Thoughts on Avatax With QBO
I have been using Avalara’s Avatax connected to QB Online for a few years now for one client. We track and remit sales tax in just one state. There are some things I like about Avatax, and some things I am not crazy about. Here's my take on my use of the proudct and how I do sales tax work.
What I Like About Avatax
Avatax will calculate the sales tax on each Invoice and Sales Receipt automatically and we don’t have to set up in QuickBooks the sales tax rate for every city in the state where products are sold. This is huge, as our state alone has well over 100 sales tax jurisdictions.
What I’m Not Crazy About in Avatax
When configuring Avatax and QBO, we have to mark ALL Products & Services as “Taxable” in QuickBooks, then in the Avalara dashboard you mark as exceptions those items which are not taxable. As a result, you cannot run an accurate Sales Tax Liability report in QuickBooks.
Normally this report would show Taxable Sales, Non Taxable Sales, and Total Sales, but since we have marked every item as Taxable, the report shows 100 percent of sales as taxable. This makes it difficult to verify the accuracy of the Avatax sales tax figure. Since I don’t want to just blindly trust that the Avalara figure is accurate, I’m going to go through a few steps to compare the Avalara sales tax total to QuickBooks.
How to Verify Avatax Sales Tax Reports
Here is my verification process:
Step 1: Run a P&L in QBO for the period in question; in my state, the report should be set to Accrual Basis.
Step 2: Run a Sales by Customer report, Accrual Basis, for the same period. The P&L Total Income on Report 1 will not match the Total Sales by Customer on Report 2. The difference should be the sales tax collected; let’s verify this.
Step 3: Run a Sales by Product/Service report for the period in QBO, Accrual Basis. This report is called Sales by Item in QB Desktop. The Total in this report will match the total in Report 2, but it will not match Total Income in Report 1. Again, the difference should be the Sales Tax collected. Verify this by taking the Sales Tax total in Report 3 (the Sales by Item report) and subtracting the sales tax collected (which you can clearly see in this report) from the Report 3 total. Your revised Report 3 total should now match the P&L Total Income. Wonderful!
Step 4: Run a Liability Worksheet for the same period in Avalara. This report will have a column called “Amount Due.” This amount should match the sales tax figure from Report 3, the Sales by Item report. Sometimes the figures don’t match to the penny, but I find the difference, if any, is usually less than one dollar. You have now verified that the QB sales tax figure matches the Avalara sales tax figure, and you can file the Avalara sales tax with confidence, and enter the sales tax payment in QuickBooks.
What to Do if Sales Tax Figures Don’t Match?
This happened to me three times this year. I want to determine why, so I click on the Avalara option to view the detail for the period, exported to a .csv file. In QuickBooks I return to my handy Sales by Item report. Now I can compare side-by-side each sales tax transaction, and tick and tie the reports to each other. This is tedious, but necessary work.
Here’s what I found: 3 times the reports did not match, QuickBooks had more sales tax reported than Avalara reported. I contacted Avalara Support each time, and in the most recent situation, I was informed that the transaction appearing in QB but missing from Avalara was marked as “Status: Temporary” and only transactions marked as “Status: Committed” will appear on the Avalara Sales Tax Liability Worksheet.
The support rep had no explanation for why this particular transaction was not “Committed,” but he escalated the issue to an engineer, and by the next day when I re-ran Steps 1-4 above, I got the matching results I was expecting.
I do not recommend accepting a sales tax figure from Avatax without some kind of cross reference/cross check with QuickBooks. The process for validating the data takes less than 15 minutes, provided a call to Avalara Support is not needed. Since I had problems with mis-matches three times this year, you can be sure I run these steps every month, and I recommend you implement a similar process in your practice as well.
Editor's Note: The above review is the viewpoint and experiences of the author and do not necessarily reflect those of AccountingWEB, its parent Sift Media or any of its valued affiliates.
Jody Linick is an AIPB Certified Bookkeeper, a QuickBooks® Certified Pro Advisor, and a member of the Intuit Trainer/Writer network. Her company, FitBooks Pro (formerly called Linick Consulting), specializes in remote bookkeeping services for professional services firms using QuickBooks Online. You can find her series of Blog posts here.
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Jody Linick, an AIPB Certified Bookkeeper, QuickBooks Certified Pro Advisor and member of the Intuit Trainer/Write Network, heads up FitBooksPro which specializes in helping professional services providers set business goals, and using the tools available in QuickBooks Online, to manage...