Amazon Sales Tax API Shopify TaxJar

How to Categorize your Products in TaxJar

by Alec Carper

Categorize Shopify and Amazon products in TaxJar

Updated June 2018 to add Shopify to the list of shopping carts and marketplaces with product categorization

In the past, merchants who sold a lot of tax exempt or differently-taxed items like clothing and groceries couldn’t always use TaxJar to AutoFile your sales tax returns.

But now, we’re happy that TaxJar users can now categorize untaxed or differently taxed products in your new “Exemptions” tab. This means more TaxJar users than ever can now see accurate “Expected Sales Tax Due” reports and AutoFile  sales tax returns.

Exemptions Tab on TaxJar Dashboard

Note: Right now, this feature is only available to sellers who sell on Amazon or Shopify, or who use TaxJar’s SmartCalcs Sales Tax API, and have no other shopping carts or marketplaces connected to TaxJar. We are working on releasing this feature for more shopping carts and marketplaces in the coming weeks and months. If you sell via another shopping cart or marketplace and want to be notified when your sales channel is available,  just send us an email to support@taxjar.com.

How do Exemptions work?

Before the “Exemptions” tab, if you sold tax exempt items and tried to enroll in TaxJar AutoFile, you would see this message:

TaxJar AutoFile enrollment screen with block

In the past, your options here were to use your TaxJar state report to file your sales tax return manually, or to let TaxJar’s AutoFile engine treat all of your sales tax taxable. This meant you might end up paying sales tax out of pocket. We knew this was less than ideal for our users, and that’s why we worked hard on a fix.

Now that you can categorize your non-taxable and different taxed products on your TaxJar “Exemptions” tab, if you sell tax exempt items and start to enroll in TaxJar AutoFile, you’ll see this screen:

How to enroll in TaxJar AutoFile using Product Categorization

Click the green button to go the “Exemptions” tab and begin categorizing your products. (You can also reach this screen at anytime by clicking the “Exemptions” tab on your TaxJar dashboard.) You’ll see this screen:

New Product Categorization Feature in TaxJar

From there, simply click on a product or multiple products and choose a category:

How to Categorize Tax Exempt Products in TaxJar

To save time, if you know that certain products are tax exempt or different taxed, you can search your products with our search bar.

TaxJar Product Categorization search bar

Once you have categorized all of your products, TaxJar can AutoFile your sales tax returns for you.

For more on product categorization, check out our demo video:

Other Benefits of Categorizing your Products in TaxJar

Even if you don’t use TaxJar AutoFile, categorizing your products will help to make your TaxJar dashboard more accurate.

Currently, we will sometimes show states on your dashboard in yellow if you sell tax exempt or differently taxed products. Right now, you may see this:

TaxJar Dashboard

Yellow states show you areas where TaxJar sees that you were not collecting correctly. However, yellow states currently don’t take tax exempt or differently taxed products into account.

When you categorize your products, those yellow states where you are collecting correctly and sell tax exempt or differently taxed products will turn green like this:

TaxJar Dashboard June 2018
This allows you to more fully see states where you are collecting sales tax correctly and states where you may have a problem under or over-collecting sales tax.

If you have categorized all of your products and are still seeing states in yellow on your dashboard, this means there may be some other issue with collecting the right amount of sales tax. Read here for what to do if you’re still having issues collecting the right amount of sales tax.

Frequently Asked Questions about Categorizing Products

These are the most frequent questions users have asked us about categorizing your non-taxable or differently taxed products in the new TaxJar “Exemptions” tab.

1. Who can use Product Categorization?

Right now, only TaxJar users who sell solely on Amazon, Shopify or use TaxJar’s SmartCalcs sales tax API can take full advantage of this feature at this time. We plan to roll out this feature for other online shopping carts and marketplaces soon.

2. How do I know which category to choose for each of my products?

Amazon sellers:

You should choose the same category in TaxJar that you chose for your product when setting up your Product Tax Codes on Amazon. If you don’t remember which product tax codes you chose, you can see them in your “Inventory Report” in Seller Central.

To pull that report in Seller Central, go to “Inventory” -> “Inventory Report” and then click “Customize the columns for this report.”

Find your product tax codes in Amazon Seller Central

When customizing your report, make sure to include identifying info such as the SKU or ASIN, and the “product tax codes” field. This will allow you to download a report and see your products and their associated product tax codes.

(Thanks to Karen Holmes and the Karen Brit blog for providing this information. Read more about finding a product tax code report in Amazon here.)

Shopify Sellers:

You should choose the same category in TaxJar that you chose for your product when setting up your Tax Overrides on Shopify. If you don’t remember what overrides you used, you can find out more in the Tax Overrides and Exemptions section of the Shopify Sales Tax Manual.

3. Will I have to categorize my tax exempt products every time I make a sale?

You sure won’t. If you have previously categorized a product in TaxJar, we will automatically recognize that product every time you sell it again and apply the appropriate category.

If you commonly sell new tax exempt or differently taxed products, you will need to go into your TaxJar account and categorize them before we AutoFile your sales tax returns. We’ll send you a reminder about this along with your AutoFile confirmation email every filing period.

4. Does this feature also handle tax exempt customers?

This feature currently only categorizes tax exempt products.

However, if you have a completely tax exempt transaction, you can follow the directions here on How to Designate Exempt or Non-Taxed Transactions in TaxJar.

In the future, we will have a way for you to designate an exempt customer (such as a non-profit or government entity) as tax exempt for every sale.

5. I already entered my product tax codes into Amazon. Why doesn’t TaxJar already know how my products are categorized?

TaxJar connects with your Amazon account and pulls in your transaction data. But Amazon currently doesn’t share your product tax code information. That’s why you’ll need to categorize your products in TaxJar. We are working on a way to get around this data limitation.

We’re very excited that this feature will allow more TaxJar users to put a lid on sales tax headaches by using TaxJar AutoFile. Stay tuned here for updates as we continue to improve this feature.

Do you have questions or something to say about product categorization? Start the conversation in the comments!

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