Refund Sales Tax To A Tax Exempt Customer

Background
In the event that a tax exempt customer is mistakenly billed for tax on an invoice and payment is received; these steps can be followed to credit and refund those taxes back to the customer. This will also remove that tax amount from your tax liabilities account.

There are two possible ways to deal with this. The first is if you have not yet paid your sales tax liability to the government. The second is if you have already paid your sales tax liability to the government.

If You Have Not Paid Sales Tax Liability To the Government
If You Have Already Paid Sales Tax Liability to the Government

Crediting Back Taxes that Haven't Been Paid to the Government

1) Go to the "Sales" module
2) Click to open the "Sales Register"
3) Select the "Closed Invoice" tab of the "Sales Register"
4) Open up the invoice in question by clicking the arrow to the left of it

5) In the far right column of each line item uncheck any items that have tax applied. (This will leave the invoice with a negative balance due.)
6) Click Okay to record the invoice

Refunding the Taxes
1) With the "Sales Register" still open, select the "Returns & Credits" tab (If the "Sales Register" is no longer open follow steps 1 & 2 above)
2) In the "Returns & Credits" tab highlight the invoice in question by clicking it once (not the arrow but the line)
3) At the bottom right of the "Returns & Credits" tab click "Pay Refund"

4) Enter any appropriate information (make sure to choose the correct account it is being paid out of in the upper left) and record the refund

1) Go to the "Sales" module
2) Click to "Enter Sales"
3) Choose the customer
4) Enter a sale with one line item that has the negative cost of the original sale (taxed) and a second positive line item for the same amount (and to the same account or item) that is not taxed.

5) Click to Record the invoice

Refunding the Taxes
1) With the "Sales Register" still open, select the "Returns & Credits" tab (If the "Sales Register" is no longer open follow steps 1 & 2 above)
2) In the "Returns & Credits" tab highlight the invoice in question by clicking it once (not the arrow but the line)
3) At the bottom right of the "Returns & Credits" tab click "Pay Refund"

4) Enter any appropriate information (make sure to choose the correct account it is being paid out of in the upper left) and record the refund