Setting Up and Troubleshooting Sales Tax

Sales tax is managed through QuickBooks. This guide will walk through how to make sure your sales tax is set up correctly, and contains troubleshooting steps if you’re running into any issues.

Just Getting Started Setting Up Sales Tax?

Check out the video below for an overview of the Sales Tax setup!

In QuickBooks, Navigate to Taxes > Sales Tax > Sales tax settings .

" Default sales tax " needs to be set, and both "Mark all new customers taxable" and "Mark all new products and services taxable" needs to be checked.

Checking Who is Taxed

Once that is done, you can run the Taxable Customer Report in QuickBooks from the Taxes > Sales Tax page see below.

Any customer that is not marked taxable with a sales tax rate needs to be edited to reflect the correct sales tax setting.

Scopes of Work Impact Sales Tax

QBO will always be the one to actually apply the Sales Tax. As of July 31st, 2025, sales tax will be determined by the QuickBooks Item each Scope of Work and Rate Mod is set to.

QuickBooks Item field pulls your products and services from your QuickBooks account and helps you categorize line items from your invoices in QBO. Rate mods do not need to be set to a specific QuickBooks Item unless they need to be tracked under a different product/service or are under a different tax rate than the scope of work. By default, they will follow the tax setting for the product/service selected under the scope of work.

Go to Company > Other > Quoting and Scopes > Scopes of Work or Rate Mod tabs. Once inside the rate mod or scope of work, verify that the QuickBooks Item is the correct product/service from your QuickBooks account (see below).

Make sure to also do this for inactive scopes, just in case they are still being used by current customers. By default, only active scopes of work will appear. To show inactive scopes as well, go to the Scopes of Work tab, click on the arrows on the top right of the page, and select Show Inactive. Then you can go into the scope of work and set a QuickBooks Item. There should be a green check mark under the Taxed column if the product/service is taxable.

In your QuickBooks account, you will also want to verify that these products/services have the appropriate tax setting. Go to Sales > Product and Services > Edit > Sales Tax Category and make sure the item is either set to taxed or not taxed.

Incorrect or No Sales Tax on Invoices

If you’re noticing that no sales tax or the wrong sales tax is being applied to invoices, there are a few places to check.

Canadian Partners (GST/HST)

If everything mentioned above is correct, and no recent changes have been made to your QBO account, then you can try enabling the QuickBooks Tax Calculation (QBO Recommended) feature by going to Company > Settings > General > Features to help reinforce your sales tax settings. Once that is turned on, try invoicing a couple of jobs first to make sure the tax is applied correctly. Then you can invoice the rest. Please read this guide before enabling this feature.

Is the customer tax exempt?

If no taxes are applied to invoices for only a specific customer, you’ll want to make sure that they are not tax exempt in QBO. Here’s how to check. Once you make them taxable, then you can check the next invoice if tax is applied.

Are the Shipping Addresses correct?

QuickBooks uses the Ship From Address on invoices to determine Sales Tax. This is a hidden field that can only be viewed on invoices inside of QBO, not in MC.  Depending on how your state calculates sales tax, you may need the Ship From address to populate with the customer’s address.

You can enable the QuickBooks Tax at Service Address (US) feature to force the Ship From Address on your invoices to populate with the customer’s address and calculate the correct sales tax. This feature is under Company > Settings > General > Features. This feature will require the QuickBooks Tax at Service Address (US) feature to be turned on as well. Please read this guide before enabling this feature.