How do I adjust an Accounts Receivable invoice to remove sales tax that should not have been billed?

If you need to remove sales tax 100%, it is recommended that you void the invoice and re-enter with the correct tax group and exempt statuses.  In some instances, voiding the invoice is not an option and the following steps may work for you.    These instructions are for adjusting sales tax that should not have been held.  If only part of the invoice was taxable and you billed the entire invoice as taxable, the best resolution would be to void the invoice and reissue it.  These steps are not for when the incorrect tax group or tax id was used.  In that case, the invoice must be deleted and reissued with the correct tax group/tax id.

NOTE:  When you adjust an invoice and the adjustment is distributed automatically, the distribution lines are adjusted from top to bottom. Since taxes are typically the last line in the distribution grid, they are the last to be paid.  If you have any cash receipts against the invoice, you may need to unapply cash if the cash was applied to any of the tax lines.   If you have billed retainage, you will need to void the retainage billed invoice(s). 

To adjust the taxes, manually distribute the adjustment to the tax distribution following these steps:

1. Select Tasks, Adjust Receivables.
2. Enter the customer in the Customer box and enter a date in the Accounting date box.
3. Select All Activity in the View box.
4. Select the invoice you need to adjust and click [Adjust].
5. In the Invoice Adjustment window, select Billed Credit as the adjustment type.  This will void the tax lines only from the invoice.
6. Enter the same date you used in step 2 in the Adjustment date box.
7. Under Adjustment, remove any amounts in the Amount and Retainage held boxes.
8. Click [Distributions] and locate the distribution that has an Amount type of Tax.
9. In the Amount box, enter the amount of the tax adjustment.
10. Since you are voiding the tax completely from the invoice, in the Taxable box, leave the prefilled amount.  If you are only removing part of the tax amount, the best recommendation is to void the invoice and reissue with corrected amounts.
11. Click Finish and the Auto Balance box will come up.  The amount of the Auto Balance should equal the amount of the taxes you wish to remove from the invoice.  Click Yes to Auto Balance.
12. Click Finish or repeat the steps for each invoice that needs to have the taxes removed from.