The proper way to correct an invoice where some item(s) have an incorrect tax rate is to create a credit note WITH the item(s) that have the incorrect tax. Then create a new invoice with the corrected tax rate. The customer now has a credit balance for the tax amount under the new credit note.

  1. Open the invoice you want to adjust in Refund mode.
  2. Touch Credit/Return.
  3. Select the checkbox next to the specific item(s) that were purchased with an incorrect tax rate in the original invoice.
  4. Save the credit note to account.
  5. Create a new invoice and add the items you're adjusting. 
  6. Use the Pencil --> Override Tax to change the tax rate to the correct values.
  7. Use the Allocate Credit button and select the taxed credit note that was just made to pay the tax-exempt invoice.
  8. The contact will now have a credit balance equal to the tax amount from the original taxed invoice.

The remaining balance can be refunded from the credit note or left on their account for future transactions.

A similar procedure can be used to Fix a Paid Taxable Invoice for a Tax Exempt Contact