How to set up Taxes in WooCommerce

Jul 1, 2022 | WooCommerce

Taxes are very important, in this video I’ll demonstrate how to set them up for different countries and states in WooCommere
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0:00 Intro
0:08 Using the right system
0:39 General tax options
6:00 Adding tax rates
9:04 Tax per product
9:32 Demonstration cart & checkout

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How to set up Taxes in WooCommerce


You don’t want to get sued by the government for not paying taxes, so we are going to set it up right now.

When setting up WooCommerce you come across this one: Setup Tax. When you click on it, you can get the WooCommerce Tax plugin powered by Jetpack, or you can use Avalara which has 30 day free trial – no credit card needed. I’m not a big fan of Jetpack, it really slows your website down and I don’t like the features they’re all implemented on it. Now Avalara is a powerful system, but it actually asks you money. I’m gonna make a separate tutorial about this one. But there is also a way to set it up for free. Just go on to here: “Set up taxes manually” and then we are catapulted into in this page. But first we need to go to “Tax options” over here. So go one step back. You need to determine for yourself: do you want to enter your prices inclusive tax, or exclusive? I always say inclusive. Why? Well it actually is a bit of price psychology and also in marketing used, that you would charge for a single item. For example on this website that I created a tutorial about it, when you go for to a product, you will see the price psychology will says € 31,90 cents.
Or for example this ‘Fit Shaker’. If you want to buy it it’s only € 9,95. This is completely psychological and then it looks cheaper than € 10,- but everyone knows it’s almost exactly the same as € 10. But if I enter my prices exclusive of tax, I really have to do a lot of calculation to get the exact € 9,95 on my products. The next step is a very important one, as it makes a big difference when checking out on your website. If you want to calculate your tax based on your shipping address of your customer, billing address of your customer, or your shop-based address which is your own. Which one should you choose? Well if you’re only selling in your own country, for example your own state where you have the same taxes, you can choose ‘Shop-based address’. If you’re selling cross-borders or you’re selling to different states with other taxes per product, you should use the customer shipping address. And this is very important because taxes will change in different states or different places. Let us demonstrate first with the shop based address. Now the shipping tax class is really important. Do you want to have it based on cart items, use the standard tax class, reduced or zero rate? If you only have one tax class for all your products, and your shipments, then you should use ‘Standard’. If you have different tax classes, for example: in my country – The Netherlands – these things are just products taxed by 21%. But this product with plant-based protein, is actually food. So we are only being charged in 9% taxes. So I have a fit shaker 21% and I have plant-based protein which is 9%. Then I should choose shipping tax class based on card items. Then you have Rounding. Round your tax subtotal level, instead of rounding per line. I should do this at the subtotal level. Especially when you’re adding up more products you will see that the rounding of the tax levels should be done at the highest level, and not on the lowest level, or else this will change a couple of cents here and there, and in an entire year it will totally add up. And you get a difference with your book keeping software. And the tax classes are actually just the names of this one over here, reduced and zero rate. Who actually has a zero rate tax? That would be amazing… So if I change this one for example my 9% rate and I delete this one, and I save my changes, look what happens. Then I get my 9% rate rates over there and I have my standard rates. So you can just add anything in here you want. Then a very important next step: ‘Display the prices in the shop’. It really depends on your culture and country. In my country – The Netherlands – if you sell to customers, normal people, then you should definitely always check ‘including tax’ because nobody calculates with excluding tax. It’s just weird. And it’s a lot of money, it’s 21% so one-fifth of your price will be added up in the last step of the checkout process. You don’t want that! However, if you’re selling to companies or business owners, then you should definitely use ‘Excluding tax’ because business owners can get their taxes back. So you always have to display the prices excluding tax. On this website I’m going to include it, because I only sell to customers. ‘Display the prices during your cart and checkout’ should be exactly the same as the one in the shop, because that is the most logical way, and it really confuses people if they now suddenly have different prices in your cart. Now the price suffix is very useful if you’re using excluding tax. You can for example type here “Excl VAT” like this. And when I refresh my product you will see that Excl. VAT will be over in there. “Money well spent!” And now it says € 31,90 Money well spent! You understand the most used way of course is excl. VAT if you’re selling to companies. We’re gonna leave it empty right now. Display your tax totals: ‘Itemized’ or ‘As a single total’. Again this is very dependable of your target audience. If you’re selling to customers and users, use a single total. It makes way more sense. They really don’t care they just want to have the product. But for business owners, you should really use ‘Itemized’, because we as business owners, we also have to put it in our tax data, to send it to the government, so we can actually make use of the different rates to get the money back from the government. In our case we’re selling to customers, so we’re using ‘As a single total’. Now you finally can press on ‘Save changes’. Then we go to ‘Standard rates’. Because of course we have to
tell WooCommerce at what rate we need to tax things. Press on ‘Insert row’. The first thing is your country code. In my example it should be The Netherlands so I type in just NL.
If you don’t know what your country code, is just click on the country code, and you will get all the country codes in the entire world. So let’s say I’m gonna sell to the United States of America. It would be US. So this is useful for me because I would say USA. So you just put in US like this, and then you have United States. I’m going with The Netherlands so you can learn how the tax in The Netherlands works and we’re also going to set this up for the US so you can see what I mean. I want to set it up for Alabama. And I don’t want to have different zip codes or postcodes for my different countries, because they all have the same tax rate. Also you can define tax per city. I have never seen a city charge more tax than another city in the same state or zip, but please let me know in the comments if you know one, because I’m just curious. In The Netherlands for example we charge 21% on our products. In the beautiful state of Alabama you only do 4% tax. Now this doesn’t actually mean that this country is actually cheaper than The Netherlands, because The Netherlands have a really solid economic system, and we have a really care state with mandatory health insurance, we have excellent roads, and we have very small country so it’s way easier to do that. Then we’re going to setting the tax name. For The Netherlands it’s for example BTW 21%. This one will be added to your front end of your website, I’m going to show you in just a second. And in the Alabama I’m just going to call it a VAT of 4%. Now to set a priority is only useful if you’re using multiple tax rates, in the same country, in the same state, in the same rate. If ou’re not doing that, then you don’t need priority. Compound your taxes is actually if you have multiple taxes over the same product, you can compound them, and then it will actually be charged on top of the other on top of the other. And the last one is shipping. Do you want to have this tax rate applied to your shipping. If I’m shipping to The Netherlands, then yes, 21% will also count for shipping. Because it’s also taxed. In Alabama I’m not sure, because I don’t live there. But we’re gonna use the 4%. If you’re from Alabama let me know in the comments if I’m wrong. Now you can press ‘Save changes’. Let’s go to the reduce rates. Because I now have for my country code The Netherlands I also have a 9% tax rate on food products. And I’m not want to use this one for shipping, because you are not allowed. And let’s say for Alabama I also have a 1% rate on food, and it’s not on shipping. And then we’re going to give it the tax name.

BTW 9% and VAT 1%. If I now go to my products, I need to specify the rate per product because I have different products. let’s go to the shaker. If you press ‘Quick edit’ now you can actually change it without opening in the builder. Because here you can change the tax status to ‘Taxable’ and the tax class will be ‘Standard’ in this case. We press ‘Update’ and then we can go to our protein. And it’s taxable, but it has to be the ‘Reduced rate’ like this. And press ‘Update’ that’s it. So let’s add this product to my cart. We’re also going to add the chocolate plant-based protein to my card. In our card you will see that we have
the protein € 31,90.

Subtotals excellent, it all looks pretty good. When we now scroll down and then we have the
total € 82,16 including € 8,45 VAT. Let me show you what happens when I change this to itemized. Press save changes. And now when I refresh my page you will see that: this is the subtotal € 73,75 and then we have a total of € 82,16. Why is that? Well we have €3,19 21% VAT and €5, 27
with 9% VAT. Let me go to the checkout and you will see it even further. So people can add all their information, and then you can see the total is exactly the same as the cart. But when I go to my tax options and I change this to excluding and excluding, and when I refresh my cart, in the cart totals that they will have new lines which says all the text lines defined per tax rate. This is very useful if you’re selling to companies or entrepreneurs. Now you have noticed during this entire checkout process they’re using my Dutch VAT rates. Because they are using 21 and 9%. How is that? Because I calculate my tax based on my address. So what will happen when I put this on my customer billing address? We’re gonna see. So in my cart this is what you see: shipping, flat rate, shipping to United States. Total € 81,76. There is actually no taxes in this column. Why not? Well we have to specify during the checkout. So let’s go to the United States. And now you can see that the order has been updated with the VAT excluding, excluding, excluding. Then the VAT 4% on the shaker and the shipping.

And then we have the VAT 1% on the food products, the reduced rate. So this is the way you can change your cart, and your checkout process by changing these tax options. If you have a question or you just want to say ‘Hey thank you Matt’, then you can just drop them down in the comments. If I helped you out, hit that like button, and subscribe if you want to see more WooCommerce and WordPress related videos. I wish you an awesome day and I’ll see you in the next video.

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