When it comes to managing an online store, there are many tasks that need to be taken care of, including inventory management, product management, payment and shipping, and more. However, one of the most tedious tasks that is often overlooked is managing taxes on your WooCommerce store. Sales tax regulations can be complex and vary from state to state, making it a challenging task for online store owners. In this article, we will guide you through the process of understanding sales tax, managing it on your online store, and automating the process.
Defining Sales Tax
Sales tax is a tax that is imposed on the sale of goods and services. In a physical store, sales tax is relatively easy to manage because it is based on the location of the store. However, managing sales tax in an online store can be challenging as you may be shipping products all over the world. In the US, sales tax laws vary from state to state and locality to locality, making it even more complicated. If you have multiple stores in different states, you may need to register in each state to collect and file taxes.
For eCommerce stores, you need to collect taxes in states where you have a sales tax nexus. A sales tax nexus is created when you have a physical presence in a state or reach a certain sales threshold. For example, if you have employees working in a particular state, you may need to collect sales tax from buyers in that state. Similarly, if you have inventory stored in a state, you may need to collect sales tax from buyers in that state.
Collecting and Filing eCommerce Taxes
Once you have determined which states you have a sales tax nexus in, you need to register for a permit and start collecting taxes. Every state has different rules regarding sales tax, which can make it complex when you have multiple sales tax nexus. Automating the tax process or hiring a professional to handle it for you can be helpful. The tax rates are divided into two categories: the location of the store and the location of the customer. The customer location tax is less applied due to added difficulties.
After collecting taxes, you need to file them. Every state has different rules regarding filing sales tax, which can make it a complex and tedious job. Some states require you to physically remit the taxes while others prefer to do it online. The date for filing taxes could be quarterly, monthly, or yearly, so you need to stay up-to-date in case of any changes.
Tax Settings on WooCommerce
WooCommerce offers a straightforward guide for setting up taxes on your online store. First, you need to enable the tax rates option in general settings. Then go to WooCommerce > Settings > Tax and configure taxes on your eCommerce store.
WooCommerce offers multiple options for your site such as if you want to add taxes with your price, shipping class, additional classes, and much more. WooCommerce offers to calculate taxes in 3 different methods, such as store location, customers’ billing location, or customers’ shipping location. You can also assign classes to your products, so when a customer buys a product, a standard or additional tax class is applied to it.
You can also enable tax prices on your product page, in the checkout, or cart page. There are also multiple settings available for setting tax rates and how to update or remove them, which you can find on their official website.
Automating the Tax Sales Process
Managing sales tax on your WooCommerce store can be a complex process and requires a professional to take care of things. However, even then, the chances of human error are higher than ever. The rules surrounding sales tax are ever-changing, making it difficult to keep up. Thus, by using a WooCommerce sales tax plugin, you can automate the whole process and collect the right taxes and file returns without missing a deadline.
There are many WooCommerce sales tax plugins available that can automate the whole process and reduce the work to nothing. These plugins automatically calculate the collecting and filing taxes based on each state’s rules, reducing the chances of errors.
Here are some of the best WooCommerce sales tax plugins to help you set up, collect, and return taxes easily:
TaxJar is the ultimate sales tax plugin for WooCommerce. It automates and streamlines the whole process and makes collecting and filing taxes a breeze. It easily connects to your WooCommerce store and automatically calculates taxes based on customer location or sales threshold. It also automatically files taxes, so you don’t have to miss a deadline ever again.
2. Simple Sales Tax
The Simple Sales Tax plugin simplifies the tax process on your website by integrating it with TaxCloud. TaxCloud is a cloud-based service that keeps track of all updated rules and regulations in every jurisdiction, so the chances of error are completely eradicated. This plugin is filled with features such as real-time tax calculation, tax reports, tax exemption, and much more.
3. WooCommerce Taxamo
The WooCommerce Taxamo plugin enables you to connect your store with the Taxamo API, which will automatically calculate the tax based on your customers’ location and items in cart. It’s an EU VAT calculation service and is extremely easy to use.
4. WooCommerce Tax Exempt
The WooCommerce Tax Exempt plugin enables you to exempt taxes from certain customers or user roles from the backend. Customers can fill out a request form for tax exemption that you can easily review and accept/reject from the admin account. You can also personally select customers for tax exemption without the need to fill out a request form.
5. Avalara AvaTax
Avalara AvaTax is a fully automated sales tax experience that is filled with amazing features to apply the right tax at the right time. With Avalara AvaTax, leave the hard work to them and reduce the chances of error greatly.
Managing sales tax on your WooCommerce store can be a complex process, but it is essential to stay compliant with the rules and regulations. By using a WooCommerce sales tax plugin, you can automate the whole process and collect the right taxes and file returns without missing a deadline. However, it is important to note that using these tips or plugins does not guarantee compliance with all applicable local, county, state, or country tax laws. It is always best to consult an accountant or tax lawyer to ensure your business is in full compliance.