Thanks for joining the thread, sbanning.

The idea to include the returned material as a negative amount on the invoice will reduce the invoice total. Doing this won't reduce your Sales Tax Liability amount.

Create a credit memo and apply it to the invoice to fix this. As a result, your sales tax liability will be decrease. Then a negative sales tax will be recorded. I'll show you how.

1. Go to the Customers menu, select Create Credit Memos/Refunds.
2. Locate the customer from the Customer: Job dropdown.
3. Include all relevant information, including the returned item.
4. Once done, hit Save & Close.
5. The Available Credit window will pop, then choose the box for Apply to an invoice.
6. Click OK, then select the invoice you want to apply the credit memo.
7. Select Done.

The invoice's overall amount will discrease and ensures your customer will only be required to pay for the materials they have that are taxed.

For your reference, you can read this article for more insights: Give your customer a credit or refund in QuickBooks Desktop for Windows.

I've also included this resource to help you if you need to adjust your sales tax for future use: Process sales tax adjustment.

If you need further assistance with sales taxes, let us know. We're available to help you at any time.