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. |
Tips
- 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.
