How To Charge Sales Tax or VAT

Getting Started

  1. Go to the "App Store".
  2. Install the "Tax Rules" App.
  3. Go to the "Apps" > "Tax Rules" section of your store's admin area to get started.

How do I charge one tax rate for all of my products?

  1. Go to the "Apps" > "Tax Rules" area of your Dashboard.
  2. Click "New Rule".
  3. Give your tax a name, such as "Sales Tax" or "VAT". This name will be displayed to your customers.
  4. Add one or more Tax Jurisdictions. A Tax Jurisdiction is where you want to have this tax applied.
  5. To charge the same rate for all of your products, click the "Select a Tax Profile..." drop down in the Tax Rates section, choose "All Other Products", and add the rate as a percentage.
  6. Click "Save".
  7. Go to the "Inventory" > Gear Icon > "Manage Shipping" section of your Dashboard.
  8. Find each of your Shipping Profiles that you want to add Tax to and click "Edit".
  9. From the "Tax Profile" drop down, select the desired Tax and click "Save".

Notes

By default, taxes are only apply to non-digital products and don't include the shipping amount when calculating the tax. If you'd like, you can include digital items as well as the shipping rate in the tax calculation by checking the corresponding boxes in the "Options" section of the "Tax Rule" creator.

How do I charge different tax rates for different types of products or only tax a subset of my products?

  1. Go to the "Apps" > "Tax Rules" area of your Dashboard.
  2. Click "New Rule".
  3. Give your tax a name, such as "Sales Tax" or "VAT". This name will be displayed to your customers.
  4. Add one or more Tax Jurisdictions. A Tax Jurisdiction is where you want to have this tax applied.
  5. To charge a different rate for different types of products, you can use the "Tax Profile" feature. To do this, click the "Select a Tax Profile..." drop down in the Tax Rates section and choose "Add a New Tax Profile". An example of a Tax Profile is something like "Apparel".
  6. Click "Save" in the "Create a Profile" overlay.
  7. Add the rate as a percentage.
  8. Click "Save".
  9. Go to the "Inventory" > Gear Icon > "Manage Shipping" section of your Dashboard.
  10. Find each of your Shipping Profiles that should be associated with the "Apparel" Tax Profile you just created and click "Edit".
  11. From the "Tax Profile" drop down, select "Apparel" and click "Save".

Notes:

A Tax Profile must be associated with one or more Shipping Profiles for that Tax Rate to be applied to the correct Products.

As above, taxes are only applied to non-digital products and don't include the shipping amount when calculating the tax. If you want to include digital items or the shipping amount, you must add a rate to the Tax Rates section of the Tax creator for "All Other Products". The rate you specify for "All Other Products" is applied to digital items and used for shipping amounts, when selected.

A product will only be taxed if the tax has a rate for "All Other Products" or if there is an associated Tax Profile for that product's Shipping Profile.

How do I handle 2015's updated digital download VAT laws?

If you charge VAT, as of 2015, there are a couple of changes for digital only orders you should be aware of (ec.europa.eu/taxation_customs...):

  • Rather than charging the VAT rate for the country you operate out of, you must charge the VAT rate where your customer normally resides.
  • You must have two pieces corroborating evidence concerning your customer's country of normal residence.

To help with these changes, we have made a number of updates to our Tax Rules app and CSV Order Exporters:

  1. If you have Tax Rules configured, for any digital only order, your customer must specify their billing location (country) in the cart, before checking out. If this country differs from the country automatically determined based on their IP address, we now automatically ask them to specify their normal country of residence.
  2. If we had to ask your customer to specify their normal country of residence because of a mismatch in evidence (billing address country vs. country of IP address), the country specified will be used when calculating the VAT rate. Otherwise, the VAT rate will be calculated using the matching billing address country and country of IP address.
  3. When exporting orders from the Sales area of your dashboard, you'll find that three new columns have been added, including: "IP Address", "IP Address Country", and "Customer Declared Country". The "IP Address Country" will only be provided for orders placed on or after January 5th, 2015. The "Customer Declared Country" will only be provided if the order was digital only, and the billing address country specified did not match the IP address country, thus requiring a declaration by the customer to specify their normal country of residence. The order's Billing Address Country, IP Address Country, and optionally the Customer Declared Country will provide the necessary pieces of corroborating evidence concerning your customer's country of normal residence.

Notes:

You must have the Tax Rules app installed (see above) and configured for each jurisdiction for the above updates to take effect.

It is important to understand what happens when a person is traveling in the EU. If someone that normally resides in the United Kingdom, and has a billing address in the United Kingdom, is traveling in Spain when they make a purchase from your France based store, you should still be charging them the VAT rate for the United Kingdom, not the VAT rate for Spain. In this scenario, their billing address country of the United Kingdom will not match their IP address country of Spain and so they will be asked to declare their normal country of residence, prior to checking out, thus resulting in you correctly charging the VAT rate for the United Kingdom.