WooCommerce Taxes: How they work and how to customize them.

by May 20, 2023Compliance, Ecommerce, For Developers0 comments

If you operate an online store, it’s crucial to ensure that your business adheres to local regulations. This includes correctly implementing tax rates for your products or services. However, setting up taxes in WooCommerce may seem overwhelming.

Fortunately, the process is simpler than you think. Out of the box, WooCommerce provides an easy way to incorporate taxes into your product pricing, allowing you to customize tax rates for different regions.

If you need more flexibility or automation, there are tax plugins available to assist you in setting up accurate rates.

In this article, we will guide you through the process of setting up taxes in WooCommerce in three simple steps using the built-in features. Additionally, we will share a few plugins that can automate your tax management.

Please note that we assume you already have a WooCommerce store set up. If not, refer to our comprehensive guide before proceeding. Let’s get started!

Step 1: Enable WooCommerce taxes and configure settings

To begin, navigate to WooCommerce → Settings in your WordPress dashboard. Under the General tab, look for the option to enable taxes and tick the box labeled “Enable tax rates and calculations.”

After saving your changes, WooCommerce will add a new section for taxes in your store’s settings. Visit the Tax tab to explore your options.

Here are the different tax-related settings you’ll encounter:

  • Configuring tax calculations and classes: Choose whether your product prices will be inclusive or exclusive of tax. You can also select the basis for tax calculations, such as the customer’s shipping address, customer’s base address, or your store’s location. Additionally, you can specify a shipping tax class and enable tax rounding at the subtotal level.
  • Select display options for taxes: Decide whether the product prices displayed in the shop, user’s cart, and checkout page should include or exclude tax. Customize the price label to indicate inclusiveness or exclusiveness. Choose whether multiple taxes should be displayed as a single total or as an itemized list during checkout.

Ensure that you consult a local tax expert if you are uncertain about any of the settings, as specific rates may be required based on your country or tax jurisdiction.

Step 2: Set up your tax rates

WooCommerce provides three types of tax classes: standard rate, reduced rate, and zero rate. Depending on your state’s laws, you may need to calculate taxes based on the customer’s location or shipping address. This requires setting up tax rates for different country codes or states (if applicable).

To begin, return to the Tax tab and select the tax class you want to set up. In this tutorial, we’ll focus on standard tax rates.

Click on “Insert row” to add a new tax rate and enter the necessary information in the provided fields. You can add multiple tax rates as required. To remove a rate, select the corresponding row and click on “Remove selected row(s)”.

If available, you can import or export tax rates as CSV files. However, ensure the accuracy of such files if obtained from third-party sources.

For setting up tax rates for US customers, follow these steps:

  • Enter the country code (two-digit) and state code (if applicable).
  • Specify ZIP/postcode details using wildcards and ranges.
  • Optionally, include the applicable city.
  • State the tax rate with four decimal places (e.g., “20.0000” for a 20% tax rate).
  • Provide a name for the tax rate (e.g., “VAT”).
  • Set the priority value to “1” if this tax rate should supersede others in your store.
  • Check the “Compound” box if this rate should be applied on top of other tax rates.
  • Enable the “Shipping” option if this tax rate should also apply to shipping charges.

Save your changes and use “Insert Row” to add tax rates for other states if necessary.

You can get all tax rates for required states by using the free Avalara State Sales Tax Rates downloads.

Step 3: Access your tax reports

At this stage, your tax rates are set up and will be automatically applied when customers make purchases. It’s advisable to monitor your store’s tax charges for future reference and tax filing purposes.

The built-in WooCommerce analytics tool offers a detailed tax report. Navigate to Analytics → Taxes in your dashboard to access this feature. You can select a date range to view the total tax paid during that period, including shipping and order taxes. Use the “Show” option to compare reports for different tax codes.

The tax report also provides a breakdown of taxes by location. You can download this information as a CSV file for further analysis.

Automate sales tax with WooCommerce tax plugins

If you prefer to automate the tax collection process, various free and paid plugins are available to help. Here are three notable options:

  1. Official WooCommerce Tax service: This service, powered by Jetpack’s cloud services, offers automated sales tax for several supported countries, including the USA, Canada, Australia, the United Kingdom, and the European Union. It’s a free option but only applicable in supported regions.
  2. Avalara + WooCommerce AvaTax: Avalara is a popular tax automation and compliance tool. The WooCommerce AvaTax plugin integrates with Avalara to automate tax calculations, and it even assists with tax return preparation. Avalara supports countries in Asia, South America, Africa, and more. While the plugin is free, an Avalara subscription is required, starting at $19 per month.
  3. TaxJar: TaxJar is another SaaS-based sales tax automation platform that helps with tax calculation, collection, and reporting. The official TaxJar plugin for WooCommerce enables easy integration with TaxJar’s service. TaxJar currently supports the United States, Canada, Australia, and the European Union. It’s worth noting that TaxJar and the official WooCommerce Taxes service share the same supported regions, as the latter is based on the TaxJar API.

Start managing WooCommerce taxes today

By default, WooCommerce offers multiple options for setting up taxes in your store. You can customize how prices are displayed, calculate taxes based on customer location, set tax rates for different countries and regions, and more.

Remember to consult with a professional to ensure compliance with local regulations. To summarize, here are the three simple steps to set up WooCommerce taxes:

  1. Enable taxes in your store and configure tax calculation settings and display options.
  2. Set up tax rates for different country codes and locations.
  3. Access tax reports to monitor tax charges and compare taxes paid by region.

If you prefer automation, consider using a WooCommerce tax plugin to simplify the process.

If you need assistance with other aspects of configuring WooCommerce, check out our WooCommerce shipping tutorial for guidance.

Should you have any questions regarding setting up taxes in WooCommerce, feel free to ask in the comments section below!