Sales Tax Settings

When setting up your sales tax information there are multiple factors to consider. If you navigate to Settings >> Sales Tax  you will see four different sections: Sales Tax Rate, Sales Tax Rules, Customer Tax Class and Product Tax Class.

Customer Tax Class - Customer Tax Classes assign specific tax rules to certain customer records. If you navigate to the Customer Tax Class menu, you will notice three default customer tax classes are already present: Default (Taxable), Wholesale, and Tax Exempt. Default will be your general taxable customer, wholesale is a just used for a Wholesale customer and Tax exempt is for anyone our rules won’t apply to. If you need to create different customer tax classes all you need to do is click on “New Customer Tax Class”, assign the tax class a name and click “Save”. If you believe you have all the necessary customer tax classes, move on to “Product Tax Class”.

Product Tax Class - This area is where you can create specific product tax classes. This specifies what products get taxed and what tax is applied. You’ll notice there are already four values present: General Merchandise, Shoes & Clothing, Food, and Tax Exempt Merchandise. You can create more if you need them by clicking on “New Product Tax Class” and assigning it a name.

Sales Tax Rates - This is where you enter your tax rate or tax rates for your store or stores for their tax jurisdictions.  You have two options.  If you have no need to separate your tax payments by tax jurisdictions (e.g. state, county, city. etc.) then you can enter one blended rate.  But if you would like to see a report that separates payments by tax authority, you will need to enter your tax rates by authority separately.

Example: Let’s use New York City, New York as an example and you can use your tax rate if you’d like to follow along. To begin, click on “New Tax Rate”. For Tax Identifier you can enter in any name you’d like, I will use 'New York State Sales Tax'. For a state-wide tax rate all you need to enter is the country and state. For ours, I would enter “United States”, “New York” and a Rate Percentage of 4%. Once you have completed these steps click on “Save”. Now because New York has a sales tax of 4% and New York City has a sales tax of 4.875%, we need to create a second tax rate. Follow the same steps as above but for this tax rate we need to apply the country, state and city. For this, I would enter “United States”, “New York”, "New York City", and a Rate Percentage of 4.875%. Once you have completed these steps click on “Save”. You can repeat this process for any number of tax rates you may need.

Sales Tax Rules - Now that we have established that we have any customer, product and sales tax rates we may need, it is time to create out tax rule.  The tax rule brings everything together and applies the tax rates to the customers and products you want them to apply. To start the process, click on “New Tax Rule”.  To continue, fill in the name you’d like for this Tax Rule, select the customer tax classes and product tax classes you would like to apply the rule to and then select any tax rates that will apply to this rule. Once finished, click on “Save” and you should be all set! To check, you can head over to “System”>”Manage Stores” and in your store’s sales tax section it will display your new sales tax setup.

Example - As you can see in the screenshot below, we have all of our Customer Tax Classes, Product Tax Classes, and Sales Tax Rates here.  In the screen shot below, products purchased in the New Your City store with a 'General Merchandise' Product Tax Class purchased by customers with a 'Default' customer tax class would be charged a combined tax of 8.875% (comprised of 4.00% of New York sales tax and 4.875% of New York City sales tax).

Other fields:

  • Start/End Date - Use these for taxes that are temporary or have a known end date.
  • Always Round Up - If you’re in Florida or Maryland, check this box on your tax rate setup. It forces a rounding up of the final tax subtotal so any fractional penny is round up to the next full penny.
  • Priority - Us this field to set the priority of your taxes.  For example, if one tax needs to be applied to a transaction to calculate a total before the second tax rate is applied within a specific Tax Rule.

Do You Have Special Taxes?  

See these articles:

Tax Inclusive Pricing
Luxury Sales Taxes
Other Tax Set-up Examples 

Next Step: Creating Products >>