How to Refund Sales Tax in QuickBooks Online
Amazon will sometimes refund sales tax for customers. When this transaction happens and you’ve already created the proper QuickBooks Online sales document, then you’ll need to create an additional refund document.
But it’s not as simple as creating a refund for the amount Amazon refunded. Simply doing so will mean that your Undeposited Funds account will be correct, but your sales tax liability account will still carry the tax amount collected.
If you use QuickBooks Online’s calculations, then you’ll end up sending your own money to the state.
To properly refund sales tax, you’ll have to make sure you go through the right process.
We’ll go over how to refund sales tax in this article so that your accounts will all reconcile properly.
Let’s take a look at a sample Amazon invoice.
Some important points to note for this invoice: if necessary, you would have overwritten the sales tax QuickBooks Online automatically calculated with the sales tax that Amazon actually collected.
You’ll need the customer shipping address in order for QuickBooks to properly adjust the sales tax liability account. While this sample invoice is for California, it can easily be for any state that requires Amazon to collect sales tax.
When sales tax is collected, QuickBooks Online will properly adjust the sales tax liability accounts. You can see the adjustment for this invoice in the image below for the California Sales Tax liability account.
Here’s where many sellers make a common mistake: they’ll simply create a refund for $9.50 and consider the transaction recorded. But just a simple refund from your Undeposited Funds account is incorrect since the sales tax liability would still remain.
Add customer information in the Billing Address field. This is important because QuickBooks Online uses this address to determine which sales tax liability account to adjust.
Select your Undeposited Funds account if you’re refunding sales tax that you collect and remit or the Marketplace Facilitator Tax account if you’re refunding sales tax that Amazon collects and remits on your behalf.
To refund sales tax properly, you’ll have to do the following: add the product and the original taxable sales price as your first line item. Make sure that the Tax column is checked.
Add a second line item with the same product. The quantity here should be negative and match the quantity in the first line item. The Amount should be negative for the same sales price as the first line item. Make sure the second line item has the tax unchecked.
The net change here should be zero for quantity and Subtotal. This is very important since any other number will affect other accounts.
If you’ve had to overwrite the sales tax value on the original invoice, then you may need to do the same for this refund. Make sure you refund the same amount Amazon refunded the customer.
See below for an example.
Notice that the refund is only for sales tax. The net zero change in quantity and price means your inventory accounts don’t change.
Once you’ve refund sales tax using this method, QuickBooks Online will properly adjust the sales tax liability accounts.
See below for a screenshot of the original invoice and the refund.
If you don’t refund sales tax properly in QuickBooks Online, then you may end up paying more than you should.
Proper bookkeeping and accounting in QuickBooks Online takes persistence and patience to master.
But it’s worthwhile to learn because having accurate books can give you insight into your business and minimize financial mistakes and surprises.