WooCommerce Explained is the best-selling book on WooCommerce.
In this exclusive tutorial, taken from WooCommerce Explained, we're going to show you how to manage taxes for your WooCommerce store.
We're going to try to explain WooCommerce taxes in plain English, but there's no getting around the fact that taxes can be a headache.
So, sit down in a comfortable chair and make yourself a strong cup of coffee. Let's explore how taxes work in WooCommerce.
E-Commerce and Sales Tax
There's really only one kind of tax that e-commerce stores charge: sales tax.
Sales tax rates are different in every country. For example, if we run our company from Florida, we need to collect 6% sales tax. In California, the sales tax is 8.25%. In the UK, sales tax is 17.5%. In Spain it is 18% and in Denmark the rate is 25%.
The name also changes from country to country. In many European countries, the sales tax is called VAT (Value Added Tax). In Canada and Australia, the sales tax is called GST (Goods and Services Tax). In Japan, sales tax is known as a consumption tax.
The name of the tax, the rate, and the surrounding rules, will be different depending on where you are.
But, at the end of the day, we're all talking about the same thing. If you run an e-commerce store, you may well need to collect sales tax from your customers.
That's what this guide is about. How do we calculate the right amount of sales tax to add to different transactions?
Your Video guide to WooCommerce Taxes
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WooCommerce and Automated Taxes
When we you install WooCommerce, you are given the chance to enable "Automated Taxes", which is a free service from WooCommerce Services.
This service automatically sets up our tax collection for us, which can make life much, much easier.
However, before we get further, I want to encourage you to find out your legal obligations regarding taxes. Tax law varies wildly from place to place, and if you get it wrong, you are going to be in quite a mess. You will want to look at federal government taxes, state taxes, city taxes, and county taxes to find out what you need to tax and what you don’t. The Automated Taxes from WooCommerce services should do this for you - but you still want to have everything checked by an expert.
This is particularly true if you have a business presence in multiple locations.
You may have heard the term nexus before. It doesn't come up often since it's a tax term - but it's key to understanding tax collection.
Nexus is any place where you have a business presence.
Each region (state, country, municipality) may define a business presence a little differently, but it's usually an employee, a storefront, a warehouse, or maybe even an affiliate. You can confirm with a tax professional where you have nexus.
For each region where you have nexus, you'll have to collect taxes. And you'll need to figure out the rate for each of those locations.