Hi guys why does the tax liability report ADD tax on sales and tax on purchases rather than offsetting them one against the other as you are meant to do?

Hello there, patricksimpledigitalme.

Sales tax and purchase tax are different from each other. QuickBooks Online doesn't offset them automatically because the are taxes you are required to pay by your state agency. 

1. Select Taxes in the left menu and click the Add tax button.
2. Choose Custom tax and enter the details needed in the Add tax panel.
3. Mark the This tax is collected on purchases box.
4. Enter the rate in the Purchase rate field.
5. Mark the Purchase tax is reclaimable box if it is reclaimable.
6. Click Save.

After that, you can already use it when creating bills.

Regarding with the sales tax that you want to offset with the purchase tax, I'd recommend contacting your accountant about this. You might need to create adjustments or journal entries.

Here are some articles related to sales taxes that might be helpful in the future:

• How Do I Set Up Sales GST/VAT Rates and Use Them on Forms? (International QBO)
• VAT Feature Update FAQ
• FAQ for GST in QuickBooks Online
• Manage a Tax Rate Change

Feel free to let us know if you need anything else.