Major Update for QuickBooks Online Sales Tax

Written by Charlie Russell

Intuit has released a major update dealing with QuickBooks Online sales tax management, and I think that this will significantly help small businesses improve the accuracy of their sales tax reports as well as save them time.

Any business that sells taxable items in the United States has to deal with sales tax. It is complicated! If you sell items in multiple states, you may have to deal with a wide range of very different sales tax rules and regulations. Even if you sell to just one state, keeping track of multiple overlying sales tax districts can be a horrendous chore. It takes a lot of time to manage this, and it is very easy to make mistakes.

Up to now the sales tax feature in QuickBooks Online has been very simplistic. You have to manually enter your sales tax rates, and keeping them up to date has been a chore. Determining what sales tax to apply in different situations was extremely difficult. Aren’t our accounting systems supposed to improve accuracy and save us time? Sales tax wasn’t an area where QuickBooks Online excelled.

With this new update, QuickBooks Online takes over managing your sales tax calculations, simply and accurately.

With the new system:

  • Sales tax information is created for you automatically, all you have to do is select the tax agencies that you need to work with.
  • The proper rates are applied to your invoices, based on your address, the customer’s address, the type of item being sold, and even the date that the item was sold.
  • Reminders are generated when you need to pay your accrued sales tax to the appropriate agencies.

Note that this feature is only available in the US versions of QuickBooks Online and QuickBooks Online Accountant. Also, it won’t be immediately available to all existing QuickBooks Online users, as I’ll explain in detail below.

Setting Up Sales Tax in QuickBooks Online

Sales tax management is not enabled in QuickBooks Online by default. To enable this, you will go to the Taxes option in the left navigation menu. This was a bit odd to me, as I was initially looking in Account and Settings, where most preferences are found.

Enabling Sales Tax

When you select Taxes, if your QuickBooks Online account has the new feature you will see a setup screen like the following:

QuickBooks Online Sales Tax Update

Note that at this time, if you have already enabled sales tax in the past, even if you never used the feature, you will not be able to use the new sales tax feature. It is only available to new QuickBooks Online users, or existing users that have never enabled sales tax. I’ll discuss the ramifications of this at the end of this article.

Clicking Set up sales tax takes you to this screen, where you enter your current address. If you change what is here it will be stored in your company settings as the Company address.

QuickBooks Online Sales Tax Update

The program will select the appropriate sales tax agency for you automatically, based on this address.

Some businesses are required to collect sales tax in multiple states. You are given that option in the next step. If you aren’t sure about this, you can say No here and then add the other tax agency later.

QuickBooks Online Sales Tax Update

In my case, it already has the California Board of Equalization on the list. All you need to do here is to select the Start of tax period, your filing frequency, and the date that you want to start sales tax calculations.

QuickBooks Online Sales Tax Update

Although Intuit doesn’t tell you at this point, the Start Date is important. In my example I selected January 1 of the current year, even though I’m setting it up in November. This causes some minor hassles because I selected half-yearly for the frequency, so QuickBooks Online will tell me that I have a past due report for July. I really only need to use this feature to file a report for the last half of the year, so I should have picked a start date in this half of the year. Fortunately, it is easy to change the start date later on.

If I am required to collect sales tax in other states I can click the Add agency button. This asks you a few simple questions:

QuickBooks Online Sales Tax Update

In the Agency field you get a very detailed dropdown list. As you can see in the next screen shot, this can be very specific, even getting down to a municipal or county level. You cannot enter your own agency name, you have to select one from this list.

QuickBooks Online Sales Tax Update

Let’s compare this to the old method of setting up an agency. The prior method did not automatically pick an agency based on your company address. In addition, you had to enter the agency name and sales tax rate yourself. If you had a combined rate, you would have to enter each of the components yourself. When tax rates changed, you had to manually update the rates. What’s worse, if the rates changed on a particular date, invoices would not pick the right rate based on the invoice date.

QuickBooks Online Sales Tax Update

With the new system:

  • Agency names are entered for you automatically, so that they are standardized.
  • Tax rates are set up for you automatically.
  • Combined rates are managed for you automatically.
  • Rates are date sensitive, so that the correct rate is applied based on the date of the invoice.

After you have added the agencies you need, you will see the sales tax dashboard.

QuickBooks Online Sales Tax Update

About the author

Charlie Russell

Charlie Russell has been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had an 8-bit microcomputer with one 8 inch floppy disk drive. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise, as well as being a Xero Certified Partner. Charlie started blogging about QuickBooks in 2008 (Practical QuickBooks) and has been writing for the Accountex Report (formerly the Sleeter Report) since 2011. He retired from accounting and QuickBooks activities in early 2018.

Visit his CCRSoftware web site for information about his QuickBooks add-on products. He is also the author of the California Wildflower Hikes blog.


    • Anything is possible, and Enterprise is the desktop product where they are focusing development of NEW features. However, I haven’t heard anything about that, and I would be surprised if they did. Intuit really wants people to move to QBO.

      As I point out in the article, Exactor’s website says that they have an integration of their product with QuickBooks desktop. I have not used it, so the technology should be there. That doesn’t mean that they will roll that into Enterprise, however.

  • Hi Charlie,

    Thanks for sharing your knowledge about QuickBooks online Sales tax updates.
    Sales Tax Dashboard really help me to track the things in proper way.

    Looking forward to new things about QuickBooks.

  • Thanks for the article. One thing I missed is any way to indicate where the item was sold. I have to pay one rate if it is purchased at my address and another rate if I ship it to the customer’s address.

    • The product sees YOUR address as well as the ship-to address for the invoice, and should make the proper determination of sales tax based on both of those information points. As well as the classification of the item you are selling.

  • Hello, I have the desktop version and wanted to transition to the online version. After my QuickBooks advisor Lori came by Monday to set it up, we found that in order for taxes to be calculated automatically, I would have to subscribe to the $24.95 version not the basic one I currently have.
    Do you know if QuickBooks update will effect the tax calculation of the basic version? If so, when?

    • There are multiple versions of the product (three, officially, but there also are some special versions based on it), I don’t see them bringing it to all versions at this point. Although if there is enough user pressure for that, they will listen.

  • Wow, this is very promising news! Thanks for another great write-up. The integration with Avalara both on QBO (and in a somewhat lesser degreed QBD) has been very frustrating. A major reason why this is the case is supposedly Avalara’s difficultly in parsing the address in the format that QBO and QBD present it.

    Hoping a tight integration will prevent those issues. This has been and currently is a huge pain point for me and my clients.

    I can understand the complexities in converting existing files, but I hope that is something that will be available very soon as migrating data from one QBO file to another to get this new functionality would be come at a high cost. Any ideas on that time frame?

    What version levels of QBO subscription will this be included in?

    The QBO Sample Company still shows the old sales tax system. Do you know when that will be updated?

    Would like to give the new system a test drive, how should I do that?

    Thanks, Jeff

    • I’m clarifying with Intuit about which editions of QBO support this system. I had assumed all, but I’m checking.

      It won’t be in the “test company” QBO option, or the sample company. Because, I believe, that was set up using the old sales tax system, so it can’t convert. But I’m making an assumption as to WHY it isn’t. I know that they told me that it wasn’t in those versions yet. Simplest way to test this is to do what I always do – start up a new 30 day trial version.

      I don’t have a timeframe from them for being able to convert files that already used sales tax. I know that this is very high on their list of things to do (I was just talking to the product manager for the feature this morning, at QB Connect, and that came up). In any case, if they told me, I wouldn’t be able to publish that, as things like that are usually covered by an NDA. But, in this case, they haven’t told me.

  • That’s a great news and this will surely help small businesses in enhancing their accuracy of sales tax report. Thanks for the detailed information on this update.

  • Discussing this with Intuit product managers, the updated sales tax feature is offered in the US versions of QuickBooks Online Simple Start, Essentials and Plus. Again, if you have ever enabled sales tax prior to this release, the new version won’t be available to you (at this time). This won’t be in QuickBooks Self Employed, and it isn’t currently available in the cut-down version of QBO that you get for free with the Gmail Invoicing feature I’ve discussed recently.

  • Thanks, Charlie, for your insight on this new feature. It will be interesting how Intuit will migrate the existing clients who are already setup with sales tax. In your article, you don’t mention the ship to address (and no screenshots included one) but you did reference in your comments. So to be clear, QBO is looking at the ship to address to determine the sales tax, not the bill to address. This means a couple of things: the QBO user must populate the ship to address (unless QBO detects when there is none and uses the bill to address instead) and the address must be a valid address. Is there any address validation taking place?

    • Joan, I haven’t worked with this extensively, so I haven’t tested out all the use cases. It is best to have the shipping address in the transaction, and if you don’t then you should see a reminder message at the top that will bring that up. My understanding is that if you have just a billing address, not a shipping address, that it will work with that. If you have neither, then it will work just with YOUR company address.

      “Address validation” can be interpreted in multiple ways. I’m not sure what exactly you are looking for here.


    • Wish I had seen this before I jumped in with both feet. Support staff is just reading their script to me. Sales tax is only being taken out correctly half the time. I caught their mistake by accident. I have 2 customers across the street from each other. Made 2 invoices for the same amount. And noticed that one was lower that the other. Called the State of Texas Comptroller to verify that both should be the higher amount. Quick Books Sales Tax People refuse to talk to me. They make me open up a case ticket and allow them screen shots. Even give them screen shots from the comptroller page. And they say the Comptroller is wrong.. I have used QB for 20 years.. And this is by far the worst version anyone could use.

      • Yes, it has been a problem for my client in Texas…calculates the wrong tax rate. Thinks the address is in the city limits, and it is not. *Every* invoice has to have the sales tax rate manually overridden, and it requires clicking through a few screens.

  • Charlie, any word on what business owners are supposed to do if their county and local taxing jurisdictions are not on the drop down list of agencies? Can they opt to use the traditional QBO sales tax functionality? Is there a process for getting these jurisdictions set up, or are they stuck manually calculating sales taxes on all of their invoices? Not sure why this functionality is being rolled out as the default set-up if it is not yet ready for prime time players.

    • Interesting that you found a jurisdiction not covered. The underlying software should have covered every jurisdiction. I’ve asked about this, if I get an answer I will post it. What specific tax jurisdictions are you not finding?

      • Thanks, Charlie. I called Diamond support this morning and they created a case to escalate. Maybe some states are better fleshed out in the directory than others. The state of Alabama has 67 counties. There are only 13 counties available to choose in the drop-down list. So 54 missing counties, and I’m sure countless missing cities. And this is 2 months post roll-out of this feature. I feel for the small business owners trying to implement QBO and running into this roadblock, with no guidance provided on the screen as to what to do if your taxing agencies aren’t on the table.

        • OK, here are some further thoughts on this, with a little help from the development team at Intuit, as well as my understanding of how sales tax works in SOME states. I will admit that I’m not familiar with the details of Alabama.

          You don’t always add every tax agency. You only have to add those that require a separate filing. In many states your collected sales tax only is reported to the state agency, even though there may be county and city tax agencies. In these cases, you won’t always see every agency listed in the dropdown. However, in those cases, the sales tax should still be calculated properly, based on the ship from and ship to locations.

          I’ve seen this in my own area as an example. I’m in California, and I have a state, county and city sales tax. But I only find California listed in the dropdown, not the county or city. That is because we don’t file a separate return for the city or county.

          You can check how this works. Set your home address as a point where there are multiple jurisdictions. Sell a taxable item to a customer in that same jurisdiction. The sales tax is calculated. Click the “sales tax” link on the invoice, which shows you how the tax is calculated. In my case, even though I have set up just California as a tax agency, the breakdown shows the state, county and city sales tax amounts.

          Now, I can’t say that the calculation will be correct in your situation. If you don’t believe it is, then you have to talk to Intuit. And that leaves open the issue of “what do I do if there is an error”. I don’t have an answer for that. I know how I would deal with it in QB Desktop, but I don’t have a workaround for QB Online.

          • Good evening. You mention you have gotten help from the development team at Intuit. Is there any chance you could help me get in touch with those folks? As background I got on Quickbooks online as they were rolling out the new sales tax system. I was enrolled in the beta test and have had issues since the first minute (end of September).

            Currently, I can not view the tax reports for the prior months for which I have paid tax. There is just no record for them. In December the tax application did not work at all and I had to record tax payments as journal entries. In January Quickbooks applied a $0 payment for South Carolina, when in fact it says I owe $175. I have been told there is no way to fix this for January and was provided no solution. I have spent hours on the phone with Quickbooks and never make any forward progress. I am really in a tough situation here. Any assistance would be appreciated.


          • You should have contacts through whoever worked out the beta test arrangement with you – that would be the way to get into touch with someone. If that doesn’t work, let me know, I will pass on your info, but I can’t make promises that you would get a response.

  • I rarely have sales tax but need to do USE tax payments at times. I used to do through sales tax area and use adjustment to pay use tax. Now if i don’t owe sales tax I can’t generate a payment in the system that I can tell. Should I just use check function any manually Create the check to offset my use tax? Any advice?

    • Use tax in most states is something that you are going to calculate and make a payment to the tax agency. It doesn’t go through the “sales tax” system in QuickBooks, which is based on tax items added to sales transactions. You would just cut a check to the agency.

  • Hey Charlie, I work for a software company that has an in-house API integration built to send customer invoices over to QBO. Previously, we would manually create the Tax Code and Name along with entering in the % in our system. The API wouldn’t actually send the taxable amount over, but would match the code we have in our system to the existing code in QBO and calculate the same amount. Any idea how this would be configured going forward? Our dev team is reaching out directly to theirs but figured I’d ask you in the mean time so see if there’s an interim fix for any new clients also migrating to QBO. Do you think if we set up a new client and created the same codes/names as the new QBO has it would potentially work? Any info is appreciated. Thank you!

    • I can’t really help, as I don’t work with the QuickBooks Online API. And I don’t know how they are dealing with sales tax, with this new update. You have to talk to them.

  • Wish I had seen this before I jumped in with both feet. Support staff is just reading their script to me. Sales tax is only being taken out correctly half the time. I caught their mistake by accident. I have 2 customers across the street from each other. Made 2 invoices for the same amount. And noticed that one was lower than the other. Called the State of Texas Comptroller to verify that both should be the higher amount. Quick Books Sales Tax People refuse to talk to me. They make me open up a case ticket and allow them screen shots. Even give them screen shots from the comptroller page. And they say the Comptroller is wrong.. I have used QB for 20 years.. And this is by far the worst version anyone could use. I’m on my third day this week trying to resolve this. And have now been on hold for a maximum time of 2.5 hours to have them ask if they can call me back. Hell No!!! I’m not going anywhere until I can talk to some one in charge of that department.

    • Good morning Henry. I have been on Quickbooks online for 6 months. I stood up a new company on it and we were enrolled in the new sales tax system from the beginning. We had no option of opting out. Over the months I have called maybe 20 times and had numerous tickets. The issues still persist and Quickbooks makes no progress. The system does not generate the correct sales tax reports. Rather than rounding tax collected, it truncates numbers so the collections never match those required by the state.

      Additionally my company uses SalesPad for our inventory management system and invoicing. These two systems have not integrated well due to the new sales tax module. It is not uncommon for an invoice to have one sales tax amount which we collect from the custom, then Quick books overrides it with another amount.

      If anyone gets any headway with anyone besides an entry level help desk technician and can provide me updates that would be great. I got my ticket upgraded to a supervisor once. And after 2+ hours working with him I was told there was no solution.

      Very frustrating.

      • Integration with other products is going to be an issue. I don’t know what Intuit is recommending to developers – but the system assumes that QBO is going to assign tax, rather than the outside system. Addon developers have to adjust their products to match, which can take time, and may cause other complications. This is something that I was worried about when Intuit first started talking to me about this feature.

    • Good News!!! QB Online finally fixed my Sales Tax Problem. It was adding Sales Tax for my address and not the customer’s address. We do Commercial Installation and repair of Phones and IT equipment including cabling. And in the State of Texas, the tax must be charged at the rate and for the jurisdictions of the customers address for all Labor and Material. If anyone else is having this problem in Texas, here is what I had to do. In Products and Services I had to change the Tax for each item. “Sales tax category” had to be changed to “Repair and Remodeling”. And “What you sell” had to be changed to “Nonresidential real property repair and remodeling”. Hope this helps anyone else with the same problem…

  • You would happen to know a way to undo the update in you have added it and didn’t realize you couldn’t us it if you were already using the old sales tax feature.

  • Charlie – could you email me a copy of the article November 2017 article on QB online Sales Tax?

  • This was not an improvement. As a proadvisor, I’m really disappointed. On a positive note, your proadvisor can request to have you put back on the traditional system. It takes 24 hours. C
    I highly recommend this.