Some unhealthy information for Washington state QuickBooks Online customers who want to report and pay Washington state gross sales tax. The bookkeeping requires some… effectively, additional consideration and fiddling.
But let me clarify what’s what after which stroll you thru the steps for doing the bookkeeping.
What’s the difficulty with Washington state gross sales tax?
Sales tax isn’t the one sort of excise tax Washington State levies on companies. It additionally levies a tax on gross receipts, usually referred to as “B&O”.
To decrease the executive burden of those taxes, Washington’s Department of Revenue doesn’t make companies file a separate tax return and make a separate cost for every sort of tax. Instead, it has companies calculate every sort of tax owed on one return, and has the enterprise submit all of the taxes owed as a single cost. (Experienced QuickBooks customers can already see the issue…)
What Intuit has completed in QuickBooks—once more, to attempt to make issues simple for small enterprise house owners—is it’s give you a system for the way it can maintain most the bookkeeping for gross sales tax behind the scenes.
The QuickBooks Excise Tax Approach
The QuickBooks system is to have a particular characteristic, known as “sales tax tracking,” to mechanically calculate appropriate gross sales tax on invoices and gross sales receipts, so long as gross sales tax jurisdictions have already been arrange, and so long as the particular person recording the bill can determine which gross sales tax jurisdiction to use when recording the transaction. Then, when a enterprise remits gross sales tax to the correct taxing company, the bookkeeper information this occasion with a particular sort of transaction. QuickBooks calls this transaction a “sales tax payment.” In order for QuickBooks gross sales tax monitoring to work correctly, the enterprise should document each gross sales tax cost as, effectively, a “sales tax payment,” and it should document solely gross sales tax funds as gross sales tax funds.
You can see how this method collides with how Washington State collects gross sales tax. Two techniques that have been supposed to make issues simpler have come collectively to make issues rather more sophisticated and tough for Washington small enterprise house owners.
Luckily, there are two workarounds to this conundrum.
Workaround #1: Record Sales Tax and B&O as Two Separate Payments in QuickBooks
The upside: that is simple to document, and straightforward to make accrual vs. money foundation accounting work accurately in QuickBooks (assuming your model of QuickBooks permits you to observe Accounts Payable).
The draw back: it makes working in the financial institution feed and reconciling the checking account extra sophisticated, as a result of the only cost that posts to the financial institution’s ledger received’t match the 2 separate funds you recorded in QuickBooks.
Workaround #2: Record the B&O Portion of Sales Tax as a “Sales Tax Adjustment”
The upside: this technique received’t complicate working in the financial institution feed or reconciling the checking account
The draw back: this technique is extra advanced to enter, and WA B&O funds received’t present up correctly on accrual-basis monetary statements.
The tutorial on the finish of this text will present you the way to use this second workaround, and it’ll additionally illustrate the constraints of this workaround.
A fast clarification: Which gross sales tax system are we speaking about?
QuickBooks Online has two completely different gross sales tax techniques: outdated and new.
The outdated system is like what’s obtainable in QB desktop, the place the person manages their very own gross sales tax charges. This system works simply fantastic for brick-and-mortar retailers that don’t ship their items to prospects and solely have a handful of areas.
The new system, known as “Automatic Sales Tax,” seems to be Intuit’s reply to AvaTax and TaxJar, but it surely doesn’t cowl as many jurisdictions but. This system is designed to work higher for shops (whether or not on-line or brick and mortar) that ship items to their prospects, and thus have lots of, or possibly even 1000’s, of gross sales tax jurisdictions to preserve observe of.
As of this writing, new QuickBooks Online accounts begin off utilizing the brand new, more-automated gross sales tax system. Accordingly, the pictures in this text illustrate the brand new system (as a result of that’s what we had to work with after we created a demo account for this tutorial). If you employ the outdated system, stuff will conceptually work a lot the identical method, however the interface will look slightly completely different and fewer duties might be automated.
Note: these photos come from QuickBooks Simple Start. If you employ a unique model of QuickBooks Online, or if Intuit has simply up to date the person interface since we revealed this text, then what you see in the software program is perhaps slightly completely different then what we present under.
How to arrange gross sales tax and WA B&O in QBO
If you’ve already arrange gross sales tax in QBO, skip forward to the following part. But in case you’re simply getting began, this part is for you.
As I discussed earlier, in case you’re organising gross sales tax in a brand-new account from scratch, QuickBooks Online will information you thru the method of organising Automatic Sales Tax.
First, navigate to Taxes in the left navigation menu (between Reports and Accounting). You’ll see this display, or one thing shut to it:
The deal with you employ for this step is vital, as a result of it tells QuickBooks what taxing jurisdiction you’re in. For instance, our hypothetical espresso store is situated in Redmond, WA. That signifies that, as of this writing (and for the needs of this instance), its gross sales are topic to a state gross sales tax price of 6.5% and an area gross sales tax price of three.5%.
Note that in case you’re utilizing QuickBooks’ outdated gross sales tax system, or in case you’re utilizing gross sales tax monitoring in QuickBooks desktop, you’ll want to search for these charges your self and add them to this system manually. You’ll additionally want to replace the charges manually any time they modify. But in case you’re utilizing Automatic Sales Tax in QuickBooks Online, QuickBooks will use the deal with of the sale location because the jurisdiction for the sale.
Three different fast factors earlier than I transfer on.
First, in Washington State, we now have what’s known as “destination-based gross sales tax.” That means if your enterprise operates in, say, Duvall, however you promote a product to a buyer in Redmond and ship the product to the client, you want to use the Redmond gross sales tax price for the sale. If, then again, you’ve a bricks-and-mortar store in Duvall, and also you don’t ship to prospects (i.e. you solely promote and switch title to your items on the Duvall location), you then use the Duvall price.
Second, notice that even when two jurisdictions use the identical native price (for instance, each the City of Redmond and the City of Bellevue have an area price of three.5%), you possibly can’t simply use the identical gross sales tax merchandise for Bellevue gross sales and Redmond gross sales. This is as a result of once you go to file your gross sales tax return with the Washington Department of Revenue, the shape goes to ask how a lot of the gross sales tax you’re remitting is Washington State’s share, how a lot is Bellevue’s share, how a lot is Redmond’s share, and so forth. So, you’ll want your accounting system to present you knowledge not simply on how a lot gross sales tax to acquire, however which jurisdictions you’re accumulating it for. The Washington Department of Revenue retains an inventory of present and historic native gross sales tax charges right here. It even has a file you need to use to import tax price info in case you’re utilizing a desktop model of QuickBooks.
This isn’t a difficulty to fear about in case you’re utilizing Automatic Sales Tax in QBO (or an analogous product like AvaTax or TaxJar), however in case you’re utilizing an older, less-automated model of gross sales tax monitoring in QuickBooks, it’s a mistake that novice small enterprise house owners can generally make.
Finally, in case you’re in a enterprise the place you promote tangible items and ship them to out of state prospects, you need to stand up to velocity on the current Supreme Court case South Dakota v. Wayfair. You could have an obligation to acquire gross sales tax not simply in Washington, however in different states as effectively.
After this preliminary setup, QuickBooks will ask you the way incessantly you file gross sales tax in Washington State (see under). Your enterprise’ submitting frequency relies in your estimated gross sales tax legal responsibility. In our instance, the mixed state and native gross sales tax price is about 10%. So, a enterprise with about 48,000 or extra in month-to-month taxable gross sales would want to file month-to-month, whereas a enterprise with smaller gross sales quantity would possibly have the ability to file quarterly and even yearly.
Note you can edit your gross sales tax settings after the very fact from this display by clicking “Sales tax settings” in the higher proper nook. That will deliver up a web page that appears one thing just like the picture under; simply click on the “Edit” button for the actual company you need to edit settings for:
All proper, that’s gross sales tax arrange. But for Washington State companies, there’s one closing step you’ll want to take to get issues actually working proper for recording funds, and that’s creating an account in the chart of accounts for Washington B&O (see under).
How to Record a Sales Receipt with WA Sales Tax in QBO
Once you’ve arrange gross sales tax in QuickBooks Online, you’re prepared to begin recording gross sales receipts that embody gross sales tax.
To achieve this, first, click on the Plus icon, then click on Sales Receipt.
The subsequent display you’ll see will look one thing like this:
As illustrated in the above picture, what’s nifty about automated gross sales tax monitoring is that it’s going to take the placement of the sale (see in higher proper nook) and use it to calculate gross sales tax on the sale, assuming you’ve checked the checkbox beneath the “Tax” column to point out that the sale is topic to gross sales tax. (Sales of tangible property are typically topic to gross sales tax, whereas gross sales of companies typically aren’t.)
If you’re interested in the place QuickBooks is getting its calculation from, you possibly can click on the blue Sales tax label and it’ll deliver up an overlay of the small print, as proven under:
How to Record Paying Sales Tax and WA B&O Using the Sales Tax Adjustment Method
Okay, we’ve arrange gross sales tax and we’ve been recording our gross sales receipts in QuickBooks to mechanically calculate gross sales tax. And now a month has passed by, and we now have to document the tax cost made to the Washington DOR. How will we do this?
Well, right here’s what it would seem like once you use the gross sales tax adjustment technique in QuickBooks Online.
When a gross sales tax return is fileable, you’ll see a button in the gross sales tax middle that allows you to document the cost. Click this button and you must see a display that appears one thing just like the picture under.
What you’ll do to get WA B&O working proper is click on the “+ Add an adjustment” button. That will deliver up the overlay proven under. For the explanation, point out “Other”, and for the account, select B&O. Then, enter the quantity of B&O you owe for the tax interval. (For most retailers, B&O is zero.471% of gross receipts.)
Once you’ve added the adjustment, the quantity QuickBooks signifies for Tax Due must be the identical as the quantity you truly paid along with your Washington Excise tax return once you filed it utilizing MyDOR. (We have extra info on MyDOR accounts in this text on our weblog.) If the quantity appears appropriate, click on the inexperienced “Select filing method” button.
As of this writing, QBO’s computerized gross sales tax doesn’t assist e-filing for WA gross sales tax (and in the event that they did, this workaround in all probability wouldn’t be essential). So, select “File manually” as your submitting technique. Then, make certain to scroll down far sufficient so you possibly can see the place to enter details about once you paid gross sales tax. Enter the date paid and which checking account you paid it out of, then click on “Record Payment.”
This is the final display you’ll see, and it simply confirms you recorded the gross sales tax as paid in QuickBooks.
Limitations of the Sales Tax Adjustment Method
There’s quite a bit to like in regards to the gross sales tax adjustment technique as a workaround for coping with Washington B&O. It’s not an excessive amount of work, it will get the appropriate quantity in the appropriate account, and since it information a single cost in the register for your enterprise checking account, it retains checking account reconciliations and dealing in the financial institution feed simple.
The one main disadvantage to concentrate on is that, utilizing this technique, Washington B&O expense will solely present up as an expense as of the date the expense was paid, no matter whether or not or not you’re producing studies on money or accrual foundation. In different phrases, you received’t have the ability to observe B&O accrual’s correctly with this technique (as proven under).
And there you’ve it, that’s the way you cope with Washington gross sales and B&O tax in QuickBooks Online.