There are four three different scenarios of how sales tax is handled by LeanLaw. The four different scenarios are dictated by how your QuickBooks account is configured for sales tax:
- Sales tax is turned off in QuickBooks
- QuickBooks with Automated Sales Tax (US only)
- QuickBooks with sales tax enabled but not Automated Sales Tax
Sales Tax Turned Off
If sales tax is turned off in QuickBooks, you cannot add sales tax to invoices. In LeanLaw you will this in Settings > QuickBooks:
To enable sales tax, you will have to first enable it in QuickBooks. Go to QuickBooks and to the "Taxes" section. Make sure you check with your accountant first. Once enabled, you will be in one of the following two sections.
QuickBooks with Automated Sales Tax (US only)
If your QuickBooks account has Automated Sales Tax (AST) enabled, you will see this in LeanLaw > Settings > QuickBooks:
When AST is enabled, taxes are added automatically to the invoices you create through LeanLaw. One thing to note is that you won't see the tax until the invoices goes to QuickBooks, so draft invoices won't show any tax on them.
Tax is applied based on a combination of "Product/Service" and settings for the Client in QuickBooks. To make services taxable, go to the Product/Service in QuickBooks and enable "Is Taxable". Also make sure the client is set up to be "Taxable". The right tax code is then automatically assigned to the invoice.
QuickBooks with sales tax enabled but not Automated Sales Tax
If you have sales tax enabled in QuickBooks, but you do not have Automated Sales Tax (which only applied to some US accounts), then you will see a "Default Tax Code" option in LeanLaw > Settings > QuickBooks:
You have to pick a default tax code in order for sales tax to be applied to invoices. If you don't pick a default tax code, LeanLaw will not apply any tax.
Once a default tax code is applied, LeanLaw will use the following approach to assign sales tax to the invoice:
- If the client is marked "Is Taxable", tax will be applied to the invoice
- For each line item, if the "Product/Service" for that line item is marked "Is Taxable", tax will be applied to that line item (typically tax is applied to services, not to expenses)
- The tax code applied will be the one supplied for the client, or for the product/service, or if non are specified it will be the default tax code
Only the default tax code is found in LeanLaw, the remaining settings ("Is taxable" etc) are found in QuickBooks and cannot be set from LeanLaw.
Note that there are some subtle differences with US and non-US QuickBooks versions that we won't get into here. The main takeaway is that tax is determined from a combination of settings for the client (in QuickBooks) and for the product/service assigned to each line item (also in QuickBooks).