Should I Use Automated Sales Tax in QuickBooks Online or ConnectWise?

Setting up your sales tax right the first time will save you hours of pain

Managing sales tax is a necessary evil for IT service providers. Furthermore, when using the combination of ConnectWise with QuickBooks Online (QBO), you’ll need to understand how the two platforms calculate sales tax, which is crucial for compliance and financial accuracy. Each platform offers a distinct approach to sales tax management, impacting your workflow and financial operations differently.

Understand that sales tax is a fluid system with thousands of potential agencies

Government authorities impose a consumption tax, known as a sales tax, on the sale of goods. Businesses collect customer sales tax and remit it to the appropriate tax authority as required.

This definition is extremely simplistic.

With over 13,000 sales tax jurisdictions in the United States including cities, counties, and states, sales tax laws are a labyrinth of laws to navigate.  However, these principles will help you think through how tax laws apply:

• Destination-Based Sales Tax: The buyer’s location dictates the sales tax, and sellers must collect tax at the rate applicable in the buyer’s locality if they have a nexus there.
• Nexus is a legal term that denotes the sufficient physical presence of a business in a state, nexus requires the business to comply with local sales tax laws.
• If a business establishes a nexus in a state, it must collect applicable sales tax from customers in that state. Without nexus, the business generally does not need to collect sales tax, and the responsibility shifts to the consumer in the form of use tax.

Sales Tax Management in ConnectWise

ConnectWise allows users to manually apply sales tax rates to products or mark certain clients as tax-exempt. This manual method of applying dozens if not hundreds of taxes manually is cumbersome, to say the least.  This method almost certainly leads to inaccuracies, such as applying the incorrect tax rate or taxing products unnecessarily as it is virtually impossible to know the local sales tax laws of a destination-based sales tax when you ship an item to a customer.

In addition, most people are thinking about barbecue and not taxes when the tax code is updated in the middle of summer commonly missing the updated rates from the state.  The threat of a sales tax audit is a reality for business owners and mistakes can lead to penalties and interest.

Automated Sales Tax (AST) in QuickBooks Online

Intuit attempts to outsmart the system with QuickBooks Online (QBO).  QBO streamlines sales tax management through an automated system that adjusts rates based on the delivery address, ensuring adherence to up-to-date tax regulations.

Furthermore, QBO automatically calculates the appropriate tax rate by considering variables such as the customer’s location and the product classification, so you can get back to your barbecue.  It can manage intricate tax scenarios, ensuring regulatory compliance while you go about the other thousand tasks you do each day, compensating for your underinvestment in studying local government sales tax rates.

You can learn more about QuickBooks Automated Sales Tax here.

You are going to experience differences in sales tax calculations when syncing ConnectWise and QBO

The challenge arises when the manual approach in ConnectWise is merged with the AST in QBO.  Discrepancies will arise when integrating ConnectWise with QuickBooks Online, particularly when invoices from ConnectWise are replicated in QuickBooks, due to their different methods of calculating sales tax.

Wise-Sync offers settings that allow users to override QuickBooks’ automatic tax calculations with those set in ConnectWise, minimizing discrepancies. While it may be tempting to simply override the AST invoice in QBO, this is not the best practice.

The accuracy of sales tax calculations in QBO heavily relies on precise shipping addresses from ConnectWise, necessitating careful synchronization between the two systems. Wise-Sync allows users to set warnings or halt transactions when discrepancies occur. As a result, this feature enables users to adjust tax amounts to ensure accuracy manually. Furthermore, by providing these controls, Wise-Sync helps businesses maintain compliance and prevent errors during transactions.

Know the differences between the two systems when filing your sales tax

Managing sales tax through ConnectWise or QuickBooks Online is less “or” and more “and”. While QBO uses AST and ConnectWise does not, any discrepancies should be thoroughly researched. Therefore, the best practice is to first review the sales tax sync discrepancies then assess the AST calculation in QBO for accuracy. Afterward, update ConnectWise and revise the invoice as needed.  This will prevent you from missing tax changes as they happen.  Know that it will take some management to get and keep it correct.

If you do not want to manage this, you can always outsource it.

Third-party sales tax providers connect to your instance of ConnectWise to ensure you always collect and remit the correct amount of taxes to the right agencies.  This becomes a good option as you continue expanding into new states and localities and the human resources and administration requirements increase.

If you want to discuss sales tax or managing ConnectWise and QuickBooks Online integrations we are happy to talk.