E-commerce isn't all fun and games, of course. You do have obligations to operate lawfully and to pay taxes. WooCommerce doesn't know the tax rates unless you connect it to a third-party service or enter them manually.
In the United States, it's typical that you have to pay state tax when the buyer is in a state where you have your nexus. Nexus means a physical presence such as an office or warehouse.
You can enter your tax rates manually into WooCommerce. Once the user enters their location during the checkout process, WooCommerce will automatically calculate the taxes and add them to the total.
You'll have to consult a tax expert to determine the tax rates you need to enter into your store. You could have federal rates, state rates, municipality rates, zip code rates, and more. It all depends on the laws of your business and the laws of the buyer.
Using the following steps, we first set our basic tax settings and then enter our rates:
- From the WordPress admin, go to WooCommerce | Settings | Tax.
- Make sure the Enable taxes and tax calculations setting is enabled. Otherwise, WooCommerce will skip right over the tax calculations.
- Choose if you want to enter your prices with or without taxes by choosing an option for the Prices Entered With Tax field. In the US, it's common to enter prices without taxes.
- Choose whether you want to display prices with tax included or with tax excluded by choosing an option for the Display Prices in the shop select box. In the US, it's common to display prices without taxes.
- Choose an option from the Calculate Tax Based On drop-down. If you are operating in the US, you may want to select Customer billing address. Please consult with a tax expert to verify whether this is the best option for your store.
- Click on Save changes.
We've configured our basic settings. Now we need to enter our rates.
- Go to the WooCommerce | Settings | Tax page and click on Standard Rates.
On this page, we can enter as many rates as we need.
- Click on Insert row.
- Enter the Country Code, State Code, ZIP/Postcode, City, or whatever is appropriate to determine your tax rate.
- Enter the tax rate in the Rate % column.
- Add a name for the tax in the Tax Name field. This could be as simple as
Colorado state tax. Please check with your accountant whether the tax needs to be called by a specific name. - Enter a number for the Priority field. The priority is used to limit one tax rate per priority. So, if there is no reason someone should be billed taxes for two different zip code ranges, make sure they have the same priority and only the first matching rate will apply. If you want to have a national tax rate, a state tax rate, and a city tax rate, make sure they're all using different priorities. You could have one priority for all national rates, another for state rates, and yet another for all city rates.
- You can optionally check the Compound and Shipping settings. Your tax expert can let you know how the taxes should be applied and if you need to apply them to shipping costs or whether the tax rate needs to be compounded.
- Click on Save changes.
On the checkout page, as soon as the customer enters their address, WooCommerce will calculate the applicable taxes, add them to the total, and display it to the customer, as shown in the following screenshot:
If you don't want to consult with a tax expert, there are several tools you can use to calculate the tax rates for you. Refer to the next recipe to learn more about a third-party service that does it all automatically.
You can also see the official documentation at http://docs.woothemes.com/document/setting-up-taxes-in-woocommerce/.