As a merchant, you might need to charge taxes on your sales. Sales taxes in the US, VAT in Europe and Japan, GST in Canada, are just some of the examples of sales taxes. You collect and then report and remit those taxes to your government.
Check with your local tax experts whether you sell taxable products and what are the tax rates associated with them before moving forward with online sales.
Choose a way to set up taxes in your store
Automatic taxes
Automatic tax calculations are available for merchants in the USA, the EU, Canada, Australia, and New Zealand. Automatic taxes provide up-to-date standard rates across the store and can be enabled in one button click.
Please note that this functionality is available for Professional and Unlimited Online Store plans.
Manual taxes
If automatic taxes are not available for your country or you sell differently taxed products, you can configure taxes manually.
Enabling automatic tax calculation
For users from the US, Canada, Australia, and Europe, tax rates are calculated automatically based on the store and customer's location. While checking out, the customer will be charged a proper tax rate according to country and regional tax rules.
Tax laws are constantly changing. Country, state, or even city government may apply new tax rates that a business owner is expected to keep up with. Your online store will stay up to date on the tax law.
Here are the steps to enabling automatic tax calculation:
- Enter your actual company address in the Company Address section on your Online Store dashboard > Settings > General page. This address is needed to calculate and apply the right rate to the order on the checkout.
- Enable automatic taxes in your Online Store dashboard > Settings > Taxes page:
Once enabled, the automatic tax rate will determine a precise tax rate at checkout depending on where you and your customers are located.
The Online Store automatically updates the tax rules in your country, state, and even city and applies them properly to each order:
- Whether you’re located in a region with an origin-based or destination-based tax schema.
- Whether shipping costs or discounts are taxable.
- Whether you should charge tax in another state or country or not.
The tax rate is calculated with a zip code accuracy. In some U.S. states, the tax is calculated with a street address level precision.
Setting up taxes manually
You can manually configure your store to calculate tax rates for different regions, zones, and countries.
To set up taxes manually (for example, let’s say you need to create a 7.5% tax for California):
- From your Online Store dashboard, go to Settings > Taxes, click Manage Taxes and then Add New Tax.
- Create a new zone by clicking Manage zones (global):
- Modify the name of the new destination zone. Then click Add Country and choose the United States. Click Add state... and pick the necessary state (e.g. "United States: California"):
3. Click Save.
4. Go back to the Settings > Taxes page. Press the Add New Tax button:
5. Enter your tax name and customize other settings.
6. Click on the Specify rates per zone button:
7. Select the zone created earlier from the drop-down list:
8. Enter the tax rate for each zone.
9. Save the changes.
For multiple destination (tax) zones, repeat the steps above for each of them.
Tip: If you want to set up the same rate for several different states, you can create a zone consisting of these states and set up a tax rate for this zone.
There is also a pre-defined zone named All destinations that defines tax for locations matching no zone mentioned in the rate list.
Managing tax-exempt customers
Some customers, like wholesalers and nonprofit organizations, can be exempt from taxes. You can mark such buyers as non-taxable, so they can check out in your store without having tax applied to their order. In order to exempt a customer from paying taxes in your store, you should mark them as non-taxable in your store admin.
To mark customers as tax-exempt:
- Go to your dashboard > My Sales > Customers page.
- Find the customer on the list by name or email and click on the pencil icon to edit the customer’s profile.
- Enable Tax exempt.
- Save the changes.
The tax-exempt customer won’t pay any taxes while buying products in your store. You can always check this status in the Tax-exempt column on the Customers page.
This feature is available on all Online Store plans.