How to set up US Sales tax

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If you’re a US merchant, you’re most likely required to pay sales tax according to state and local laws. In this article, we will explain how to set up your store so that you are able to collect, report and file sales tax properly.

In this article:

What tax should I pay?

Sales tax apply to the sale of most products and some services in most states. The rates and rules notably differ from state to state, though. For example, California has the highest state-level sales tax rate at 7.5 percent. The lowest sales tax is in Colorado, which has a rate of 2.9 percent.

In order to know what taxes apply to your business, please use this helpful State Sales Tax Map (click your state on the map).

Collecting sales tax at proper amount in your store

Enable automatic sales tax.

  1. Add your company address in your Control Panel → Settings → General → Store profile.
  2. Enable automatic tax calculations in your Control Panel → Settings → Taxes:

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Once the automatic tax rates are enabled, your store will charge a precise tax rate depending on where you and your customer are located.

How the automatic sales tax tool works

In general, if your business has a physical presence in a state (also known as nexus), such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers. As you might already know, tax rates normally vary depending on the customer location. Plus, state laws change from time to time and tax rates get updated.

It may be quite challenging to take into account tax rates for all locations and manually track tax regulations updates. That's why we are offering you an easy way — our automatic tax rates feature. When automatic tax rates are enabled:

  • Online store automatically calculates tax rates depending on your state tax law, store and customer location.
  • Online store stays up to date on the tax law: once tax laws are changed in your state, county or even city government, your store will "know" the new rules and apply them at checkout. No actions required on your side.
If our automatic tax feature doesn’t cover your needs entirely (i.e., you need to mark some of your products as tax free), you can use an advanced rates setup — store also allows to set up taxes manually. Find the Manual section in your Control Panel → Settings → Taxes and click Manage tax rates to be able to add rates manually. Please, also refer to this instruction for manual setup in our Help Portal to configure your store to calculate tax rates for different regions, zones, and countries.
 

Handling tax exempt customers

If you don't want to charge taxes on some of your customers, e.g. non-profit organizations or wholesalers, it also can be done easily. Just mark them as tax exempt on the "Customers" page in your Control Panel. Refer to this article for more details: Tax exempt customers.

Handling non-taxable items

If there are non-taxable products in your store, you can set up a zero tax for them using manual tax rates option. You can either exclude the product from tax calculation or create a special 0% tax rate and apply it to the product. See this instruction on how to set up taxes manually: How to create a new tax rate.

To manage the manually configured tax rates per product, go to your Control Panel → Catalog → Products → individual product page → Tax and shipping tab and choose tax rates you want to enable or disable for that product:

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