and now we will learn a very advanced topic in sales tax maximum sales tax why would we
have a maximum sales tax well in New York clothing has a maximum sales tax as a hundred dollars per
sale the maximum tax on watercraft in Virginia is 2,000 the maximum sales tax paid on motor
vehicles in South Carolina is 300 and the maximum tax on qualifying aircraft and jet engines is 2500
dollars in North Carolina so you can see there are plenty of situations where we have to adjust how
we use QuickBooks for this maximum sales tax our example will be sales tax on clothes in New York
only the first hundred dollars of clothing in one sale is taxable our first example will be
very very simple let's add an on inventory part called clothing item to the items list income
account will be clothing sales and we can make it at the moment that we make the inventory of
the non-inventory part we will leave the price field and description blank because we will put
them in at the moment of the sale from the main menu click list item list in the bottom left
click item new and the new item window opens up this will be a non inventory part because
we probably don't have to count the quantity the name will be clothing item now we will leave price
and description blank of course it's taxable at least when we set it up and then we will add a
new income account quickbooks knows the type of account is income and it will be in come from
clothing sales click Save and close for the income account click OK to save the item and
now we can use the item in our example now let's imagine on march one we sold six t-shirts at $25
each to customer Allen for cash remember only the first hundred dollars is taxable it's very
very simple from the main menu click customers enter sale receipt now we choose customer Allen
and we choose cash as the payment method and we bring the date back to march one now the item
of course is the one that we just created the clothing item we will put quantity of 4 and we
even though we're selling 6 on the first line will put quantity for the description will be
t-shirt and the quantity will be on the first line will be 4 and of course the customer needs
to see the rate of twenty five dollars each click OK and we will leave the first line or the first
four as taxable then on the second line choose the exact same item same description and on the
second line put the two that are not taxable even though they're for the same price now if you leave
this column the way it is the total tax will be twelve dollars but remember the maximum sales
tax you can collect on one sale for clothes is eight dollars eight percent of 100 all you have
to do is take the non-taxable line and change the code to non-taxable now only the four items in the
first line are taxable and that's what gives you your maximum of eight dollars and the same items
but on the second line or any other item that follows down in the receipt will be non-taxable
when we click Save and close you can look at the sales tax report and you can see a for all you
can see that non taxable sales have gone up by fifty dollars if I double click this total you
can see for the item of the t-shirt this was the sale receipt on march one and it's fifty dollars
because that's what we got when we double-click the non taxable when we don't double click the
total taxable sales you can see the same March one invoice to Alan for the t-shirt as only a
hundred dollars of sales being taxable now this second example is a little bit more complex for
pantsuits that forty dollars each means that there is no way to arrange it to become an even
100 dollars but the problem is maximum sales tax on clothing items is for the first hundred dollars
so if we only put two pound suits that's 80 what about the other 20 if we put three pants suits on
the first line that's 120 and if we tax that first line it'll be more than taxing a hundred dollars
these are not priced items that would add evenly up to a hundred dollars so what do you do very
simple split one of the items from the main menu click customers enter sale receipt the customer
was Betty she paid cash and the date was March third now of course we're going to choose the
clothing item that we set up and on the first line look what happens if we're putting the rate at 40
because the customer has to see the appropriate rate if we put two well that's only 80 and then
if we put one on the next line that'll be forty that's not right if we put three that's 120 well
what do you do you can do this 2.5 on the first line making an even hundred then on the second
line the exact same item 1.5 and of course the customer needs to see it's at the same rate and
then only make the second line non-taxable if we leave the whole thing taxable that's one hundred
sixty dollars taxable and twelve dollars and eighty cents in tax but if we make only the second
line non-taxable now it's exactly eight dollars because it's an even 100 now you won't always be
able to do it this way you might have to break it up more sometimes the numbers are hard to figure
out and it's hard to get a decimal number that gets you the even hundred dollars so you could
if you don't want to break it up into decimals you could just say two of these at a hundred then you
could say point five half of one at forty and then make this one taxable and then make the other ones
you know the remaining 1.54 forty dollars and then make this last line non-taxable so by splitting it
up across several lines of course you would have to type in the description and you could copy it
down the line and you'd have to do other what we call workaround for these rare situations that
QuickBooks ah doesn't have a special software or special module for but this idea of splitting one
and making it on different lines and changing the tax or taxable items in the right column is
the proper way to do it we still wind up with the right amount of tax total quantity at the
bottom will be the same you just have to explain to the customer why we had to split it because
only the first hundred dollars is taxable when we click Save and close we can open up the sales tax
liability report push a for all now you can see taxable sales again have gone up but you see it
split twice with the same March third sale receipt it says 80 and 20 twice for the same customer but
it's still a total hundred dollars of increased taxable sales and for non taxable sales in this
column you can double click and see the March 3rd invoice has sixty dollars of non taxable sales