When setting up your sales tax information there are multiple factors to consider. If you navigate to “Sales”>”Manage Sales Tax” as shown below you will notice four different sections: Manage Customer Tax Class, Manage Product Tax Class, Manage Sales Tax Rate, and Manage Sales Tax Rules.


Manage Customer Tax Class


Customer Tax Classes assign specific tax rules to certain customer records. If you navigate to the Manage 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, let’s navigate to “Manage Product Tax Class”.


Manage Product Tax Class


This area is where you can create specific product tax classes. This specifies what gets 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.


Manage Sales Tax Rates


If you navigate to “Sales”>”Manage Sales Tax”>”Manage Sales Tax Rate” you will find the section for implementing the actual tax percentages related to your area. 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. Country and state will be the same but city will be New York City. You can repeat this process for any number of tax rates you may need.


Setting Up 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. Navigate over to “Sales”>”Manage Sales Tax”>”Manage Sales Tax Rules” to start the process. Once there, go ahead and click on “New Tax Rule”. As you can see in the screenshot below, we have all of our Customer Tax Classes, Product Tax Classes, and Sales Tax Rates here.



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.


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.


Luxury Tax

If you are in New York or Massachusetts, use the Luxury Tax option on your sales tax rates for Clothing & Shoes (or whatever you may have called your product tax class). Since General Merchandise does not fall under any luxury tax rule (only shoes and clothing do) you will need to define 2 rates. One rate will be for the luxury tax and one will be for your standard sales tax (Example: New York x% Luxury Tax Rate and New York Sales Tax Rate x%). To provide an example for luxury tax rate setup, New York’s 4% sales tax only applies to garments whose price after discounts is more than $110.00. In some jurisdictions the local taxes are also exempt; in some the local taxes are still levied. The 4% rate is applied to the entire amount charged for the item. If we were going to create the New York Luxury Tax Rate you would check off the “Luxury Tax Option”, set the threshold to $110 and select the box for “Luxury Tax Applies to the Full Value” as shown below.