Global
United States
United Kingdom
Canada
Australia
India
United Arab Emirates
Saudi Arabia
Oman
Mexico
Germany

Taxes

Zoho Books makes it easy to manage taxes and stay compliant with the U.S. tax regulations. You can add tax authorities, set up sales and use taxes, manage tax exemptions and overrides, and create tax groups to handle federal, state, and local tax rules.

IN THIS PAGE…

Enable Sales Tax

If you didn’t enable Sales Tax for your organization while setting it up, you can enable it from Settings. To enable sales tax:

Note: If you have set up a Recurring Invoice profile or have connected your account to Stripe, you’ll need to provide a default Exemption Reason and Tax Authority.

Insight: To simplify managing sales tax rates, consider integrating with Avalara. Refer to our help document to know more about Avalara Integration.

Tax Rates

You can create tax rates or tax groups and assign them to customers and vendors in your organization. Once assigned, the tax rate you set for the customer or vendor will automatically apply to the transaction when you select them.

Create a New Tax Rate

To create a new tax rate:

Now, once you create the tax rate, you can associate it with a customer, vendor, or item in your organization, and it will be automatically applied to transactions you create for that customer or vendor.

Create a New Tax Group

You can create a tax group in Zoho Books by combining two or more tax rates. This allows you to associate the group with customers or vendors eligible for multiple taxes. For example, in the U.S., customers may be subject to federal, state, and local taxes when purchasing taxable goods or services. To create a new tax group:

Now, once you create a new tax group, you can assign it to customers and vendors who are eligible for multiple tax rates based on factors like their location or the type of transactions they engage in. These customers and vendors will automatically receive the applicable combined tax rates from the group.

Associate Taxes with Customers and Vendors

Once you create tax rates or tax groups, you can associate them with a customer or vendor to use them in transactions. Here’s how:

Now that you’ve associated the tax rate with the customer or vendor, it will automatically populate in any transaction you create for them.

Other Actions in Tax Rates

Edit a Tax Rate

Note: If the tax you’re editing has already been applied to existing transactions, you will be asked to confirm whether you want to update the new tax rate in those transactions as well.

View the Associated Records of a Tax Rate

To view all the transactions associated with a tax rate:

Now, in the right pane that appears, you can view the transactions where you’ve applied the tax rates. You can select the transactions and navigate to the respective transaction module in Zoho Books.

Import Taxes

If you already have taxes set up for your business, you can import them directly into Zoho Books as tax rates or tax groups. Here’s how:

Now, once you import the taxes into Zoho Books as tax rates or tax groups, you can associate them with your customers or vendors and apply them to transactions.

Pro Tip: You can download and use the sample file as a reference for the format, and if needed, fill it in the data you want to import.

Export Taxes

You can export the tax rates or tax groups used in your transactions. Here’s how:

Mark a Tax Rate as Inactive

Prerequisite: You cannot mark a tax rate as inactive if it has been associated with any transactions. To mark the tax rate as inactive, you must first disassociate it from all transactions.

To mark a tax rate as inactive:

Now, the tax rate will be marked as inactive and can no longer be used in transactions.

Note: To mark the tax rate as active, follow the steps above and click Mark as Active.

Delete a Tax Rate

Prerequisite: You cannot delete a tax rate if it is linked to any transactions in Zoho Books. To delete it, you must first disassociate it from all transactions.

To delete a tax rate:

Delete Tax Rates in Bulk

Prerequisite: You cannot delete tax rates if they are linked to any transactions in Zoho Books. To delete these tax rates, you must first disassociate them from all transactions.

Tax Exemptions

Tax exemptions apply when customers are not required to pay sales tax due to the nature of the item or their status, such as for resale, nonprofit organizations, or specific goods. These exemptions usually vary by state, and some counties or cities may have their own rules. To create a tax exemption:

Now that you’ve created the tax exemption, you can associate it with a customer or apply it to transactions for items.

Tax Authority

A tax authority is a government agency that enforces tax laws and collects taxes from people and businesses in its area. In Zoho Books, associating a tax authority with a specific tax rate helps you track and apply the correct taxes while creating transactions for customers and vendors. To create a new tax authority:

Now, after creating the tax authority, you can add it to a new tax rate when setting it up in Zoho Books.

Tax Settings

This page lets you enable use tax and set up tax overrides for transactions. You can easily modify these settings here.

Use Tax

Use tax is a tax on goods purchased outside of your state but used within it. If you buy items from out-of-state sellers who don’t charge sales tax, you’re responsible for paying use tax directly to your state. This ensures that purchases made online or in other states are taxed similarly to local purchases, helping protect state revenue. The tax rate is usually the same as the sales tax rate in your state.

Scenario: Alex lives in Texas, where the sales tax rate is 8%. He buys a $400 bicycle from a shop in another state while on a trip. Since the store doesn’t charge Texas sales tax, Alex must pay $32 in use tax when he brings the bike back to Texas. This makes the total cost $432, the same as if he had bought it locally with sales tax.

Enable Use Tax

To enable Use Tax in Zoho Books:

Now, with this option enabled, you can track and apply use tax in purchase transactions.

Apply Use Tax to Purchase Transactions

Insights:

  • Once use tax is enabled, all transactions with use tax will appear in the Use Tax column of the Sales Tax Liability Report.
  • Taxes from purchase transactions recorded as use tax will be tracked in the Tax Paid Expense Account.

To apply use tax to transactions:

Now, the use tax will be applied to the selected purchase transaction.

Tax Override in Transactions

You can adjust the total tax amount in sales or purchase transactions in Zoho Books by enabling the tax override option. This feature allows you to edit and override the system-generated tax amount based on the specific county and state, as tax rates may vary. Here’s how:

Now that you’ve enabled tax override for both sales and purchase transactions, you can modify the taxes at the transaction level.

Disable Sales Tax

Prerequisite: Sales tax should not be associated with any existing transaction.

To disable sales tax:

Now, sales tax will be disabled for your organization.

Was this document helpful?
Yes
No
Thank you for your feedback!
Want a feature?
Suggest
Switch to smart accounting software. Switch to Zoho Books.   Start my free 14-day trial Explore Demo Account

Books

Online accounting software
for small businesses.