Managing Sales Tax in Magento

Isaiah Bollinger

Isaiah Bollinger

Managing your taxes in Magento is important to stay compliant with the different states, zones and tax regions you may be selling your products to. The US has incredibly complex sales tax rules. With over 10,000 taxing jurisdictions, trying to stay compliant in all different jurisdictions can be a nightmare for many companies. Even certain types of candy can be taxed differently because of the ingredients used to make them. Simply put, sales tax is a complex.
To setup your taxes in Magento you must go to the tax section of Magento. The tax section of Magento can be found in Sales => Tax as shown here:
Manage Taxes Magento

Manage Tax Rules:

The tax rules are the different tax rules you have for managing your product tax classes, customer tax classes, and tax rates. So maybe you want to assign a certain tax rate to retail customers but a different rate to wholesale customers. With the Magento tax rules you can do that.
Name: Here you can name the rule you want such as “retail customers – taxable goods – California Rate
Customer Tax Class: This is where you can create different customer tax classes such as retail, distributor, wholesale or whatever other types of customer tax classes you may have. You have to setup the customer tax classes and also assign the appropriate tax classes to the correct customers and customer groups that you want to use them for. Out of the box Magento will simply have a retail customer tax class, so if you want other ones you will have to set that up in customer tax classes and manage those classes in the customers section of Magento.
Product Tax Class: This is the type of tax class assigned to product. Out of the box Magento will have shipping and taxable goods. However you may want to create product tax classes like fashion, food, international or other more specific product tax classes for the things you sell. This must be done in the product tax classes section in Magento. Once you have setup all your product tax classes you then need to go and make sure all products have the appropriate product tax class assigned to them.
Tax Rate: The rates are the different rates you have created for the different tax zones. So you may have a rate for each state, and also a rate for different regions in each state. This can all be managed in tax zones and rates.
Priority: The priority is the priority you are assigning to this rule. The lower priority number the higher the priority it is. Notice it says “Tax rates at the same priority are added, others are compounded.”
Tax Rule Magento

Manage Tax Zones and Rates:

Here you can create different tax rates for the different zones you will be selling to. You can create one for each state or go even more in depth to target certain zip codes within a state or region.
Tax Identifier: This is the tax identifier code you will want to recognize the zone and rate. For instance it might be “US – MA – Zone1” or just “US – MA” if you are only doing rates per state.
Country: This is just what it looks like and is the country that the tax rate applies to.
State: Just like country this is the state that the tax rate applies to.
Zip/Post is Range: This allows you to decide if you want to use an exact zip / post code or a range. Yes would be a range and no would just allow you to use on zip / post code or the *.
Zip/Post Code: Here you can put in a zip code or leave it at a * if you want to cover all the zip codes in a state. If you selected yes to range than you can put in a range like 01000  01005.
Rate Percent: Just like you would expect, this is the tax rate that will be applied to the zone you have created. You will have to look up what rates apply to what jurisdictions and types of products.
Manage Tax Rate Information Magento

Import / Export Tax Rates:

Here you can import and export tax rates just like you can import product data information. This could save you time if you want to quickly fill out a large number of tax zones and rate information as well as create a large number of rules.
Import and Export Taxes Magento

Customer Tax Classes:

Here you can create different tax classes. For instance you may want a wholesale or distributor tax class. Out of the box Magento will only come with a retail tax class. Once you have created new tax classes you must make sure the customer group has the appropriate tax class selected in the Customers => Customer Groups section of Magento.

Product Tax Classes:

Product tax classes, just like customer tax classes, can be created as you need them. The default setup will have shipping and taxable goods product tax classes setup. You can create new product tax classes and assign them to the products that fall under those product tax classes in the price section the product information.

Avalara Sales Tax Automation:

You may start to realize that setting up all the proper tax rules for all the different products you have is not realistic because of how complex and quickly the sales tax laws change. Avalara is a best in class Magento sales tax automation solution. If you sell millions online or have very complex sales tax rules to implement Avalara might be a great solution for your business. Regardless of how you handle sales tax online, Avalara is definitely worth checking out because even if it is not necessary for you now it may be as you grow your eCommerce store.

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