QuickBooks Tips & Tricks: Capped Sales Tax Procedure

How can I handle a capped sales tax amount in QuickBooks? Many states, including Florida, have county sales tax rates that cap at a certain amount and then are not charged on the amounts that exceed the ceiling. For example, Escambia County in Florida does not charge the county surtax of 1.5% on amounts over $5,000.00 included in one sales transaction. If a customer has an invoice totaling $6,000.00 and is subject to the Florida State and Escambia County tax rates, the sales tax rates that apply would be 6% on the full $6,000.00 and 1.5% on the $5,000.00 or $75.00.

QuickBooks does not have a method set up to automatically handle these capped sales tax amounts. There is a simple workaround that is very effective in dealing with this problem. The first step is to create two sales tax items: a Florida Sales Tax with a 6% rate and an Escambia County Capped Sales Tax with a 0% rate. If you do not already have a subtotal item you will need to set that up as well.

To create a subtotal item, open the Item List and right click. Select “New” from the menu options and select “Subtotal” for the item. Type the word “subtotal” in the Item Name/Number and Description areas. Then click on “OK”.

Next, create the customer invoice. At the bottom of the invoice select a Non-Taxable sales tax code. You may have to set this up if you do not have one already. Select the items being sold to the invoice as you normally would. Make sure each individual line with the items being sold is “Taxable”. When all items have been entered, on the next invoice line enter the subtotal item. This will total all the lines above it. In the example below the total is $6,000.00. Under the subtotal, enter the Florida State Sales Tax item with the 6% rate. This will charge the correct state rate on all items sold.

Underneath that line, enter the Florida Capped Sales Tax with a 0% rate. You can then manually type in the capped amount of $75.00. QuickBooks will warn you that you should not change a sales tax rate but that is the purpose of this workaround so you can close the error message.

The invoice will now have the correct sales tax charged and it will flow through automatically to the correct liability account. There is no need for manual calculations on the invoice because the state rate will calculate automatically with the sales tax item used and the capped county surtax amount you already know is $75.00.

This is an example of an issue that it would be worth bringing to Intuit’s attention. Under the “Help” option on the grey menu bar there is an option to “Send Feedback Online”. You can ask for a capped sales tax procedure as a “Product Suggestion”. Intuit does listen to customers and if enough people bring an issue to them they will respond. This is why there are updates/patches during the year that you can download.

Review the samples below and if you have questions, please call any of our QuickBooks ProAdvisors at (850) 435-8300. If you have any other QuickBooks questions or problems we will be happy to help you solve them.

Example of an Invoice with Capped Sales tax amount:

Sales Tax Liability report:

**These tips are based on the 2011 version of QuickBooks.