How to Change Sales Tax Rate in QuickBooks Desktop & Online

Sales tax in QuickBooks refers to the tax that businesses collect from customers on taxable goods and services and then remit to the appropriate tax authority. It is calculated based on the applicable rate for a specific location and is automatically applied to invoices, sales receipts, and other transactions when configured correctly in QuickBooks Online or QuickBooks Desktop.

However, users often face issues when working with sales tax settings. Common error messages include “Sales tax rate cannot be changed for this transaction,” “This tax rate is no longer available,” “You cannot edit a tax that is in use,” and “Tax amount does not match the selected rate.” These errors usually occur due to locked transactions, outdated tax settings, or incorrect configuration in tax agencies and templates.

In this guide, we’ll discuss how to change sales tax rates in QuickBooks Desktop and Online, how to update default tax settings, how to manage tax agencies, and how to apply changes across transactions and mobile apps.

Why You May Need to Change a Sales Tax Rate in QuickBooks?

If you use QuickBooks Online or QuickBooks Desktop regularly, you need to stay updated with changes introduced by financial authorities. Sales tax rates are not fixed; they are revised periodically based on government policies, location-based regulations, and compliance requirements.

Because tax rules can change at any time, the rate configured in QuickBooks may quickly become outdated. To ensure accurate billing, correct reporting, and compliance with tax laws, it is important to update sales tax rates whenever changes are announced.

What Happens When You Edit a Sales Tax Rate in QuickBooks?

Before updating a sales tax rate in QuickBooks Online or QuickBooks Desktop, it’s important to understand how the changes work:

• New rates apply only to future transactions; past transactions remain unchanged.
• Existing transactions keep the original rate unless manually edited.
• The old rate becomes unavailable after modification.
• Recurring templates automatically use the updated rate, but must be adjusted if needed.
• Reports may show both old and new rates within the same period if changes were made.

What is the Default Sales Tax Rate in QuickBooks?

The default sales tax rate is the rate QuickBooks automatically applies to most transactions based on your business location. Users often set this as the primary tax rate to simplify tax calculations across invoices and sales forms.

Steps to Change the Default Sales Tax in QuickBooks

To update the default sales tax in QuickBooks Desktop, you need to adjust your company preferences and select a new primary tax item. Follow the steps below carefully to complete the process.

Step 1: In the first step, go to the Edit menu in your QuickBooks Accounting software, and then click on Preferences.

Step 2: After that, in the Preferences window, go to the left panel and select Sales Tax. Then, click on the Company Preferences tab.

Step 3: In the next step, locate the option “Your Most Common Sales Tax Item” drop-down list. Then, select the sales tax item you want to set as the default.

Step 4: Once you are done with it, you have to click OK to save the changes and apply the new default sales tax setting.

How to Change the Sales Tax Rate in QuickBooks Online

To update a sales tax rate in QuickBooks Online, you need to access the tax settings and modify the existing rate carefully. Follow the steps below to make the changes correctly.

Edit an Existing Sales Tax Rate in QuickBooks Online

In this section, you will learn how to edit an already created sales tax rate in QuickBooks Online.

Step 1: In the first step, go to the QuickBooks Online login page and sign in to your account.

Step 2: After that, navigate to the left panel and click on the Taxes menu.

Step 3: Then, select the Sales Tax option to open the tax overview page.

Step 4: In the next step, locate and click on Related Tax on the right-hand side.

Step 5: After that, choose Add/Edit Tax and Agencies to view all tax rates and agencies.

Step 6: Once the Sales Tax Rates screen appears, select the tax rate you want to modify.

Step 7: Then, click on the Edit button next to the selected tax rate.

Step 8: Now, the Edit Sales Tax Component window will open. Here, update the tax rate and adjust the component details if required.

Step 9: Once you are done with it, you have to click on Save to apply the changes successfully.

Edit a Tax Agency’s Name in QuickBooks Online

To update a tax agency name in QuickBooks Online, follow the steps below carefully. This helps ensure your tax records stay accurate and aligned with updated agency details.

• In the first step, go to the Taxes menu and then select Sales Tax.
• After that, look for the tax agency under the Agency Name column. Then, click on the Rename option next to it.
• In the next step, enter the new tax agency name in the field provided.
• Once you are done with it, you have to click Save to confirm and apply the changes.

Change a Sales Tax Rate Manually in QuickBooks Online

To manually update a sales tax rate in QuickBooks Online, follow the steps below to ensure the correct rate is applied across your transactions.

• In the first step, go to the Taxes menu and then select Sales Tax.
• After that, under Related Tasks, choose Add/Edit Tax Rates and Agencies.
• In the next step, from the Sales Tax Rates and Agencies table, select the tax rate you want to change and click Edit.
• Then, update the tax rate details as needed. If required, you can also change the component name.
• Once you are done with it, you have to click Save to apply the updated sales tax rate.

After updating your tax rates, learn how to Use VAT Feature in QuickBooks Online to apply the correct VAT codes and ensure invoices reflect accurate tax calculations.

How to Change the Sales Tax Rate in QuickBooks Desktop

To update a sales tax rate in QuickBooks Desktop, you need to edit the existing sales tax item carefully so that your transactions reflect the correct updated rate.

Edit an Existing Sales Tax Item Rate in QuickBooks Desktop

Step 1: In the first step, launch the QuickBooks Desktop software on your computer.

Step 2: After that, go to the top menu bar and click on the Lists option. Then, select Item List from the drop-down menu.

Step 3: In the next step, locate the sales tax item you want to change, right-click on it, and open the edit window.

Step 4: Now, enter the new tax rate in the Tax Rate field.

Step 5: After that, update the Sales Tax Name if required and make necessary changes to the description.

Step 6: Once you are done with it, you have to click OK to save and apply the updated sales tax rate.

How to Add a New Sales Tax Item in QuickBooks

To create a new sales tax item in QuickBooks Desktop, follow the steps below carefully so you can apply the correct tax rate to your transactions.

Step 1: In the first step, go to the Lists menu and select Item List.

Step 2: After that, click on the Item drop-down menu and then select New.

Step 3: In the next step, choose Sales Tax Item in the Type section.

Step 4: Then, enter a suitable name for the sales tax in the Sales Tax field.

Step 5: After that, add a clear description in the Description field for identification.

Step 6: In the next step, enter the applicable tax rate (%) in the Tax Rate field.

Step 7: Once you are done with it, you have to select the correct Tax Agency where you will remit the collected tax, and then save the item.

How to Change the Sales Tax Rate in the QuickBooks Online Mobile App

To manage or update sales tax rates in the mobile version of QuickBooks Online, you can use the iOS app on your iPhone or iPad. Follow the steps below to add a new sales tax rate correctly.

iOS App (iPhone and iPad)

To add a sales tax rate using the iOS app of QuickBooks Online on iPhone or iPad, follow the steps below carefully to configure a single or combined tax rate correctly.

Add a Sales Tax Rate

iPhone

1. In the first step, open the app menu and select Settings.
2. After that, tap on Tax Rates.
   • Note: If this is your first time, an introductory screen will appear. Then, you have to tap Add tax rate to continue.
3. In the next step, select Add a new tax rate, and then choose whether the rate is Single or Combined.
4. Then, tap the + icon and select either Single sales tax rate or Combined sales tax rate.
   • For Single Rate, enter the tax rate name, agency, and rate.
   • For Combined Rate, enter the combined tax name along with each component’s tax rate name, agency, and percentage.
5. Once you are done with it, you have to tap Save to apply the new sales tax rate.

iPad

1. First, you have to go to the menu option and then you have to select Settings.
2. Then you have to select Tax Rates.
3. Now you have to select Add a new tax rate, then you have to select whether that rate is Single or Combined.
4. Then you have to select New Tax, and then you have to select Single Rate or Combined Rate.
5. Now you have to enter the following information about the sales tax rate:
   • Single Rate: You have to add the information for each component (Tax Rate name, Agency, and Rate).
   • Combined Rate: For each component, you have to add the information (Combined Tax Rate Name, Tax Rate Name, Agency, and Rate).

Change a Sales Tax Rate in a Transaction

To update the sales tax rate directly within a transaction using the iPhone app of QuickBooks Online, follow the steps below carefully.

iPhone

Step 1: In the first step, open the estimate, invoice, or sales receipt where you want to change the sales tax rate from the menu.

Step 2: After that, tap on the Edit option. A list of available tax rates will appear on your screen.

Step 3: In the next step, select the tax rate you want to apply from the list. Alternatively, tap + to create a new tax rate if needed.

Step 4: Once you are done with it, you have to update the rate if required and then tap Save to apply the changes.

iPad

Step 1: In the first step, go to the Menu and then select Sales.

Step 2: After that, open the invoice, estimate, or sales receipt where you want to change the sales tax rate.

Step 3: Then, tap on the Edit option.

Step 4: In the next step, select the tax field next to Tax to view the list of available tax rates. If no tax is applied, tap Tax to add one.

Step 5: After that, choose a tax rate from the list, or tap Create a new Tax Rate to add a new one.

Step 6: Once you are done with it, you have to tap Save to apply the updated tax rate to the transaction.

Override a Transaction’s Sales Tax Rate

To manually override the sales tax in a transaction in QuickBooks Online, follow the steps below carefully. This allows you to adjust the tax amount directly instead of using the default rate.

Step 1: In the first step, open the Sales Receipt, Invoice, or Estimate where you want to override the sales tax rate.

Step 2: After that, tap or click on the Edit option to modify the transaction.

Step 3: Then, select the Tax entry checkbox to enable manual tax editing.

Step 4: In the next step, adjust the tax amount as required.

Step 5: Once you are done with it, you have to tap Done to save and apply the overridden sales tax rate.

Android App

To manage sales tax rates on the go using the Android app of QuickBooks Online, you can quickly add a new tax rate by following the steps below.

Add a Sales Tax Rate

To add a sales tax rate using the Android app of QuickBooks Online, follow the steps below carefully.

Step 1: In the first step, go to Settings from QuickBooks Online on the web and then select Tax Rates.

Step 2: After that, tap the + icon and choose either Single Tax Rate or Combined Tax Rate.

Step 3: In the next step, enter the required tax details:

• For a Single Tax Rate, add the Sales Tax Name, Agency, and Rate.
• For a Combined Tax Rate, add each Component along with the Sales Tax Name, Agency, and Rate.

Step 4: Once you are done with it, you have to tap Done to save and apply the new sales tax rate.

Edit a Sales Tax Rate

To update an existing sales tax rate in the Android app of QuickBooks Online, follow the steps below carefully.

Step 1: In the first step, go to Settings in QuickBooks Online on the web, then select Sales Taxes.

Step 2: After that, review the list and choose the tax rate you want to modify.

Step 3: In the next step, tap Edit and make the required changes to the tax rate details.

Step 4: Once you are done with it, you have to tap Done to save and apply the updated sales tax rate.

Add a Sales Tax Rate During a Transaction

To add a new sales tax rate while creating a transaction in the Android app of QuickBooks Online, follow the steps below carefully.

Step 1: In the first step, open an estimate or invoice where you want to apply the tax rate.

Step 2: After that, tap the Edit option to modify the transaction.

Step 3: Then, select Add Item and tap the + icon.

Step 4: In the next step, enable the Taxable checkbox for the item.

Step 5: After that, choose Add Tax and enter the required tax rate details.

Step 6: Once you are done with it, you have to tap Done to save and apply the new sales tax rate.

Override a Transaction’s Sales Tax Rate

To manually override the sales tax rate in a transaction using the Android app of QuickBooks Online, follow the steps below carefully.

Step 1: In the first step, open a Sales Receipt, Invoice, or Estimate where you want to change the tax.

Step 2: After that, tap the Edit option to modify the transaction.

Step 3: Then, select the Tax entry checkbox to enable manual editing.

Step 4: In the next step, change the tax amount as required.

Step 5: Once you are done with it, you have to tap Done to save and apply the overridden sales tax rate.

How to Change Payroll Tax Rates in QuickBooks Desktop?

To manage payroll taxes in QuickBooks Desktop, you need to first review the current tax rates and then update them if required. This ensures your payroll calculations stay accurate and compliant with the latest tax rules.

Check Current Payroll Tax Rates in QuickBooks Desktop

Step 1: In the first step, go to Employees and then click Get Payroll Updates. After that, click the Upgrade option from the top QuickBooks Desktop menu. The system will download and run the latest payroll updates, and you can then review the payroll list.

Step 2: Then, go to the Lists menu and click on Payroll Item List from the top QuickBooks Desktop navigation bar.

Step 3: After that, review the payroll tax rates carefully, for example, check if the Illinois Unemployment Tax rate (or your applicable state tax rate) is correct and up to date.

Step 4: If the rate is incorrect, select IL-Unemployment Company from the lower-left section of the payroll list.

Step 5: In the next step, click Edit Payroll Item, then select Next and proceed to Update Company Tax Rates.

Step 6: After that, enter the correct tax rate and continue by clicking Next, and then select Finish.

Edit Item Rates for Payroll Tax

To update payroll item rates in QuickBooks Desktop, follow the steps below carefully to ensure your payroll calculations reflect the correct and updated values.

Step 1: In the first step, go to the Lists menu and select Item List from the available options.

Step 2: After that, choose the payroll item whose rate you want to change from the list.

Step 3: Then, click on the Item drop-down menu and select Edit Item.

Step 4: In the next step, update the item details by entering the new rate. Depending on the item type, you can adjust the hourly rate, price, or flat rate.

Step 5: Once you are done with it, you have to click Save and close the window to apply the updated payroll tax rate.

Modify the Local Payroll Tax Rate

To update a local payroll tax rate in QuickBooks Desktop, follow the steps below carefully to ensure the correct tax rate is applied to the selected employee.

Step 1: In the first step, navigate to the Employees section and open the Employee Center.

Step 2: After that, switch to the Employees tab to view the employee list.

Step 3: Then, double-click the employee whose payroll tax rate you want to modify.

Step 4: In the next step, click Change and then select Payroll and Compensation.

Step 5: After that, choose the Taxes option and click Other.

Step 6: Now, select the tax that you want to edit from the available list.

Step 7: Then, go to the Rate section and enter the new tax rate.

Step 8: Once you are done with it, you have to click Save to apply the updated local payroll tax rate.

Whats Changes After a Payroll Tax Rate Update?

After updating a payroll tax rate in QuickBooks Desktop, a few key changes occur:

• Reports will show both old and new rates if transactions exist for both periods.
• New transactions use the updated rate, even if dated in the past.
• Existing transactions remain unchanged unless manually edited.
• You must update templates separately to apply the new rate.
• The old tax rate becomes unavailable for future use once replaced.

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