Knowing how to do WooCommerce taxes is a confusing but vital part of any e-commerce project. Everyone knows the two things you can count on are death and taxes. When it comes to an online store, taxes are definitely something you’ll need to consider.
Yeah, taxes are confusing. And kind of weird. You’re not the only one scratching your head wondering how it all works.
How Taxes Work in WooCommerce
The good news is that WooCommerce handles taxes really well. Once you enable taxes, there are all kinds of settings and different options for you to set up different sales tax payments.
WooCommerce pro Patrick Rauland walks through those settings in our WooCommerce Bootcamp webinar. In addition to covering payments, shipping, and checkout, Patrick does a great job walking through WooCommerce taxes.
You’ll still need to figure out what rates you have to pay and set it up, but WooCommerce can handle it. There are also some plugins, such as TaxJar, that will do the heavy lifting for you. You’ll need to pay for that service of course, but it might be worth it if you don’t want to worry about WooCommerce taxes. The plugins do require that you enter accurate location information and the proper product categories.
Tech is the Easy Part of Taxes
But it’s the practical realities of WooCommerce taxes and not the technical hurdles you need to worry about. Setting up your WooCommerce site to charge sales tax is pretty easy. But knowing the correct sales tax to charge—that’s a little more complicated.
WooCommerce doesn’t automatically know what sales tax to charge. That’s something you need to figure out.
Two things determine what tax you need to charge:
- The item being sold: Is that particular product taxed?
- Nexus: Your location (and sometimes the location of your customers) will determine what taxes you’re subject to.
And here’s where it gets weird.
Is It Taxed or Not?
- Pennsylvania pumpkins: If they’re for decoration, taxed. If they’re for eating, not taxed.
- Iowa candy: Candy with flour is not taxed, so a Milky Way bar has a tiny bit of flour and is taxed. But a Milky Way Dark has no flour and is not taxed.
- Alabama playing cards: Alabama charges sales tax on decks of playing cards that contain 54 cards or fewer. More than 54 cards? No tax.
Do You Have Nexus?
Nexus determines whether or not you have to pay sales tax. Generally, if you have a business presence in a state, then sales to customers in that state are subject to sales tax. But a number of factors can mean you have a “presence” in a state, from something obvious like having a location in that state to less obvious things like having employees, affiliates or drop shipping in that state.
So location rules triggering taxes can make things weird. In the past, Amazon has avoided putting warehouses in states with large population centers so they could avoid sales tax. But that’s changing as states tighten their laws and Amazon creates more locations.
Nexus also has layers—it’s not just state sales tax. You may be subject to county, city, and other specialized local taxes.
Tips for WooCommerce Taxes
Sorting out WooCommerce taxes can be weird and confusing, so it’s important to know whose responsibility it is. Do you handle it as the developer or is it up to the client? The answer isn’t so simple.
Legally, clients are responsible for their own stores. However, when a client turns to you as the e-commerce expert, you have an ethical obligation to make sure the client is following all the rules.
As the website developer, you should take care of taxes, but you also want to protect yourself from legal liability. So take care of WooCommerce taxes by putting the legal responsibility clearly on the client, but then helping them take care of it. You can do that by including a clause in your contract (you’re using a freelance contract, right?) that states who is responsible for what.
You can do that in two different ways:
- Put the client in charge: Make the client responsible for providing the necessary product and nexus information, and you’ll make sure the store charges what it’s supposed to.
- Do it yourself: Hire a tax lawyer to do the heavy lifting (and charge the client accordingly), but make it clear that the client signs off on the lawyer’s recommendation and accepts legal liability.
There’s also the actual paying of sales tax to the various states and local governments as well as the reporting. That should be your client’s responsibility, but they’ll need the proper data from the store. Make sure you have a conversation about this and responsibility is clearly assigned in your contract.
Working WooCommerce Taxes
Yes, taxes can be confusing and weird. Even tax professionals will disagree about what taxes apply where. But as the developer, this is your opportunity to bring clarity and direction. Make sure WooCommerce taxes are set up correctly and that your client is charging and paying the proper tax.
Taxes may be inevitable, but they’re not impossible.