Question about the 4 tax options under settings > taxes > tax calculations

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Question about the 4 tax options under settings > taxes > tax calculations

VarkaTech
Visitor
2 0 1

Can someone please give me an explanation as to what these 4 options do?
I think I have a general idea, but i'd like to understand practical real-world application of these 4 checkable boxes.

Accepted Solution (1)

Victor
Shopify Staff
2571 235 545

This is an accepted solution.

Hi @VarkaTech,

Thank you for getting in touch. I believe you are referring to these four check-boxes shown below:

24-52-92824-54843

I'd be happy to provide more information on each one.

All prices include tax

This option dictates whether or not the prices you enter in for your products are tax-inclusive or tax-exclusive. As an example, prices for products in the UK are typically displayed with sales tax (VAT) included, so merchants based in the UK would likely want to check this box, whereas merchants based in the USA would likely want this box to be unchecked, as prices in the United States are usually shown without sales tax included and are instead added on at checkout. You can read more on this setting here.

Include or exclude tax based on your customer's country

After deciding whether you want to include or exclude taxes in your product prices, you can then decide whether you want to include or exclude them based on your customer's country. Following the example above, there may be a UK merchant who needs taxes included in their prices when selling domestically, but does not want international customers to pay the full tax-inclusive price if they are selling to a region or country where they are not required to charge taxes. This then allows customers in places where the merchant does not charge sales tax to pay cheaper, tax-exclusive prices, whilst their customers in the UK still pay the full tax-inclusive rate. A breakdown of how this feature works can be found here.

Charge tax on shipping rates

Checking this option allows you to charge taxes on shipping rates if that is something you believe you are required to do. This option should only be used if you are outside of the USA, Canada, UK, or the European Union, as for these countries and regions taxes are charged on shipping automatically if it's required.

Charge VAT on digital goods

This option is mainly applicable to businesses selling into the European Union, as customers in EU countries are required to pay VAT on digital goods  at the rate that applies in their own country, regardless of where the seller is located. I would recommend checking out our guide on this if you are selling digital goods, as it goes into more detail about how and when this feature should be enabled.

I hope I have been able to clarify all of these tax options for you and what they mean, but please let me know if you have any further questions.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
 - Was my reply helpful? Click Like to let me know! 
 - Was your question answered? Mark it as an Accepted Solution
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View solution in original post

Replies 5 (5)

Victor
Shopify Staff
2571 235 545

This is an accepted solution.

Hi @VarkaTech,

Thank you for getting in touch. I believe you are referring to these four check-boxes shown below:

24-52-92824-54843

I'd be happy to provide more information on each one.

All prices include tax

This option dictates whether or not the prices you enter in for your products are tax-inclusive or tax-exclusive. As an example, prices for products in the UK are typically displayed with sales tax (VAT) included, so merchants based in the UK would likely want to check this box, whereas merchants based in the USA would likely want this box to be unchecked, as prices in the United States are usually shown without sales tax included and are instead added on at checkout. You can read more on this setting here.

Include or exclude tax based on your customer's country

After deciding whether you want to include or exclude taxes in your product prices, you can then decide whether you want to include or exclude them based on your customer's country. Following the example above, there may be a UK merchant who needs taxes included in their prices when selling domestically, but does not want international customers to pay the full tax-inclusive price if they are selling to a region or country where they are not required to charge taxes. This then allows customers in places where the merchant does not charge sales tax to pay cheaper, tax-exclusive prices, whilst their customers in the UK still pay the full tax-inclusive rate. A breakdown of how this feature works can be found here.

Charge tax on shipping rates

Checking this option allows you to charge taxes on shipping rates if that is something you believe you are required to do. This option should only be used if you are outside of the USA, Canada, UK, or the European Union, as for these countries and regions taxes are charged on shipping automatically if it's required.

Charge VAT on digital goods

This option is mainly applicable to businesses selling into the European Union, as customers in EU countries are required to pay VAT on digital goods  at the rate that applies in their own country, regardless of where the seller is located. I would recommend checking out our guide on this if you are selling digital goods, as it goes into more detail about how and when this feature should be enabled.

I hope I have been able to clarify all of these tax options for you and what they mean, but please let me know if you have any further questions.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
 - Was my reply helpful? Click Like to let me know! 
 - Was your question answered? Mark it as an Accepted Solution
 - To learn more visit the Shopify Help Center or the Shopify Blog

VarkaTech
Visitor
2 0 1

Phenomenal answer, this is exactly what I needed. Thank you 🙂

Victor
Shopify Staff
2571 235 545

Hi @VarkaTech,

No problem at all, and I'm glad it helped. Please reach out again if you've any further questions.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
 - Was my reply helpful? Click Like to let me know! 
 - Was your question answered? Mark it as an Accepted Solution
 - To learn more visit the Shopify Help Center or the Shopify Blog

SusanBlueSky
Visitor
2 0 0

Victor, do you know if the requirements to charge sales tax on shipping has been updated since 2021? Our tax prep firm that files all our returns referred us to chart which showed state by state which ones assess sales tax on shipping charges. 

When we select 'Charge tax on shipping rates' in our Shopify settings, which states does Shopify assess sales tax on? Since we can't select state by state, which ones does Shopify know to exclude? I noticed that KS is not assessing sales tax on shipping when according to the attached chart, they should. Please advise. Thanks.

Victor
Shopify Staff
2571 235 545

Hi @SusanBlueSky,

 

Our tax system is automated and updated regularly, so shipping taxes for specific states should be accounted for. We have a dedicated taxes team that tracks changes to tax rules to ensure that our system is up-to-date, but due to the granular nature of sales taxes—especially in the United States—there may be instances where you want to charge a different rate of tax for a specific state or region in comparison to our automated system. You can use tax overrides to achieve this, and overrides can be applied to shipping for your state of choice:

 

07-56-41070-24311

 

If you need assistance with this, or if you believe there to be incorrect data in our tax system, please contact our support team directly.

Victor | Social Care @ Shopify 
 - Was my reply helpful? Click Like to let me know! 
 - Was your question answered? Mark it as an Accepted Solution
 - To learn more visit the Shopify Help Center or the Shopify Blog