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Sales Tax

Troubleshooting Sales Tax Amounts and Calculations

How to Fix Sales Tax Issues in Accounting

This KB article talks about how to troubleshoot and fix the following  sales tax related issues:

  1. Sales tax amounts or calculations that seem incorrect.
  2. Sales tax does not match my hand calculations.
  3. Sales tax by line item vs. Sales tax by subtotal.
  4. Tips and Other Things to Check
  5. Links to Other Resources


Total Office Manager is designed with the ability to calculate sales tax by the line item.  Each line on the financial document can be assigned a sales tax item.  This allows the ability to tax each line of the transaction at different rates or not at all.  Sales Tax is then calculated, rounded to a currency value (two decimal places) and written individually to the General Journal.  Since rounding is completed on the calculation on each line a variance can occur, with certain values, when compared to calculating the sales tax on the subtotal.


Sales Tax by Line Item
             Amount Tax Rate Values without Rounding Rounded values that go into the register for tax payable
Item 1 $157.50 7.88% 12.411 12.41
Item 2 $5.00 7.88% 0.394 0.39
Subtotal $162.50 Total Sales tax $12.80
Sales Tax $12.80
Total $175.30
Sales Tax by Subtotal
             Amount Tax Rate Values without Rounding Rounded values that go into the register for tax payable
Item 1 $157.50
Item 2 $5.00
Subtotal $162.50
Sales Tax $12.81 7.88% 12.805 12.81
Total $175.31


When this occurs you can correct this variance with the following two options:

Option #1 – No Sales Tax Groups

  1. When entering the Invoice Items, do not select a Tax Item for each line entry.
  2. For all lines that are taxable, select a taxable Tax Code.
  3. After all Invoice Items are entered, select a Subtotal item.
  4. On the line after the Subtotal, select the Sales Tax Item that you would normally select in the Tax Item column. This will calculate the Sales Tax on the subtotal just as the technician did in the field.
  5. Please note, non-taxable items will need to be grouped together and subtotaled in order to calculate the Sales Tax strictly on the taxable items. For the non-taxable entries, you would select the appropriate Tax Item in the column just as you normally would.

Option #2 – With/Without Sales Tax Groups:

  1. Create an Invoice Item that is an Other Charge type. This item will be used strictly for Sales Tax rounding discrepancies. It is recommended that the account you select in the Income Account field is one that is solely for the purpose of tracking these types of transactions.
  2. Enter your invoice information just as you normally would, selecting the appropriate Tax Item in the column.
  3. After all Invoice Items are entered, select an Other Charge item that is referenced in Option #2 Step #1.

When using Option #2, you may need to make adjustments to your Sales Tax Liability before a payment is created. In order to determine the amount to adjust, you will need to do the following:

  1. Run the Transaction Details by Account report for the account that is selected in the Income Account of the Invoice Item that was created under Option #2.
  2. If the amount that appears in the account details does not equal zero, an adjustment should be made.
  3. A Sales Tax Adjustment will need to be made to either increase or decrease the amount of liability prior to making your Sales Tax payment. In the example below, the TDBA indicates that there is an adjustment -$0.01 that is outstanding in the Sales Tax Adj account.
  4. To create a Sales Tax Liability Adjustment, navigate to Customers | Sales Tax | Sales Tax Liability Adjustment.
  5. Enter the date the adjustment is effective. This date should coincide with the dates of the Sales Tax Liability you are paying.
  6. Enter a unique Entry No, if desired
  7. Select the Vendor you are adjusting the liability for.
  8. Select the Sales Tax item you are making the adjustment for.
  9. Select the account that is selected in the Income Account of the Invoice Item that was created under Option #2 as the Adjustment Account.
  10. 10.Select to Increase or Decrease the amount based on the value that appears in the TDBA report.
  11. Enter a detailed memo to indicate why this adjustment is being made.
  12. After entering the adjustment, proceed with paying your Sales Tax Liability as normal.

Tips and Other Things to Check

  1. Remember that sales tax items can be added to each row of a sales/invoice. Each invoice item can have its own Tax Item or Sales Tax Group Item.
  2. Sales tax codes help you track taxable and non-taxable sales and/or customers. Setting up and assigning the correct sales tax code allows you to run a report that divides the total taxable and non-taxable sales.
  3. The Sales Tax Code can turn on and off the sales tax calculation. In other words, if you add a Tax Code that is set to “Non-Taxable”, that invoice line item will not be taxed, regardless of the Sales Tax Item associated with it.
  4. Individual invoice items can have their own default Tax Codes and be set to “Non-Taxable”. Verify that your items are using this feature correctly. Pay attention to Discounts item types. Some users will set them to Non-Taxable when they should not have. If you need to check or fix transactions with a Discount Item, go to that item’s history form. From there, you will have quick easy access to every transaction that used it.
  5. Take a close look at your invoices and make sure that the Sales Tax Item and Sales Tax Code selections are correct for each line item. Look to see how Tax Codes are being used.
  6. If a Sales Tax Item’s rate is changed and an old invoice (with that Sales Tax Item) is opened and resaved, the sales tax can be recalculated. This might result in an incorrect sales tax amount. Please see Changing Sales Tax Rates.
  7. Never use the Write Checks form to pay sales tax. Always use the Pay Sales Tax utility to create the check. Writing a regular check will cause your sales tax liabilities to be over stated.
  8. When running sales tax related reports, you have the option of using Cash Accounting or Accrual Accounting. Please keep this in mind when checking or comparing sales tax amounts.
  9. Traditional sales tax is never recorded as income. It is money you collect from a customer to pass along to the sales tax authorities. When collected, sales tax is an asset (in the form of cash) and a liability (in the form of an accounts payable). When you pay the sales tax A/P, cash is reduced (credited) and the A/P account is reduced (debited).

Related Topics

Changing Sales Tax Rates

Adjusting Your Sales Tax Liability

Paying Your Sales Tax Liability

Troubleshooting Sales Tax Problems and How to Fix Them

How to Identify and Fix Comon Sales Tax Issues

Sales tax problems can occur for different reasons. This topic was created to help identify the causes of sales tax problems and go over some solutions.

Check Sales Tax Items and Sales Tax Groups

Most sales tax problems are a result of incorrect setup of the sales tax items or sales tax item groups. Open each sales tax item and be sure you have entered the correct sales tax rate and selected the correct vendor. If an account was selected, double check the Chart of Accounts to be sure that account is of the correct type (like Other Current Liability).

Examine Sales Tax Related Reports

When running reports, use the various filter and option to reduce the size of your report. Set a date range that narrows your report to a time frame that includes when the problem first became apparent. Many reports have “drill down” capability. That mean you may be able to double click on the report to get a more detailed “sub report” or to view the actual transaction.

From the main menu, click Reports | Sales Tax for a list of sales tax related reports.  The Sales Tax Details report is the first place to start as it will usually reveal the problems.

Another report to look at might be the Transaction Details by Account report. Click Reports | Accounting | General Ledger | Transaction Details by Account.  Using the Transaction Type selection, filter by Sales Tax Adj.

QuickBooks® File Conversion

If we converted your QuickBooks® database, be sure that you check your old QB files to see if the problem dates back to your use of that software.

Tips for Former QuickBooks Users

  • If your sales tax troubles date back to your use of QB, our conversion will have included those “problems”.
  • When the article was written, QB was calculating sales tax on the total of all items (not each item individually like a cash register would). This can cause rounding issues.
  • When the article was written, QB was allowing users to add a sales tax item to the item grid and then override the sales tax amount with any amount the users choose. If the wrong amount is entered, this would cause your sales tax to calculate incorrectly.

Specific Sales Tax Related Problems and Solutions

Problem: The Sales Tax Item field says {Unknown Tax}.
Cause: This happens when you make an Adjusting Journal Entry and select an account (from Chart of Accounts) for sales tax or you select a vendor that is used to pay sales tax.
Solution: You will need to delete the AJE and recreate it using the Sales Tax Liability Adjustment form. Do not use AJE to make sales tax adjustments. Always use this form instead.

You would only need to do a sales tax liability adjustment if the journal entry was for a legitimate sales tax item or if the sales tax item amounts were affected by deleting the journal entry (Deleting a journal entry will require the administrator password).

TIPS:  If you had a QB conversion this is a common situation.  QB allows you to make Adjusting Journal Entries to sales tax, whereas Total Office Manager requires a sales tax liability adjustment using the appropriate form.

Problem: The Amount or Amount to Pay is incorrect.
Cause 1: Total Office Manager is going to make accurate calculations based on the amounts it sees on invoices and sales tax items. Usually the causes include invoices with incorrect Sales Tax Item selections or Tax Code selections, sales tax items incorrectly setup, or incorrect Sales Tax Liability Adjustments.
Solution 1: You will need to determine the date that the problem first became apparent and work from that date forward, examining reports and invoices. You are trying to locate invoices that are not properly prepared. This may be time consuming work but there is no way around it.
Cause 2: You have not used the Pay Sales tax feature to make ALL sales tax liability payments.
Solution 2: You must use Total Office Manager’s Pay Sales Tax Liability form to pay your sales tax. If you write a check to pay your sales tax, your sales tax will be incorrect. You will need to void or delete the check(s) and use the Pay Sales Tax Liability feature to pay your sales tax.
Cause 3: You have made an Adjusting Journal Entry (AJE) to fix a problem with sales tax.
Solution 3: You cannot use adjusting journal entries to fix sales tax liability problems (or payroll liability problems). You will need to delete every single AJE you have entered that involves sales tax liabilities and recreate them using the Adjust Sales Tax Liability Adjustment form.

Sales Tax Incorrect on Invoice/Sale

Problem: The Sales Tax amount on the invoice is not correct.
Cause 1: This should be easy to fix. Be sure that the correct sales tax item or group has been selected for each line on the item grid (where you select inventory items). Make sure that the correct sales tax code is selected for each item on the grid.
Cause 2: You should make a very careful examination of your sales tax items, groups, and tax codes. If you have doubts, create screen shots of each form and fax or email them into our technical support department.


  • When using forms and reports, experiment with different “as of” dates and date ranges to determine when the problem stops or starts. This is extremely helpful because if you can narrow the problem to a date range or determine when the problem first started, fixing becomes a lot easier.

Sales Tax Related Help Topics

Tracking Sales Tax on Purchases (Use Tax)

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