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Talking Sales Tax and Use Tax

Updated: Feb 21

I can get any one started in using the QuickBooks Online sales tax module, using correct set up and operation as the module currently functions, but you have to admit the sales tax functioning in QBO could use some programming work #intuit #engineers


Talking Sales Tax and Use Tax:

Nexus tracking from products and services sale tax set up doesn't make sense and is too rigid.  QBO programmers should connect the products taxability, per transaction.  The search function was a good idea for product taxability but it should be a feature of the See the Math, not the products and services section. THANK YOU #INTUIT YOU DID IT! I SEE THE PRODUCTS ARE DEFINED IN SEE THE MATH!


Tax situs refers to the place or jurisdiction that has a strong connection with assets that are being taxed. This means that the state or country where the assets are located or where they were earned may have the right to tax them. Where the situs of something is depends on the type of item and can have important legal consequences. For most physical items the situs is the place where the object is located at the time of sale. (origin ship from).


In addition, if you could enter all US and Foreign Zip Codes to the Nexus tracking feature with the ability to track by zip code in the Sales Tax Module, rather than just "State", that would be more appropriate to track sales by zip codes (since most states are zip code based) both foreign and domestic.  The ship from address would then be used as guide to product location (with number of transactions per zip code to separate destination and origin based states) for Nexus tracking. A report by zip code for dollar amounts, then could be used to calculate the total liability per zip code and by number of transactions.   


The seller should collect the tax for the state zip code where the product is shipped from, to the buyer in a destination based state and sales tax would be collected based on the rate of the seller in an origin based state, with consideration for product location and jurisdictional taxation. If the module is set up to track zip codes and Nexus thresholds are met, the seller will be able to instantly run a report to determine if they should register for a State (or zip code) Sales Tax License.  


Consider these scenarios:

  • If the seller ships items into a state where it doesn’t have nexus, no tax should be charged by the seller, unless the seller and product is in an origin based state.

  • If the seller is NOT registered in a state where the product location is (drop shipping) they will not collect sales tax.  However, in this case, the buyer has the obligation to remit use tax to the state where it uses and consumes the items.

  • If the seller is located in an origin based state and the product is also shipped from their state, sales tax would be charged at the rate of the sellers state.

  • If the seller is in an origin based state, (drop shipping) a product from another location where they DO have nexus, sales tax should be charged at the rate of the products location.

  • If the seller is shipping to a buyer in a destination based state and has nexus in that buyers jurisdiction, sales tax should be charged at the rate where the buyer is located.

  • If the seller does not have nexus, no sales tax should be charged and the buyer is responsible for paying use tax.

  • If the seller is in a destination based state shipping to an origin based state, sales tax would be charged at the states origin based, rate of the buyer.

To determine Nexus consider, in order:

1.) Product Location and Type (Location: product origin on a sales receipt or invoice)

2.) Sellers location (Header address on a Sales Receipt or Invoice)

3.) Buyers location and potential exemptions (ship to address/customer specific)


Suggestion to sellers: Obtain a legal determination letter.

a) Sign up business owners for emails from their State Sales Tax Department of Revenue and/or The Tax Foundation

b) Use a Disclaimer on Invoices you are not collecting sales tax on, confirming to the buyer that they understand they will owe use tax in their state, or the appropriate state of situs. Below is an example of an invoice, where nexus at the buyers location has been met and product is shipped from an origin based state. Sales tax is charged at the rate of the buyers location where the nexus occured. Shipping from Arizona to California


Below is an example of an invoice, where nexus at the buyers location has been NOT been met and product is shipped from an origin based state. Sales tax is charged at the rate of the sellers location.

No sales tax should be charged by the seller. Use tax paid by buyer

Shipping from Arizona to California



Below is an example of an invoice, where nexus at the buyers location has been met and product is shipped from a destination based state. Sales tax is charged at the rate of the buyers location where the nexus occured.

Shipping from Colorado to California




Below is an example of an invoice, where nexus at the buyers location has NOT been met and product is shipped from a destination based state. Sales tax is charged at the rate of the buyers location.

No sales tax should be charged by the seller. Use tax paid by buyer

Shipping from Colorado to California


Contact BookkeepingBusinessOnline.com for assistance with your sales tax setup!


Talking Sales Tax and Use Tax
Talking Sales Tax and Use Tax

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