Now that you have filed for use tax amnesty and are all set up with an account, how are you going to track it daily going forward? If you use QuickBooks, the answer is as simple as 1-2-3.
- Set up a new “Other Current Liability” account called “Use Tax Payable.”
- As you enter your bills, determine if you paid sales tax on the bill. If so, record it as usual. If not, determine if you should have paid sales tax on the transaction. If so, you owe use tax. To record use tax at the time of bill entry, enter the top portion of the bill as usual. On the “Expense” tab, record the customary expense account for the expenditure, but enter the amount of the bill amount plus the use tax amount. Then add a second line to the Expense tab and use the account “Use Tax Payable.” The amount will be for the use tax, but entered as a negative. That way, your total on the expense tab still equals the total of the bill above.
- When it comes time to file your use tax return, run a “Balance Sheet.” The Balance Sheet will show the total amount due in the “Use Tax Payable” account. If you double click on that total and change your dates to the reporting period, you can see every bill that you determined was subject to use tax, the vendor, invoice date and amount of tax due. To file your return, you will simply divide the Use Tax Payable by the tax rate and you will have the total purchases amount.
If you owe use tax for a few separate counties or states, you can set up and use multiple Use Tax Payable accounts in your chart of accounts. If you have several and don’t want all of the extra accounts to show separately on your balance sheet, you have the option to set up separate items to use for each county and state that all track to one Use Tax Payable account.
To set up an item to track use tax, go to your Item list, and at the bottom right, click “Item,” then “New Item.” The type will be “Other Charge. ” The “Item Name/Number” will be the county or state and use tax (example: Holmes Use Tax). The description will be a repeat of the name, but you may also like a reminder to enter it as a negative “Holmes County Use Tax (enter as a negative).” The default amount will be zero and the tax code will be Non. The Account will be “Use Tax Payable.” When using the item on your bill, you will follow step two above, however instead of a second line on the expense tab, you will click over to the Items tab and choose your “County Use Tax” item. Enter a quantity of 1 and the rate will be your use tax amount on the purchase, entered as a negative. That way, the total of the expense and items tab will still equal the amount of your bill at the top.
When you need to file use tax, run the balance sheet, double click on the total “Use Tax Payable,” and change the dates to the reporting period. Click “Expand” at the top of the report, then on the “Total By” drop down, and choose “Item Detail.” You will have a total for each taxing district and can proceed with your filing.
Remember, use tax is a tax that should have been paid, but wasn’t, on taxable property or services your business purchased. If you’re not filing Ohio use tax, it could be just a matter of time before the State of Ohio finds you – and past due taxes, penalties and interest could be very expensive. Since Ohio is offering a use tax amnesty program, now is a great time to become current on your use tax liability. Be sure to talk to your tax professional if you believe you may owe use tax.
Filing use tax can be an easy process using QuickBooks. The key is setting up the proper accounts early and taking advantage of them during filing periods. If you have questions about setting up or managing your QuickBooks files, please contact your QuickBooks Pro advisor.