We are trying to create an item : Error : Invalid account type: You cannot use this account to create items as the account is used by system to track the tax amount.

Thanks for posting to the QuickBooks Community, @shreyas-mobijini.

Instead of using a service/non-inventory item to track any taxes on your sales, you can create a custom tax rate.

Also, make sure to check if the income account of the item isn't associated with sales tax payables. QuickBooks has a built-in function to add custom taxes on your sales transactions.

To create a custom tax rate, you can follow the detailed steps through this article: Create custom tax rate.

Once done, you'll want to choose this rate and add it to your sales receipt or invoice by selecting the tax rate on the sales window.

Additionally, you can reference this article on how to create items: Add product and service items to QuickBooks Online. It covers how to edit an item and change its type.

You'll want to use reports to see your sales and inventory status to see your best sellers, check what's in stock and what's still on order.

Feel free to drop a reply here if you have additional questions. I'll be around to help. Stay safe and well!