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Use Tax - Slide 2
Joe Woodard provides a 'QuickBooks work around' for tracking Use Tax in this edition of TRUE JOE WAY!
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Use Tax Tracking - Slide 1
This slide shows how to post "Use Tax" to a purchase transaction using this True Joe Ways "QuickBooks Work Around".
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Use Tax - Slide 2
Using this True Joe Ways "QuickBooks Work Around", you can create a "Sales Tax Adjustment" to increment the amount of your total sales tax up by the amount of the Use Tax you owe.
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Use Tax - Slide 3
Using this True Joe Ways "QuickBooks Work Around", the Use Tax now shows in the Pay Sales tax window for the correct taxing authority.
Simply put, use tax is sales tax owed to a taxing authority (e.g. a state) on a purchase of a product that you do not pay through the vendor or supplier. Where the person selling you the product normally collects sales tax and adds that to the price, you will need to report and pay the sales tax liability directly with the taxing authority.
The Primary Issue that Requires a Workaround: The QuickBooks sales tax feature is not designed to track use tax.
The Strategy behind the Workaround: Use tax is a liability and you can track the liability on the Balance Sheet with debits and credits from any posting transaction. Since you are purchasing a product to incur the sales tax liability, the workaround credits/increases the liability on a purchase form. If you use the sales tax feature in QuickBooks you pay sales taxes with a Sales Tax Liability payment - and the workaround allows you to add the use tax on that transaction. If you do not, you use a check or bill and the workaround allows you to decrease the liability on that transaction.
Perform the following steps to track use tax in QuickBooks:
Step 1. Create an Other Current Liability account called "Use Tax." If you collect Use Tax for multiple taxing authorities create a separate sub account for each taxing authority. Tip: If you need to track use tax to specific counties, cities, or localities (e.g. on any level more granular than by state) you can create a single Accounts Payable type account called Use Tax and use a filtered Unpaid Bills Detail report to track the amounts you owe by the taxing authority to whom you may the User Tax.
Step 2. Create a Bill, Check or Credit Card Charge transaction to purchase the product from the vendor. For this example the company is purchasing a $3,000 software application from Joe's Software. Joe's Software does not collect sales tax on the product. Add the use tax into the cost of the product you purchase. The software plus use tax at 8% costs $3,240.00 (As seen in Slide 1 of the slide show linked to this article.)
Step 3. On your next sales tax payment, create a "Sales Tax Adjustment" and adjust the amount of the sales tax up by the amount of use tax you owe. For this example the sales tax adjustment will increase sales tax by $240.00. (See Slide 2.)
Step 4. The use tax now shows in the Pay Sales tax window for the correct taxing authority. (See Slide 3)