Tracking State Use Tax in QuickBooks

If your state charges a Use Tax for goods purchased online from an out-of-state vendor which does not charge you State Sales Tax, you can use QuickBooks to keep track of how much Use Tax you owe your State Treasurer.

Scenario: You buy office supplies from an online vendor for $200. The vendor does not charge you sales tax. You know you will owe a Use Tax to your State on this item. Here is how to track the Use Tax you will owe.

Use Tax Rate: 5.5%

Expense Account: Office Supplies

Liability Account: Use Tax Payable

  1. Enter your purchase in QuickBooks as you usually do whether you enter a Bill or write a Check for the purchase. In the line item area on the Bill or Check, enter your purchase and charge the total of $200 to the Office Supplies expense account.
  2. On the next line, enter your Use Tax of $11 ($200 x 5.5% = $11) and charge to the Office Supplies expense account.
  3. On the third line, enter Use Tax payable of -$11 (that’s a negative $11) and charge to the Use Tax Payable liability account.

The total on the Bill or check should be $200.

Include Use Tax on Check for office supplies in QuickBooks

Include Use Tax on Check for office supplies in QuickBooks

Here are the accounts and how they are affected:

Office Supplies expense account increased by $211.

Use Tax Payable account increased by $11.

Bank account decreased by $200.

If this were a Journal Entry, you would:

Account Debit Credit Memo
Office Supplies (Expense) $200   Purchased office supplies
Office Supplies (Expense $ 11   Use Tax on purchase
Bank Account   $200 Payment for office supplies
Use Tax Payable   $ 11 Use Tax due on purchase

 

Note: QuickBooks will not track this as part of the Sales Tax Payable liability account. It is up to you to keep track of this Use Tax Payable. If you pay your Sales Tax and Use Tax with one check to the same agency, in QuickBooks you can add the Use Tax due to the Sales Tax payable with a Sales Tax Adjustment.

Go to Vendors / Sales Tax / Adjust Sales Tax Due. When the window opens, choose sales tax agency as the Vendor and the Use Tax Payable as the account. Check “Increase Sales Tax By” and enter the full amount due for the Use Tax in Amount. Click okay. When you make this adjustment, your Sales Tax Payable will increase by the amount of the Use Tax payable to your Tax Agency (It adds it as a second line). It will decrease your Use Tax Payable liability account.

Make a sales tax adjustment to add Use Tax Payable to Sales Tax Payable in QuickBooks

Make a sales tax adjustment to add Use Tax Payable to Sales Tax Payable in QuickBooks

Go to Vendors / Sales Tax / Pay Sales Tax. You should see the Use Tax amount as a line item. Click Pay All Tax to pay all Sales and Use Tax payable.

Pay Use Tax with Sales Tax in QuickBooks Pro

Pay Use Tax with Sales Tax in QuickBooks Pro

Go to the Chart of Accounts and run a Quick Report on Use Tax Payable to see how the account was affected by the above.

Go to the Chart of Accounts and run a Quick Report on Office Supplies expense account to see how this account was affected by the above.

Written by Julie M. Watkins. Copyright 2019. All Rights Reserved. Please Contact Me with any questions you may have.

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