Tracking your sales tax can be confusing. You may have to tax different customers at different rates, or collect sales tax on only some of the items you sell. When you invest a little set-up time, QuickBooks can handle all the calculations for you — giving you confidence in your tax collecting, and saving you time and hassles in the long run.

There are five steps to setting up sales tax:

1. Set Your Sales Tax Preferences
2. Set Up Your Taxable Items
3. Enter Your Sales Tax Codes
4. Assign Sales Tax Codes to Your Items
5. Assign Sales Tax Codes and Sales Tax Items to Customers
6. Paying Sales Tax Using the Pay Sales Tax Feature

1. Set Your Sales Tax Preferences
   To set your sales tax preferences, follow these steps:
   1. Select Edit: Preferences from the main QuickBooks menu.
   2. Select the Sales Tax icon in the list on the left side of the Preferences window.
   3. Choose the Company Preferences tab.
   4. Enter your sales tax preferences in the appropriate areas, when you owe tax, when you pay it, etc.
   5. Click OK.
   
   That's it! Now you're ready for Step 2.
   
   
2. Set Up Your Taxable Items
   Sales tax items identify the tax agency for whom you collect sales taxes as well as the rate of that tax. There are two different types: Sales Tax Items, and Sales Tax Groups. Sales Tax Items are used to calculate single taxes paid to a single tax agency, for example state sales tax. Sales Tax Groups are used to calculate two or more sales tax items that apply to the same sale, for example a city sales tax and a state sales tax.
   
   Here's how to designate your taxable items:
   
   1. From the Customer Navigator, click the Items & Services icon.
   2. Click the Item button at the bottom of the Item List window and select New.
   3. Select either Sales Tax Item or Sales Tax Group from the Type dropdown list.
   4. Fill in the rest of the information that pertains to your Item or Group.
   5. Click OK.
   
   
3. Sales Tax Codes
   If your state requires detailed reports of your non-taxable sales, for example exempt, non-taxable, out-of-state, and sales to resellers, you'll also add Sales Tax Codes into QuickBooks.
   
   Here's how:
   
   1. From the main QuickBooks Lists menu, select Sales Tax Code List. The Sales Tax Code List window will appear.
   2. Click the Sales Tax Code button, which reveals a dropdown menu.
   3. Select New from that menu. The Edit Sales Tax Code window will appear.
   4. Enter a three-character Code for each designation you need to track (for example "XMT" for exempt), and select whether the designation is taxable or non-taxable.
   5. Click OK.
   
   
4. Assign Sales Tax Codes to Your Items
   Now it's time to assign your Sales Tax Codes to your items. You must designate each item that you sell as taxable or non-taxable, and assign the proper rate (which you entered earlier in Step 2).
   
   
   1. From the Customer Navigator, click the Items & Services icon.
   2. Click the Item you want to assign a Sales Tax Code to.
   3. Click the Item button, and then Edit. The Edit Item window will appear.
   4. Under Sales Information, click to expand the Tax Code dropdown list, and select the appropriate Sales Tax Code that you created in Step 3.
   5. Click OK.
   6. Repeat steps 1 through 5 until you've assigned Sales Tax Codes to all the Items you sell.
   
   That's it! Now you're ready for the last step.
   
   
5. Assign Sales Tax Items and Codes to Customers
   If your repeat customers pay different rates of tax, use the instructions below to assign each one a Sales Tax Item and Code. It'll make your selling process and record-keeping easier.
   
   
   1. From the Customer Navigator, select the Customer icon.
   2. Choose a customer to assign sales tax to.
   3. Click the Customer: Job button and select Edit. The Edit Customer window will open.
   4. Select the Additional Info tab.
   5. Under Sales Tax Information, click to expand the Tax Item dropdown list, and choose the Sales Tax Item you want to assign.
   6. Click to expand the Tax Code dropdown list, and choose the Sales Tax Code you want to assign.
   7. Click OK.
   8. Repeat steps 1 through 7 until you've assigned Sales Tax Items and Codes to all your repeat customers.
   
   That's it! You've now set up QuickBooks to track your sales tax collection and reporting for you. The proper tax amount will now appear on your sales receipts, and in your QuickBooks Reports.
   
   
6. Paying Sales Tax Using the Pay Sales Tax Feature
   In addition to sending your collected sales taxes to the proper authorities when it's time, be sure to also note that you've paid your sales tax in QuickBooks with the Pay Sales Tax feature. Doing so ensures that QuickBooks will record the right amount. Here's how.
   
   
   1. From the Vendors menu, choose Sales Tax, then Pay Sales Tax.
   2. Fill in the form that appears in the Pay Sales Tax window: select the account you want to pay from, the dates during which you collected the taxes, and which sales tax you want to pay (if you collect more than one, for example, city and state).
   
   That's it! Now QuickBooks will store all the proper sales tax payment information.