USA/International

 

Question: How do I configure my sales tax?

I am based in Los Angeles, California. The current Los Angeles sales tax is 8.25%. For all orders shipped within California, the sales tax is 8.25%, and for those shipped outside the state it’s 0%. So, how should I define my sales tax?
 
Answer:
1. To define tax rates, go to Store Settings >> Location/Taxes/Localization >> Taxes.

2. In the Tax Names section, create a Sales Tax.

3. In the Tax Display Options section, select the Sales Tax and click the Edit button. For Displayed Text (visible to customer), enter "Sales Tax:" or any other text you want customers to see at checkout.

For "Select Option:", select "Display if applicable". This means that the "Sales Tax:" text will display for customers only when Sales Tax is defined. You can choose different display options as needed.

4. By default, there are two classes of catalog products: Taxable and Non-Taxable. In the Product Tax Classes section, you can create additional product classes in case your applicable tax policies are more complex.

5. In the Tax Rules on Shipping Costs section, define the tax rule for shipping. At the time this document was created (December 2008), California’s policy stated that shipping costs ARE taxed if delivery is made using your own vehicle, but are NOT taxed if using a third-party delivery service (see section 10. Are delivery and handling charges taxable? at http://www.boe.ca.gov/sutax/faqpurch.htm). According to this policy, you should exclude Federal Express, Freight101, InterShipper, United Parcel Service, and U.S. Postal Service, while leaving taxes applicable to Custom Shipping Rates and Standard Shipping Rates (because these two methods imply delivery using your own vehicle). The list shown below is an example only – your view may differ.

6. The section Tax Rates. Product Tax Class - Nontaxable should be left blank. This means that all products belonging to this tax class will not be taxed. Now, define the tax formula in the section Tax Rates. Product Tax Class - Taxable.

NOTE: The tax class for a product is defined when you add the product to the catalog, by using the Tax Class option.

To create the tax calculation formula, click the Add button and then enter the formula in the following window:

After you click Add, the section Tax Rates. Product Tax Class - Sales Tax will display the tax formula:

According to this, all products of Tax Class - Taxable shipped within the state of California will be taxed based on the following formula:
Tax = 8% * (Sale Price + Shipping Cost - Discount).

IMPORTANT! This explanation is only an example, and tax values and rates may change over time. To determine the exact tax rates and tax formulas in your case, please consult your accountant.

Question: How do I configure ZIP-code-based taxes?
In Oklahoma, where I’m based, retailers must use destination-based sourcing rules to correctly identify the local sales tax to charge on a retail sales transaction. Under the destination-based sourcing rules, sales generally are sourced to the location where the purchaser receives the item sold. Retailers who ship or deliver sold items to their customers’ locations will be required to collect the local sales tax in effect where delivery is made. To calculate tax in my online store, I plan to use 5-digit zip code tax rate files available from http://www.tax.ok.gov. How do I configure these ZIP-based taxes?

 

Answer:

The Shopping Cart system allows you to calculate sales tax based on the ZIP code of the shipping address. First, go to Store Settings >> ZIP Code Based Tax Rates and upload a .csv file with the Oklahoma tax rates. The .csv file format is displayed on the page Zip Code Based Tax Rates.

Then, as described in Answer 1, define the name, tax class and formula for this tax. When you add the tax calculation formula, select ZIP Code Based Rates for Rate (%) as shown below:

After you click Add, the section Tax Rates. Product Tax Class - Sales Tax will display the tax formula:

Based on this, all products of Tax Class - Taxable shipped within the state of Oklahoma will be taxed according to the following formula:
Sales Tax = [Oklahoma Sales Tax Rates]% * (Sale Price + Shipping Cost - Discount),
where [Oklahoma Sales Tax Rates] will be substituted with the sales tax rate based on the ZIP code of the shipping address.

IMPORTANT! This explanation is only an example, and tax values and rates may change over time. To determine the exact tax rates and tax formulas in your case, please consult your accountant.

Question: How do I setup multi-state tax rules?
My client is required to charge tax to Kansas and Missouri residents. I have yet to find clear instructions on how this can be accomplished. How do you set up multi-state tax rules?
 
Answer:

At the time this document was created, sales tax within the state of Kansas are determined based on the shipping address. Retailers must use destination-based sourcing rules to correctly identify the local sales tax to charge on a retail sales transaction. Under the destination-based sourcing rules, sales generally are sourced to the location where the purchaser receives the item sold. Retailers who ship or deliver sold items to their customers’ locations will be required to collect the local sales tax in effect where delivery is made. Therefore, for Kansas you should upload the ZIP-based tax rates file as explained in Answer 2, and then create a tax calculation formula for the state of Kansas.

When this document was created, current ZIP-code-based tax rates were available from the Kansas Department of Revenue website at http://www.ksrevenue.org/5digitzip.htm.

For Missouri, define the sales tax as explained in Answer 1.

If you want to apply a tax to a product for customers both in Kansas and in Missouri, the tax formula should look as follows:

This means that if the product is shipped to Kansas, then the following formula is used:
Sales Tax = [Kansas Sales Tax Rates]% * (Sale Price + Shipping Cost - Discount),
where [Kansas Sales Tax Rates] is substituted with the sales tax rate based on the ZIP code of the shipping address in Kansas.
 
If this product is shipped to Missouri, then the following formula is used: Sales Tax = 7.25% * (Sale Price + Shipping Cost - Discount).

IMPORTANT! This explanation is only an example, and tax values and rates may change over time. To determine the exact tax rates and tax formulas in your case, please consult your accountant.


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