The following steps outline the proper way to reimburse sales tax so that your sales tax and sales reports in balance. Make sure to do all three steps.
For our example:
- Original Invoice was for $100.00 plus $5.00 sales tax for an invoice total of $105.00.
- The customer pays the full amount, $105.00.
- Customer requests refund of sales tax ($5.00), which was incorrectly billed to them.
Create a Credit Memo for the customer that reflects the original Invoice, in this example the $100.00 plus the $5.00 sales tax
Create a new invoice for the customer
- $100.00 for the original amount, making sure it is non-taxable
- $5.00 using an item code called Customer Refund. If you do not have a Customer Refund item code you will need to set one up. The Customer Refund item code should be set to a GL Liability Account.
Apply the Credit Memo to the Invoice. By creating the credit memo, you are lowering your sales tax obligation. The income on the credit memo and invoice will offset, so your sales tax and sales reports will remain in balance.