Sales Tax does calculate correctly in new invoices

Please know that this isn't the experience we want you to have when calculating sales tax for your invoice transactions in QuickBooks Online (QBO), @jgenshlea.

QuickBooks calculates sales taxes for some reasons:

• If your customer's sales tax-exempt status
• Where you sell and where you ship
• Your product and service sales tax category
  
  

When you use the discount feature, please know that the program applies that amount to the total of the invoice, including the taxable and non-taxable items after the tax has been calculated. This the reason why the sales amount is showing as $524.35.

Since the sales tax calculation is incorrect, we can use the See the Math option to determine how QBO comes up with the specific amount.

I've attached screenshots for reference:

To change the sales tax calculations, we can override the amount by adjusting the sales tax manually.

Aside from that, you can consider creating a discount line item instead of utilizing the built-in feature. This way, it will calculate according to your preferences.

 
Moreover, you can use these articles to learn how to personalize your sales forms info and set up custom tax rates:

• Customize invoices, estimates, and sales receipts in QBO
• Use custom rates to manually calculate taxes on invoices or receipts in QBO 
  
  

Feel free to comment below for any other questions regarding sales tax calculations. We're here to assist you.

This is happening because your discount is being applied evenly across your invoice, to both your taxable and non-taxable sales portions of the sale.

If you remove the non-taxable sales of $2,100 then the entire discount will be applied to the taxable $6,271.97 and the resulting tax is $516.18 - in my test.

Using QB Desktop you can control this by putting the discount line item after the taxable line and then listing the $2,100 non taxable sales after it. Then the discount is only applied to the taxable sales and the sales tax remains $516.18.

However, QB Online assumes that any discount is applied across the entire invoice. Which naturally does not reflect any sort of reality.

The way around this for QB Online is to use a service line item and call it "Discount" or similar and make it taxable. It'll then reduce the tax based on the full amount of the discount.