As a merchant, you may need to calculate and charge sales taxes on your orders. Configuring your store to automatically handle most common sales tax calculations will provide you with the reports needed for accounting and tax remittance.
There are two core concepts to understand when configuring taxes for your store, Tax Classes and Tax Rates.
Tax Rates calculate tax on orders based on the customer’s billing or shipping addresses in your taxable jurisdictions.
Tax Classes allow for the segregation of products into different taxable categories, so that different tax rates can be applied on various products within a customer’s order.
How Tax is Determined
The apportioned tax is calculated by the relationship between:
The Tax Settings section includes several options that can be set to suit your business needs based on your tax obligations.
This option indicates how you enter prices for your products and thus how taxes will be calculated for orders.
Prices entered are inclusive of tax - Indicates that the price displayed includes tax, and tax rates will be inclusive in the order totals.
For eg. Stock price is 100, tax% is 20, tax amount will be 16.67 So, price incl tax will be 100 and price excl tax will be 83.33
Prices entered are exclusive of tax - Indicates that the price displayed excludes tax, meaning that tax rates will be applied as additional charges to the order.
Tax = (stock price * tax)% / 100
price_incl_tax = stock price + tax
price_excl_tax = stock price
For eg. Stock price is 100, tax% is 20, tax amount will be 20. Price incl tax will be 120 and price excl tax will be 100
Setting Up Tax Rates
To set up a Tax Rate, navigate to Settings > Tax where you’ll find the list of all configured Tax Rates in your store.
Creating a Tax Rate
When setting up a rate, follow options to configure which Products (Tax Class) and Orders it should apply to.
Tax Class - Apply this tax rate to Stock Records within this Tax Class.
Name - Internal name used for administrative and reporting purposes.
Country - Order address country to apply tax rate.
Postcode - Order address postcode(s) to apply tax rate
State/Province - Order address state(s)/province(s) for which to apply the tax rate
City - Order address city to apply the tax rate
Rate % - Tax rate percentage to apply to the order items.
Display Name - Name of the tax shown to customers, ie VAT, GST, or Sales Tax.
Priority - Priority for this tax rate to be applied in cases of conflict between multiple tax rates matching.
Compound - Allow this tax rate to combine with other tax rates, such as state and local taxes.
Shipping - Apply the tax rate to shipping fees.
Setting Up Tax Classes
Tax Classes provide a method to sort your products according to their tax classifications. This allows you to create multiple Tax Rates configured to match the same address parameters with the appropriate tax rate.
Creating a Tax Class
Name - Name used internally to identify the Tax Class for administrative and reporting purposes.