How to I exclude advance deposits from being counted as "sales"?

Recording the deposit as a liability, essentially a loan from your customer, does not include it in "sales" any more than obtaining an operating loan from a bank is a sale.

Yes, in order for your customer to pay through QB you issue an invoice. But this invoice should only reflect the liability account and nothing more. Once you invoice again for actual service you create a credit memo to apply the in hand deposit to the sale

Given that retainers are a liability, then for as long as they are correctly characterized as a liability, they are not income to your business for income tax or sales tax purposes. They are not really even "sales", but instead a precursor to sales, rather like taking a down payment or "deposit" (not a bank deposit, but a deposit on account) for an order you are not yet ready to deliver. You might intend to order the product from a supplier or manufacture it at some later date, for example.

I can think of two ways to record retainers which will exclude them from sales reports and sales tax reports.

1) Record the retainers on invoices using an item that links to a liability account, as described in this thread.  However, instead of dating the retainer invoice with a current date, post date into the future far enough so it will stay off your sales reports until you go back and change it when you start to deliver on the sale. Record the money received as a Payment with a current date and apply it to the invoice. Later, when you actually deliver on the sale, edit the invoice, remove the retainer item, and add the appropriate sales items.

The issue I see with this method, if it matters to you, is that the payment will reduce your current AR account balance but the invoice, while dated in the future, will be invisible to your balance sheet and so you will not see the corresponding increase to the AR and liability accounts.

2) Record the payment received as you would if you were receiving a payment against an AR invoice, but don't create an invoice for the retainer and don't apply the payment to anything. This will reduce your AR account balance and - when you deposit it - increase your cash balance. Later, when you have something to bill the customer for, create an invoice and then edit the payment and apply it to the invoice. 

Optionally, so you can see the total of these retainer payments on your balance sheet, create a second/special AR account just for these unapplied payments. Use it when first receiving the payments. (An account field will automatically appear at the top of the payment form when you have more than one AR account.) When you do this, your balance sheet will show the full AR balance for your actual outstanding invoices and a negative/contra balance for the special account. Later, when applying a payment, change the AR account on the payment to your standard AR account and apply it to the invoice recorded there.

The "issue" with this method that I've heard in the past, which I don't really think is an issue, is that you'll have unapplied payments - payments for nothing at all. Some people think this is somehow bad. Notably, though, this works fine in QuickBooks (it does not care) and I think the accounting is just as it should be for a retainer or other unearned money received that is refundable.  Such money belongs only on the balance sheet, and not on sales reports or your Profit & Loss reports.  Sure, normally it's seen as a liability, but a contra-asset account, always with a negative balance, has the same effect on the balance sheet.

Almost 3 years since your question, but I've found an answer that works in Quick Books Online. I have not tested it in the Desktop version.

My conjecture was that using an invoice was causing Quickbooks to classify the transaction under "Sales". So the first step was to use journal entries -- first between A/P and a liability account "Customer Advance Payments"; then, when the customer pays, between A/P and a bank account. Unfortunately, this still resulted in the advance payment showing up in "Sales".

So then I looked at the journal entries to see if anything could be causing them to be considered "Sales". Sure enough, I had put "Exempt (Sales)" in the Sales Tax field. When I deleted this (the "Sales Tax" field is now empty) and hit "Save", the transaction magically disappeared from "Sales".

When you use a Sales Invoice in QBO, the Sales Tax field cannot be left blank. So using journal entries is the only workaround for this bug in QBO. It may be different in Desktop.