Question

how to issue a credit memo in QBO for sales tax that was applied to an invoice for an exempt client

Forum|Forum|10 months ago
September 6, 2025
1 reply
23 views

I inadvertently applied sales tax to an invoice from the first quarter of this year for an exempt corporate client. The client has not paid the invoice because they want me to send an invoice that doesn't include the sales tax. Since I have already submitted sales tax to the state for that quarter, I cannot simply remove the sales tax from the existing invoice. The only thing I can think of is to create a credit memo for the sales tax, but I don't know how to set up the service item. Can anyone help me resolve my problem?

FYI... I am not a bookkeeper or an accountant. I am a small business owner and I do my own bookkeeping.

QuickBooks Online

J

Jessavell_A

QuickBooks Team

Thank you for the detailed explanation, Carol.

A credit memo is issued to a customer when they have overpaid an invoice, allowing the overpaid amount to be deducted from their next order. However, in your case, since the customer hasn't paid the invoice yet, you'll need to edit the invoice to remove the tax, as the customer is not subject to taxation.

While you could create a sales tax adjustment, the original invoice would still show as taxable. To ensure your records are accurate and to correct your previous sales tax calculation in QuickBooks, unchecking the sales tax is the best option. This would also let you resend the original invoice without the tax.

Since you've already submitted the sales tax to the state for that quarter, it's best to contact the tax agency directly to inform them of the overpayment and ask whether you need to amend your previous tax filing. This way, they can authorize either a refund or apply it as a credit against future tax filings.

If you have any additional questions, please feel free to revisit this thread.

carol20Author

@Jessavell_A I understand all that you've explained, but, to me, this is an unacceptable solution. Editing an invoice from a previous quarter, in my opinion, just creates havoc with the sales tax.

~ The QBO sales tax platform is challenging & not completely trustworthy. I don't want to risk complicating things unnecessarily.

~ Past experience with requesting a refund or amending a previous filing with my tax agency has also been challenging. I prefer to avoid that frustration.

Your link to "create a sales tax adjustment" adjusts the sales tax due in the reporting process. It does not adjust the sales tax on a specific client's invoice.

I am thinking my only option is to fully credit the invoice from first quarter & create a new invoice without sales tax. Doing so will be accurately reflected in the sales tax due at the end of this quarter. The downside is the new invoice will have a current date & not reflect the original date. That's a detail I can live with if it means my client will finally issue payment.

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