Sales Tax 101 WooCommerce

WooCommerce Sales Tax Demystified

by Mark Faggiano

Sales tax explained for WooCommerce Sellers and Developers

Congrats! You’ve took the step to open your on online store and you’re powering it with the WooCommerce shopping cart.

Selling stuff is the fun part. The not-so-fun part is getting a handle on sales tax. Who do you have to charge sales tax? What do you do with sales tax you collect? And how does that all work in WooCommerce anyway?

TaxJar has your back. This guide will answer your general WooCommerce sales tax questions and get you started.

Before you even begin selling, your first step is to:

Determine Where You Have Sales Tax Nexus

Sales tax is governed by individual states, which is part of the reason that it can get so confusing – there are actually 46 sets of sales tax laws around the country. States use revenue from sales tax collected to fund things like schools, roads and public safety.

States require you to collect sales tax from your buyers if you have “sales tax nexus” in that state. Sales tax nexus is basically just a fancy way of saying “significant presence.” Like we said, every state is slightly different, but nexus is generally created with:

  • Having an office
  • Having an employee
  • Having a warehouse
  • Having an affiliate
  • Storing inventory
  • Drop shipping from a 3rd party provider
  • Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair

If your business is fairly simple – for example, just you sourcing items and shipping them out of your home – then you may only have sales tax nexus in one state. But as your business gets complex, you might find yourself with sales tax nexus in multiple states.

Determine where you have a “significant presence” and use this map to find out more about sales tax nexus in that state:

State Sales Tax Map

Register for Sales Tax Permits

Once you’ve determined where you have sales tax nexus, your next step is to register for a sales tax permit in every state where you have nexus.

You’ll find how to register for a sales tax permit on your state’s department of revenue website. Don’t skip this step before collecting sales tax, because many states consider it unlawful to collect sales tax in their name without a permit.

Once you’ve registered for your sales tax permit, your state will tell you how often and on what dates you should file a sales tax return. Normally, the more sales tax you collect, the more often you pay. Most states require sellers to file either monthly, quarterly or annually.

Once you have your sales tax permit (or permits, if you have nexus in multiple states), your next step is to begin collecting sales tax.

Collect Sales Tax

Now it’s time to ensure that you are collecting the right amount of sales tax from customers. This is easy with the TaxJar Sales Tax Automation plugin for WooCommerce.

The TaxJar Sales Tax Automation plugin for WooCommerce features:

  • Easy setup – just enter your zip code and city and we do the rest
  • Local rates – if you’re required to collect on the local level, we’ll include those calculations for you, too
  • Frequent updates – TaxJar is always updated sales tax rates, so you’re always sure you collected the correct amount of sales tax
  • Simple pricing – TaxJar’s price is based on how many transactions you calculate per month. TaxJar for WooCommerce starts at $19/month. How do we do it?

TaxJar takes the following input from your store:

  • Seller’s street address, city, and zip code
  • Transaction amount
  • The city and zip code where item is being shipped
  • Any shipping fees charged
  • Product tax category

And returns an accurate sales tax rate (including state, county, city, special tax) based on:

  • Seller’s nexus – does Buyer’s city and zip-code cause nexus?
  • Local sales tax sourcing laws (if the buyer’s state is origin-based or destination based)
  • Shipping taxability laws (shipping is not taxable in every state)
  • Product exemptions (some products, such as groceries and clothing, are not taxable in every state)

Based on that information, TaxJar for WooCommerce also automatically determines:

  • Sales Tax Nexus
  • Origin vs. Destination sourcing
  • Shipping taxability
  • Sales tax rate (state county, city, special)

One thing to remember: If you have sales tax nexus in a state, then you must collect sales tax from buyers in that state through every platform that you sell on. For example, if you sell on eBay and WooCommerce, and you trigger sales tax nexus by hiring an employee in another state to help you with just your WooCommerce store, you still need to charge sales tax to buyers who purchase from you through eBay, too.

Then comes your next step…

Report How Much Sales Tax You’ve Collected

Sooner rather than later, a sales tax filing due date will roll around. In order to know how much sales tax you’ve collected to remit to the state, you’ll need to report how much sales tax you’ve collected.

This is simple with TaxJar’s Sales Tax Automation plugin for WooCommerce – we’ll simply do it for you. (We’ll also integrate with the other platforms you sell on for simple multichannel sales tax reporting.)

But if you choose to do it the manual way, keep some sales tax reporting best practices in mind.

Some states only want you to report how much you collected from buyers in the state. This is fairly simple. Unfortunately it’s also uncommon! A majority of states are much more complicated. Not only do they want to know how much you collected, but they want you to break down your sales tax reporting by county, city or other special taxing district. When you sell a large volume of products or sell on multiple platforms, figuring this out with a service like TaxJar will mean wrestling with lookup codes, tax tables and spreadsheets.

Once you’ve determined how much sales tax you collected from buyers over the taxable period, your next step is to…

File Sales Tax

You have a couple of options here, too. You can login and file at your state’s department of revenue, or sign up for AutoFile from TaxJar and let us file your sales tax for you in every U.S. states!

Keep these sales tax filing best practices in mind for a simpler tax time:

Always File on Time – Not only will this prevent penalties, it will also result in a percentage sales tax discount in some states. That’s free money you don’t want to leave on the table.

File Zero Returns – Many states want to hear from any seller who holds a sales tax permit regardless of whether or not you collected sales tax in that state over the taxable period. Be sure to file “zero returns” in states that just want you to check in, even if you have no sales tax to remit.

And then you get to… relax! You’ve put a lid on your WooCommerce sales tax.

Of course, there’s a lot more to WooCommerce sales tax than this, so if you have question, check out our Sales Tax 101 for WooCommerce Sellers and Developers guide. Or start the conversation in the comments!

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