How to record sales tax for contractors in QuickBooks (the right way)
A real walkthrough from a Housecall Pro + QuickBooks engagement — one deposit, split correctly, and a balance sheet that tells you what you owe.
The mistake almost every home-service business makes
Plumbing, HVAC, electrical, landscaping, cleaning — if you invoice through Housecall Pro (or Jobber, or ServiceTitan), your customer pays one number, and that number lands in your bank feed as one lump deposit. The common move is to book the whole thing as income, and later book the check to the state as an expense.
That's wrong, and it stays wrong even if you're on a cash basis. It overstates your revenue, buries what you owe, and turns every filing deadline into guesswork. The tax was never yours — it should never touch your P&L.
The walkthrough: one deposit, split correctly
Here's a real example from a client's books (details from the video above). Invoice 414 went out through Housecall Pro and was paid on October 8, 2025 — a progress payment of one-third of the job total. The deposit hit the bank feed as $11,422, one lump sum, sales tax included.
In QuickBooks, instead of accepting it as-is, you split the deposit:
- Open the deposit in the bank feed and choose Split.
- Line one: the sales portion — in this job's case about 97% of the deposit — to the income account (here, commercial income).
- Line two: the tax portion — the remaining ~3%, about $305 on this deposit — to the sales tax liability account.
- Attach the invoice to the transaction. When a job is paid in thirds, note whether you broke tax out on each payment or on the last one — future-you (and any auditor) will need to know which.
- Save, and repeat for every deposit, every month.
How to read the result on your balance sheet
Once deposits are split consistently, the sales tax liability account becomes the most honest line on your books. On this client's balance sheet, the liability grew steadily from January through August — which told me immediately that they were collecting tax but not remitting it. In September a payment finally went out, and the month ended with a clean, known balance: $2,230 owed.
And your income statement stays honest too — only the sales portion hits revenue. When you pay the state, the payment clears the liability, not your profit.
Common questions
Is sales tax I collect an expense?
No. It was never your money. You're collecting it from the customer on the state's behalf and holding it until you remit. Booking it as an expense (or leaving it in income) misstates both your profit and what you owe.
I'm on cash basis. Does this still apply?
Yes. Cash basis changes when you recognize income, not whose money the tax is. Even on cash basis, the tax portion of a deposit belongs on your balance sheet as a liability, not on your P&L.
What if a job is paid in progress payments, like thirds?
Split every deposit as it lands. In the example above, the invoice was paid one-third at a time, and each deposit got the same treatment: sales portion to income, tax portion to the liability. Attach the invoice to each split and note how you broke the tax out, so you (or an auditor) can see whether tax was recognized per-payment or on the final payment.
How do I know what I owe the state each month?
Look at the sales tax liability account on your balance sheet. If every deposit has been split correctly, the balance at month-end is exactly what you owe. In the walkthrough, the client's September balance was $2,230 — that was the filing, done. If that balance only ever grows, it means you're collecting but not remitting.
Does Housecall Pro send this to QuickBooks automatically?
Housecall Pro pushes the invoice and payment across, but the deposit still lands in your QuickBooks bank feed as one lump sum. The split into income vs. sales-tax liability is the bookkeeping step you (or your bookkeeper) do in QuickBooks — that's the part this article covers.
I'll keep the books, split the deposits, and file the sales tax.
If you're behind on filings or your liability account is a mystery, that's a solvable problem. Dr. Digits does the bookkeeping, breaks out sales tax on every deposit, and keeps you compliant with your state — so you can go run the business.
Client figures shown with permission, lightly rounded. Not tax advice — your state's rules control. Engagements subject to a written agreement.