Setting up a WooCommerce site in WordPress is an interesting process, with many page builders, themes, and blocks available. You must pay attention to designing your store’s layout, writing the perfect product description, and using the best product image.
However, we often forget important things like setting up taxes. Thanks to WooCommerce and many plugins available today, setting up sales tax for your online store is easy.
Once you know the correct rates, this guide will help you use native WooCommerce features to manually add sales tax calculations to your online store in four steps.
Why must you set up sales tax for your online store?
We are not accountants or tax practitioners. The information in this article is meant to guide online store owners in setting up sales taxes for their online stores.
We advice that before you set up tax for your online store, ensure you understand the tax rules in your region, and it’s recommended to meet with a tax professional regarding the best practices for your specific situation.
Setting up sales tax for your online store might seem like a hassle, but it’s a crucial step you can’t skip. As you know, these taxes contribute to public services such as education, healthcare, and community infrastructure. Here are three major reasons why it’s so important:
- Legal compliance — First and foremost, you must set up sales tax to comply with the law. Different regions have different tax requirements, and failing to adhere to these can lead to hefty fines and legal trouble for your business.
- Building customer trust — Customers expect a transparent and seamless shopping experience. Properly managing sales tax is part of that. Displaying and handling sales tax shows customers you run a professional and trustworthy business.
- Financial accuracy — Accurate sales tax setup helps maintain financial accuracy in your accounting. By correctly calculating and collecting sales tax, you avoid discrepancies that can cause accounting headaches.
- Avoiding future complications — It’s better to set up sales tax correctly from the start rather than trying to fix mistakes later. Inaccurate tax settings can lead to issues with refunds, audits, and customer dissatisfaction.
How to set up sales tax in WooCommerce (4 steps)
WooCommerce makes it very easy to set up taxes for your store. This tutorial walks you through the entire process of setting up taxes in WooCommerce.
It’s believed you already have a WooCommerce site, but suppose you don’t. Kinsta makes it easy to create WordPress sites either locally using DevKinsta, on our MyKinsta dashboard, or programmatically via the Kinsta API.
Any option you choose, it is also important you know that speed and security are key to any ecommerce site. We know this, which is why we offer the best hosting to boost your WooCommerce store’s speed by up to 200%.
Once your site is ready, ensure you install the WooCommerce plugin and set up your store before you proceed with the steps below.
Step 1: Enable WooCommerce taxes
To get started, you need to enable taxes for your WooCommerce store. Here’s how:
- Go to your WordPress dashboard and navigate to WooCommerce > Settings.
- Under the General tab, find the option labeled Enable taxes.
- Check the box next to Enable taxes.
Enable tax rates and calcluations in WooCommerce. - Click on Save changes.
Once you’ve done this, a new Tax tab will appear in your WooCommerce settings.
Step 2: Configure your tax options
Now that taxes are enabled, you can configure your tax options by heading to the new Tax tab in your WooCommerce settings:
In the Tax options menu, there are tax options that you need to understand before you can select. Here is a detailed explanation of all options.
Prices entered with tax
This option determines whether the prices you enter for your products in WooCommerce are inclusive or exclusive of tax.
If you choose Yes, I will enter prices inclusive of tax; it means that, for example, if you set a product price at $100 and your tax rate is 10%, WooCommerce assumes that the $100 price already includes the 10% tax. So, the product’s base price is $90.91, and the tax portion is $9.09.
It’s the other way around if you choose No, I will enter prices exclusive of tax. For example, If you set a product price at $100 and your tax rate is 10%, WooCommerce will add the 10% tax to the base price. So, the product’s final price will be $110.
Calculate tax based on
This setting allows you to choose the address WooCommerce will use to determine the tax rate for an order. You have three options to choose from:
- Customer shipping address — This option calculates taxes based on where the customer wants the product shipped. For example, if you run an online store in California, USA, and a customer from New York places an order and wants it shipped to their address in New York, WooCommerce will apply the New York tax rate to the order.
- Customer billing address—This option calculates taxes based on the billing address provided by the customer. For example, if a customer from Texas places an order but requests it be shipped to a different address in Nevada, WooCommerce will apply the Texas tax rate based on the billing address.
- Shop base address—This option calculates taxes based on your store’s location. For example, if your store is in California, USA, regardless of where your customer is located or where the product is shipped, the tax rate is based on your store’s address. WooCommerce will apply the California tax rate to all orders.
Shipping tax class
This setting lets you specify which tax class applies to your shipping charges. You have always at least these two options to choose from:
- Shipping tax class based on cart items — This default option applies the tax class of the items in the customer’s cart to the shipping cost. If the cart contains items with different tax rates, the shipping tax class will be determined as follows:
- If any product in the cart is assigned the Standard rate tax class, this rate will apply to the shipping.
- If no product has the Standard rate, the first rate in the Additional tax classes section will be used.
- If the highest tax rate should apply, ensure it is listed first in the Additional tax classes.
For example, if a customer buys baby clothes (assigned a reduced tax class) and a book (assigned a standard tax class). The shipping cost will be taxed at the standard rate because there is a product in the cart with the standard tax rate.
Here is a practical example:
- Product A: Baby clothes with a reduced tax rate of 5%
- Product B: Book with a standard tax rate of 20%
- Shipping Tax: 20% (standard rate applied because it is present in the cart)
- Standard — This option applies the standard tax rate to the shipping cost, regardless of the tax rates of the items in the cart.
You can add more classes and choose them however you wish in the Additional tax classes. However, just like Standard, this option will apply the new rate to the shipping cost, regardless of the tax rates of the items in the cart.
Rounding
This option determines how tax amounts are rounded during calculations. You can choose to round taxes at the subtotal or line item levels.
By default, WooCommerce rounds taxes at the line item level, meaning each product’s tax is calculated and rounded individually before summing them up. Some tax regulations or accounting practices might require this method.
Alternatively, you can check the box to round up tax at the subtotal level, which means that the total tax for the order is calculated first and then rounded.
Additional tax classes
This option allows you to create and manage different tax categories beyond the default ones. In the text field, enter the names of your new tax classes, one per line. For example, you might add classes like Luxury goods or Eco-friendly products.
Once you’ve added the names and clicked Save Changes, these new tax classes will become available in the Shipping Tax Class option. Next to the existing tax classes, you’ll see a tab for the newly created tax.
In step 3, you’ll learn how to configure these tax classes.
Display prices in the shop
This option controls whether product prices displayed on your store’s front end (e.g., product listings, product pages) include or exclude tax. You have two choices:
- Including tax — Prices shown to customers are final, with tax already included, simplifying the shopping experience. For example, a product listed at $100 will appear as $100, including a 10% tax.
- Excluding tax — Prices shown are base prices without tax, which is added during checkout. For example, a product listed at $100 will have a 10% tax added at checkout, totaling $110.
Display prices during cart and checkout
This setting determines how prices are displayed to customers in their shopping carts and during checkout. Like the shop display settings, you can show prices, including or excluding tax.
- Including tax — Prices in the cart and at checkout already include tax, ensuring transparency and preventing surprises. For example, if a product priced at $100 includes a 10% tax, the cart will show $100 with a breakdown of $90.91 as the base price and $9.09 as the tax.
- Excluding tax — Prices in the cart and at checkout initially exclude tax, which is added as a separate line item. For example, a product priced at $100 excluding tax will show an additional $10 tax at checkout, totaling $110.
If you previously opted to enter prices exclusive of tax, it’s logical to select the same option here. Similarly, if you entered prices inclusive of tax, you should choose the Including tax option.
In fact, if these settings are not consistent, you’ll be warned of possible rounding errors.
Price display suffix
This text string appears after the price of your products, helping customers understand whether the price shown includes or excludes tax. You can use {price_including_tax} or {price_excluding_tax} depending on your preference.
For example, if you set the suffix to (incl. tax) and the product price is $50, including tax, the displayed price will be “$50 (incl. tax)”. If you use {price_excluding_tax} and set the suffix to ({price_excluding_tax} excl. tax), it will display as “$50 ($45 excl. tax)” if the base price before a 10% tax is $45. This shows both the price with tax included and the price without tax.
Display tax totals
Finally, you’ll want to choose whether to display tax totals as a single amount at checkout or as an itemized list. To keep things simple for customers, you may choose As a single total, which is standard in many e-commerce stores. However, it may be better to itemize taxes if your store includes products sold at different tax rates.
That’s it! We’ve covered all the tax options available in WooCommerce. Once you’re satisfied with your settings, click the Save changes button at the bottom of the page.
Step 3: Set up your tax rates
Now that you’ve configured your tax options, it’s time to set up your tax rates. You’ll need to follow this process for each tax rate your store uses.
This section explains how to set up standard tax rates, using a U.S.-based store as an example. To get started, navigate to the Tax tab in WooCommerce > Settings. Next, click on one of the tax rate tabs (Standard, Reduced Rate, Zero Rate) depending on the type of tax rate you want to set up.
To add a new rate, Click the Insert row button and fill in the fields.
- Country code — Enter the two-letter country code (e.g., US for the United States).
- State code — Enter the two-letter state code (e.g., CA for California).
- Postcode/ZIP — Specify the postal codes for the tax rate (leave blank to apply to all).
- City — Specify the cities for the tax rate (leave blank to apply to all).
- Rate % — Enter the tax rate percentage (e.g., 8.25 for 8.25% and 20.000 for 20%).
- Tax name — Name the tax (e.g., VAT).
- Priority — Set the priority for the tax rate (1 is the highest priority).
- Compound — Check this box if this tax is compounded (calculated on top of other taxes).
- Shipping — Check this box if this tax applies to shipping costs.
After filling in the details, click the Save changes button at the bottom of the page. Here’s what the tax rate for California in the United States may look like.
Meanwhile, the UK has a general standard tax of 20%, and this is what it would look like if you added it.
When you configured your tax options, you had to choose whether taxes would be calculated based on the customer’s shipping or billing address or on your store’s location. If you choose to base taxes on your store’s location, you may only need to specify one standard tax rate for your location.
However, if taxes are calculated based on each customer’s location, you may need to enter tax rates for different regions. For instance, if you cater to U.S. customers and taxes are calculated based on their addresses, you’ll likely need to set up a tax rate for each state. This can be time-consuming, but it ensures accuracy.
To simplify this process, you can use the WooCommerce tax extension that automatically applies the correct tax rates based on country, city, and other attributes.
You can also use other extensions, such as TaxJar and Avalara AvaTax. These tools can save you significant time and effort.
Suppose you have these rate values in a CSV file. You can import them by clicking the Import CSV button.
You can also export CSV. This way, you’ll have a backup copy of all your tax details. If you want to use the same tax rates on another website, you can import the CSV file instead of entering all the information manually.
Step 4: Apply tax rates to your products
After setting up your tax rates, the next step is to apply these rates to your products. This ensures that the correct tax amount is calculated at checkout based on the product type and the customer’s location.
On your WordPress dashboard, go to Products > All Products and click on the product you want to edit, or click on Add New to add a new product.
In the Product data section, click the General tab and locate the Tax status and Tax class fields.
The drop-down menu for Tax status gives you three options: None, Taxable, and Shipping only. The Shipping only option means only the cost of shipping will be taxed.
You must choose a tax class if you select Taxable or Shipping only.
For example, if you sell a book that is zero-rated for VAT in the UK, select the Zero Rate class. Also, select the Standard class for a standard taxable item like clothing, which is subject to the standard VAT rate of 20%.
Applying tax rates in bulk
If you have many products, you can apply tax rates in bulk to save time. Select the products you want to edit by checking the boxes next to them. Next, click on Bulk Actions and select Edit, then click Apply.
In the bulk editor, you can set the Tax status and Tax class for all selected products at once.
Finally, Click the Update button to apply the changes to all selected products.
One last piece of information: WooCommerce also offers detailed tax reports, which you can access by navigating to WooCommerce > Reports > Taxes. This section lets you view tax data sorted by code or year.
If you recently set up your store or enabled taxes, you might not see any data. However, knowing where to find these reports is essential, as they will be invaluable when filing your tax returns.
Summary
Setting up sales tax on your WooCommerce store might seem daunting, but with WooCommerce, you can configure your tax rates and calculations in just a few clicks.
I hope this guide has helped you set up sales tax for your online store. One thing you should also know about WooCommerce is that it can sometimes slow down WordPress sites, especially for large stores with lots of products. Fortunately, with Kinsta as your hosting provider for your WooCommerce store, you won’t need to worry about this.
If you’re considering changing your current host, we provide unlimited free migrations from all hosts (our migration team will take care of everything for you).
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