Set up store taxes

As a merchant, you might need to charge taxes on your sales, then report and remit those taxes to your government. Check with your local tax experts whether you sell taxable products and what the tax rates associated with them are before moving forward with online sales.

There are two ways to set up taxes in your store:

• Automatic taxes. Automatic taxes provide up-to-date standard rates across the store and can be enabled in one button-click.

  Note: Automatic tax calculations are not available in Europe.

• 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, and some other locations, 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. With automatic tax calculation, your online store will stay up to date on the tax laws.

To enable automatic taxes:

1. Enter your actual company address on the Settings > General page. This address is needed to calculate and apply the right rate to the order on the checkout.

2. Enable automatic taxes on the 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 tool knows the tax rules in your country, state, and even county and city and applies them properly to each order:

• Whether you’re located in a region with origin-based or destination-based tax schema.

• Whether shipping costs or discounts are taxable.

• Whether you should charge tax in another state or country.

The tax rate is calculated with ZIP code accuracy. If your customer provides ZIP+4, it will be calculated with even higher precision. In some states (and the number of such states is growing), the tax is calculated with a street address-level precision.

Setting up taxes manually

You can also manually configure your store to calculate tax rates for different regions, zones, and countries.

To set up taxes manually:

1. Go to the Settings > Taxes page.

2. In the "Manual" section, click "Manage Tax Rates."

3. Click the "+ Add New Tax" button.

4. Enter your tax name and define other settings (except for the "Rates per zone" section).

5. Click Save, then click "Manage zones (global)."

6. On the Destination Zones page, click "+ Add New Zone."

7. Change the name of the created destination zone. Then click "Add state..." (or "Add Country..." or "Add Region...") and select the necessary state/country/region.

8. Save the changes.

9. Go back to the Settings > Taxes > Manual page and select your tax.

10. Click on the "Specify rates per zone" button. Select the zone you created earlier and enter the tax rate.

11. Save the changes.

If you have many destination zones, repeat the steps above for each of them.

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 "Other zones" that defines tax for locations that do not match a zone mentioned in the rate list.

Creating tax invoices

Tax invoices are financial documents on the orders in your store. You can use them in your internal accounting, present them to the local tax office or send them to your customers. In some countries, invoices are required by law to calculate taxes. In other countries, managing them can be voluntary.

If you are unsure whether you need tax invoices for your business, please, consult with advisors or tax authorities in your country.

In your store, you can use the built-in feature to generate tax invoices automatically or manually and send them to your customers. When tax invoices are enabled, you can additionally set them up and customize the template to the needs of your business. It is possible to print or download individual tax invoices — or you can download all the invoices for a certain time period in bulk.

Handling tax-exempt customers

Some customers may 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:

1. Go to the My Sales > Customers page.

2. Find the customer on the list by name or email and click on the pencil icon to edit the customer’s profile.

3. Enable "tax-exempt."

4. Save the changes.

Now the customer is marked as tax-exempt and they 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.

Note: A customer marked as tax-exempt will still see taxes at checkout. In order to get a 0% tax rate, non-taxable buyers have to sign in at checkout before placing an order. Otherwise, the standard taxation rules configured in the store will be applied. Such customers should be advised to log in before purchase using the correct email. You as the store owner can check this email at My Sales > Customers.

Non-taxable products

Automatic tax rates apply to all products by default. In case you do not charge tax for some of your products, or you need multiple taxes, you will need to use manual tax setup.

Adding tax percentage

If you want to add tax percentage to your invoices, you can add it to the name of your tax on the Settings > Taxes page. A new tax name will be applied only to orders placed after editing.

Local tax rates

The tax-calculation algorithm determines which tax to apply by looking through the configured tax rate list, starting at the top. When it finds a matching zone, it stops and applies the corresponding tax rate. So you can define tax rates for particular states or cities (using ZIP codes), then add a rate for "USA" at the bottom of the list. In this case, the USA rate will be applied to all states except the states configured explicitly.