost of the product. 

This is how you set up, record, and pay Use Tax in QuickBooks Online.


1. In QuickBooks, click on Sales Tax in the Navigation bar on the left.




2. Click on Add/edit tax rates and agencies and New button.



3. Name it Use Tax and enter your single or combined tax rate information based on your company's local sales tax.




4. Go to the Gear icon, Lists, Products and Services.



5. Click on New to create a new product called Use Tax Income Offset using the same income account used when selling products and uncheck Is Taxable box.




6. Create a new expense account, Use Tax Expense in your Chart of Accounts if you don't already have one.


8. Back in the Products and Services list, create a new product called Use Tax Expense that is not taxable using the Use Tax Expense account.


9. Use a sales transaction (sales receipt or invoice) to record the products used and either use a "house" customer account or the actual customer that it is used for and change the tax rate to the Use Tax rate.




10. Change the rate of the product from the sales price to the cost.




11. Add the Use Tax Income Offset item and put the negative of the cost above.


12. Add the Use Tax Expense item and put the negative of the tax amount below. 



13. This will zero out the Sales Receipt. Save and Close.



14. The Sales Tax Center and Sales Tax Liability report will now show the Use Tax amount due and will be included when you Record Tax Payment.





15. The Profit & Loss statement will now reflect the purchase cost of the product and the use tax expense related to using it and the income account isn't affected.