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How do I create a credit memo for tax only in QuickBooks?

Overview

You've paid an invoice without sales tax, as they are tax exempt. The tax remains on the customer's account and needs to be removed and recovered from a previous filing.

Environment

QuickBooks Desktop

Resolution

  • There is an option in AvaTax for QuickBooks to do a tax only credit.
    • It must be enabled in the configuration first.
    • Go to File > AvaTax > Preferences. On the Tax calculation tab, select Credit memos/ Refunds options.
      • The box next to Tax Adjustment Amount needs to be checked, in order to make it available for use.
      • If you do not see this option, and your user profile in QuickBooks can make changes to the configuration, you will need to enter a credit manually in the Admin Console
  • Once the Tax Adjustment Amount is enabled, create a credit memo and enter a single item, called AVATAX-SalesTaxAdjust
    • Enter the amount of tax to recover and save.
    • Make sure to use the original ship to address
  • An entry is made in AvaTax, crediting sales tax only and distributing it to the original jurisdictions.

 

Note: You cannot enter a tax only credit if you are an SST customer. SST policy doesn't allow a tax only credit. You must edit the original invoice, or credit the entire sale and re-bill correctly, to resolve issues with incorrectly applied tax.