How They Work & How to Customize Them

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If you run an online store, you’ll want to make sure your business complies with local regulations. This includes implementing the correct tax rates for your products or services. However, setting up WooCommerce taxes can seem like a daunting task.

Fortunately, the process is simpler than you might expect. Out of the box, WooCommerce makes it easy to incorporate taxes into your product pricing. You can even customize tax rates for different regions.

If you want more flexibility and/or automation, you can also find tax plugins to help you set up accurate rates.

In this post, we’ll show you 👨‍🏫 how to set up taxes in WooCommerce in three easy steps using the built-in features. Then, we’ll also share a few plugins that can help you automate your taxes.

ℹ️ We’re assuming that you already have a WooCommerce store set up (if not, check out 👉 our handy guide). Let’s get started!

How to set up WooCommerce taxes using built-in functionality

  1. Enable WooCommerce taxes and configure their settings
  2. Set up your tax rates
  3. Access your tax reports

1. Enable WooCommerce taxes and configure their settings

As we mentioned, WooCommerce lets you incorporate taxes into your prices. However, you’ll most likely need to enable this feature for your store.

To get started, navigate to WooCommerceSettings in your WordPress dashboard. Under the General tab, look for the Enable taxes option and tick the box labeled Enable tax rates and calculations:

Enabling taxes in WooCommerce

Once you save your changes, WooCommerce will add a new section for taxes in your store’s settings. You can head to the newly created Tax tab to view your options.

👉 Let’s go through the different tax-related settings that are available.

Configuring tax calculations and classes

First, you’ll need to choose whether your product prices will be inclusive or exclusive of tax. If you decide to enter prices exclusive of tax, WooCommerce will automatically calculate and add the taxes to the final price during the checkout stage:

Accessing the tax options in WooCommerce

You’ll also need to select the factor that tax calculations will be based on. You can work out taxes according to the customer’s shipping address, the customer’s base address, or your store’s location.

Next, WooCommerce will ask you to choose a shipping tax class. By default, you’ll get three classes to choose from: standard rate, zero rate, and reduced rate. We’ll take a closer look at each option later in this post.

You can base the shipping tax on the user’s cart items, or choose one of the available tax rates:

Selecting a shipping tax class in WooCommerce

You also have the option to enable tax rounding at the subtotal level, rather than per line. This is calculated on the user’s cart page:

Adding tax classes in WooCommerce

As you can see, WooCommerce also lets you create new tax classes in addition to the ones mentioned above. To add a tax class, you just need to enter a name in the box provided.

Select display options for taxes

Additionally, you’ll need to choose whether the product prices displayed in the shop, in the user’s cart, and on the checkout page will be inclusive or exclusive of tax:

Configuring the display options in WooCommerce taxes

You can also customize the label for your prices, so users will know whether they’re inclusive or exclusive of tax. Simply enter {price_including_tax} or {price_excluding_tax}, depending on your preference.

Finally, you’ll want to choose whether multiple taxes are displayed as a single total during checkout or as an itemized list. When you’re happy with your settings, click on the Save changes button.

If you’re unsure about any of the settings covered above, you may want to consult with a local tax expert. Depending on your country or tax jurisdiction, you may be required to use specific rates for your products.

2. Set up your tax rates

As we mentioned earlier, WooCommerce comes with three types of tax classes:

  • Standard rate: This is the default tax rate for most products.
  • Reduced rate: Some products or services may qualify for a reduced tax rate.
  • Zero rate: This is applied to products that are exempt from tax.

We also looked at how to add new tax classes. Depending on the laws in your state, you may need to calculate taxes based on the customer’s location or shipping address. This would entail setting up tax rates for different country codes or states (if you’re based in the US).

To get started, go back to the Tax tab and select the tax class. For this tutorial, we’ll be setting up standard tax rates:

Setting up standard tax rates in WooCommerce.

To add a tax rate, click on Insert row. Then, you can start adding information in the relevant fields. You can include as many tax rates as you wish.

To delete a rate, select the row and click on Remove selected row(s).

You also have the option to import or export tax rates as CSV files.

Many third-parties have created pre-made CSVs of tax rates for certain jurisdictions, which you can find by searching Google. Just make sure to verify the accuracy of those files before importing them.

How to set up tax rates for US customers

WooCommerce lets you set up tax rates for different countries and regions. Let’s look at how to create a tax rate for different states and locations in the US.

Once you click to add a new row, you’ll need to enter the following information:

  • Country Code: Here, you’ll enter a two-digit country code.
  • State Code: You’ll also need to supply a state code (if applicable).
  • ZIP/Postcode: You can also tax rates for different postcodes, using wildcards and ranges (e.g., targeting all zip codes starting with “22”).
  • City: You can specify the city where this tax rate is applicable.
  • Rate: Here you’ll state the tax rate, using four decimal places (e.g., “20.0000” for a tax rate of 20%).
  • Tax Name: Enter a name for your tax rate, such as “VAT.”
  • Priority. Enter a value of “1” if this tax rate should supersede all other rates in your store.
  • Compound. Tick this box if you want this rate to be applied on top of other tax rates.
  • Shipping. Select this box if you also want to apply this tax rate to your shipping charges.

When you’re done, click on Save changes. You can then select Insert Row to add another tax rate for a different state.

Here’s what your standard tax rates might look like:

An example of different tax rates for US-based customers.

When a user from the US makes a purchase in your store, the appropriate tax rate will be applied, based on their location. Once again, we recommend that you confer with a tax professional to make sure you’re using the correct rates.

Remember that you can also configure rates for other tax classes, such as reduced and zero rates. Simply select the tax class from the top of the page and repeat the process outlined above.

3. Access your tax reports

At this point, your tax rates are set up and ready to go. They’ll be automatically applied when customers make purchases in your online store.

However, it’s also a good idea to keep an eye on your store’s tax charges. In particular, you may need to access this information when it comes time to do your business’ taxes.

Fortunately, the built-in WooCommerce analytics tool offers a detailed report of your taxes. To access this feature, navigate to AnalyticsTaxes in your dashboard:

Taxes report in WooCommerce

You can select a date range and view the total tax paid during that period. You’ll also have a record of your shipping and order taxes.

If you want to compare reports for different tax codes, navigate to Show (right below the date range), and select Comparison. Then, choose the tax codes you want to compare. These are the tax rates you set up in the previous step:

Comparing tax code reports

If you scroll down to the bottom, you’ll see a breakdown of the taxes per location:

Tax code reports in WooCommerce

Of course, if you’ve just set up your taxes, there won’t be any data available just yet. However, it’s important to know how to access and use these reports for future reference. You also have the option to download all of this tax-related information as a CSV file.

Three best WooCommerce tax plugins to automate sales tax

If you don’t want to deal with configuring and managing taxes manually, you can also find a number of free and paid plugins 🔌 to help automate tax collection on your store.

Here are some of the top options…

  1. Official WooCommerce Tax service
  2. Avalara + WooCommerce AvaTax
  3. TaxJar

1. Official WooCommerce Tax service

WooCommerce Taxes service

If you’re in a supported country, the official WooCommerce Taxes service is one of the best ways to automate your tax rates.

Powered by Jetpack’s cloud services, this service offers automated sales tax for the USA, Canada, Australia, the United Kingdom, and the European Union.

Unfortunately, if you’re in an unsupported region, WooCommerce Taxes won’t be able to help.

💰 Price: Free

2. Avalara + WooCommerce AvaTax

Avalara WooCommerce

Avalara is a popular SaaS tool for tax automation and compliance.

With the WooCommerce AvaTax plugin from SkyVerge, you can easily use Avalara to automate your store’s taxes. Beyond calculating accurate rates, it can even help you prepare your tax returns.

As a bonus, Avalara offers broader support than the official WooCommerce Taxes service, including support for countries in Asia, South America, and Africa.

While the WooCommerce AvaTax plugin is free, you’ll need an Avalara subscription to use it. Plans start at just $19 per month.

3. TaxJar

TaxJar WooCommerce

Like Avalara, TaxJar is another SaaS-based sales tax automation platform that helps you calculate, collect, and prepare sales tax reports.

With the official TaxJar plugin for WooCommerce, you can easily use the TaxJar service to automate WooCommerce taxes.

TaxJar is also owned by Stripe, so you can trust that it comes from an established company.

TaxJar currently supports the United States, Canada, Australia, and the European Union.

These supported regions are identical to the official WooCommerce Taxes service. This is because the official WooCommerce Taxes service is based on the TaxJar API.

Get started with WooCommerce taxes today 🏁

By default, WooCommerce has several options for setting up taxes in your store. You can display prices inclusive or exclusive of tax, calculate taxes based on each customer’s location, add tax rates for different countries and regions, and more.

Just keep in mind that you may need to seek the help of a professional to make sure that you comply with local regulations.

To recap, here’s how to set up WooCommerce taxes in three simple steps:

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

💡 If you don’t want to do things manually, you can also use a WooCommerce tax plugin to automate things.

If you’d like a helping hand with other parts of configuring WooCommerce, you can also check out our 👉 WooCommerce shipping tutorial to learn how to set up your store’s shipping rates.

Do you have any questions about setting up taxes in WooCommerce? Let us know in the comments section below!

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