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Working With Taxable & Non-taxable Items and Customers

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Working with taxable and non-taxable items and customers in QuickBooks sometimes just freaks people out and causes them to over think the entire situation.  I’m frequently asked how to do this by people who are setting up our AIA billing program – here’s a question that I received recently.

I am getting ready to set the AIA billing program {Construction Application for Payment Solution} up tomorrow and just have a few questions.

Should the income items each be posted to an income general ledger account?  Or will I use the subtotal line to point to an income account?  If I have to post each income item to an income account – I will have to do 2 sets of them, one for wholesale (no tax) and one for retail (taxable) and I would like to avoid this if possible.   I guess though we will have to post them to an income account…..thoughts?

Should we use the group items to setup our labor and materials for the schedule of values? For example, when we bill the customer- we only want DEMOLITION to show up, but for our purposes we have the DEMOLITION broken into labor and material. It seems like this would be a good place to use group items?

Each of your QuickBooks Items/Cost Codes should be set up and linked to BOTH and Income and an Expense/Cost of Goods Sold Account otherwise you’ll never get any decent job costing reports.

Subtotal Items do not link to either an Income or an Expense Account – they simply add up the numbers above it and display the amount on the Estimate and Progress Invoices that you create.

Unless you want to track Wholesale and Retail Income individually on your Profit & Loss Report, there is no need to create two sets of Items.  QuickBooks can handle both taxable and non-taxable customers and sales using the same item list.  You’ll just want to make sure that you have two Sales Tax Items – one that actually charges the Sales Tax Rate and one that has a 0% rate for Non-taxable sales.

Below is a YouTube video that demonstrates the procedure and shows you what your Sales Tax Liability Report will look like if you do it correctly.

YouTube Preview Image

As for using group items to track labor and materials for a specific cost code, there are a couple of different options that you could use, depending upon the amount of detail that you want to track.  But group items are definitely the way to go if you want to job cost more information than you want the customer to see.

I hope you’ve found this article to be informative, if so please take a moment to leave a comment or share it with others on your favorite social media network using the buttons below.


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About Your Host:

Nancy Smyth, Certified QuickBooks ProAdvisor

Nancy Smyth, Sunburst Software Solutions, Inc.
QuickBooks Construction & Payroll Expert

I've been using and supporting QuickBooks products since the early 1990's. I've worked with thousands of contractors, assisting them with QuickBooks setup, Certified Payroll Reporting requirements, AIA Billing and Weighted-Average Overtime.

QuickBooks is a powerful product, but learning how to use it in your construction business can be difficult. I hope you find resources available here to be helpful.

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