Sometimes you have to collect taxes for some goods and services provided by you. QuickBooks Desktop allows you to keep an exact record of all taxes so that you can easily check and remit them to the correct tax collecting agency.

This article is part of Sales Tax series that covers all the sales tax workflow in QuickBooks.

  • Set up sales tax
  • Collect sales tax
  • Review sales tax reports
  • Pay sales tax

It also helps you complete other sales tax-related tasks.

  • Handle cash basis sales tax
  • Process sales tax adjustment
  • Show multiple sales tax items on an invoice
  • Refund sales tax collected from tax-exempt customers
  • Track sales tax on purchases from vendors
  • If you encounter problems while working on your sales tax, see Resolve common sales tax issues.

If sales tax for a tax-exempt customer were charged accidentally then you can process a refund for them using the following options. You can consult your accountant to know the best options for your business.

Option 1: Credit Sales Tax Charged To A Sales Tax Exempt Customer

  • Create a credit memo.
    • Go to Customers menu and then select Credit Card Memos/Refunds.
    • Provide the required information. The credit memo should match with the original invoice items and quantity that also includes the sales tax amount.
    • Enter the current date and then click on Save & Close.
  • Create a new invoice.
    • Go to Customers > Create Invoices
    • Provide required information and the new invoice must match the actual invoice for the similar items but you have to mark those sales taxes as Non-Table using current date.
  • Choose Receive Payments window to apply the available credit to invoice.

A credit balance will be left for the sale tax amount only that you can apply to a future invoice or refunded via check.

The sale tax liability report displays the taxable sales reduced decreased by the credit memo amount and non-taxable sales increased in the corrected invoice amount.

Option 2: Modify Original Invoice

From the original invoice, you need to modify the item from Taxable to Non-Taxable. Doing this will decrease the sales tax amount. The customer Payment screen will display show an overpayment. You will be able to initiate a refund or create a credit card for this.

Option 3: Create a credit memo

  • Go to Customers menu and then select Credit Card Memos/Refunds.
  • Enter the item and quantity in credit memo that you sold and make Taxable
  • Enter the item again that you sold but this time you are required to provide a negative number for the quantity and make it Non-Taxable.

Option 4: Enter A Sales Tax Adjustment To Zero Out The Sales Tax Due

For this option, you must know your Sales Tax from the point when you begin with tracking Sales Tax properly. To get this, you need to go to the Sales Tax Liability report.

  • From the Vendors menu, go to Sales Tax > Pay Sales Tax
  • Open the Sales Tax window and for Adjustment Date, set the data from when you want to start tracking sales tax.
  • Select appropriate tax agency to which you pay sales tax from the Sales Tax Vendor drop-down.
  • Provide the Adjustment Account but it must be an Expense account because you will have to reduce the sales tax.
  • Reduce Sales Tax By should be selected in the Adjustment Now, provide the Sales Tax amount that to be adjusted. (This is the amount you have from the Sales Tax Liability report)
  • Enter a note regarding the adjustment in the Memo section and then click on OK to finish.
  • Pay sales tax.
    • Go to Vendors > Sales Tax > Pay Sales Tax
    • Choose the appropriate bank account, Check Date, Sales Tax Due Through and Starting Check number.
    • Mark the Sales Tax Due and Sales Tax Adjustment
    • Review your Sales Tax Liability report and sales tax up to that point should now be null.

Contact Us For Support

The provided solutions should allow you to Refund Sales Tax Collected From Tax Exempt Customers easily. However, you may face some technical issues while refunding the sales tax collected from customers. In such scenarios, you can get in touch with us at our toll-free QuickBooks Technical Support Phone Number +1805-900-6410 and get your issues resolved instantly.

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Refund Sales Tax Collected From Tax Exempt Customers

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