Setting up US state tax

Updated on 20-October-2016 at 10:16 AM

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Understanding US state taxes

If you are selling products to the US, customers must pay state taxes on the purchases that they make. You can easily add an option to your shopping cart which prompts your customers to specify the state that the goods will be shipped to and automatically have the relevant tax rate for that state applied to all goods and shipping charges.

Set up US state taxes

  1. The first step is to create tax codes. Select E-Commerce > Tax Codes, and then select UNITED STATES from the country menu.

  2. Click the Add all USA state tax rates link to add all state tax rates to your website. These codes will display under Destination State dropdown inside your shopping cart. 

    Note: Leave the percentage for the states you are selling to and give all other states 0%.

  3. Now you need to add the tax codes to the shopping cart. Select Site Manager > Module Templates > Online Shop Layouts > Shopping Cart.
  4. Locate {tag_shippingoptions} in the content editor and change it to {tag_shippingoptions,true}.
  5. Click Save.

That's all you need to do to enable this option for your online shop. Now go to your online shop and add one or more products to the cart and checkout to see how this works.

If you need to charge tax at a county or other sub-state level, you can add those codes here as well (CA - City and County of San Francisco for example) and they'll appear in the state dropdown on the shopping cart page.

Note: When using this feature, there is no need to set tax codes on individual products. If you do so, they'll function as a default and the tax for that code will appear on the shopping cart before the user selects their state.

Case study for US state tax

In regards to US State tax, typically you are only required to collect taxes only from customers in states where you do business. However, this system's state tax is very flexible and customizable and if you want to do it differently you can.

Implementing state-level tax this is relatively easy and the system will actually enforce this so the customer does not bypass it.

In this example we have used Minnesota. The process is the same for any state in US.

To achieve this:

  1. Create your tax codes. However only having "MN" and "Other States" will not do the job (this is explained below). Please ensure all US states are added.
  2. Set all states tax rate to 0% except for Minnesota

That's all that's required for setup.

Now whenever a customers goes through your online shop, they will be forced to choose the state where the goods will be shipped. If the state is MN, then the relevant tax code will get added, however if they choose another state, then no state-level tax will get added.

The system will enforce this after the user clicks Check out. If the user selects CA for California just to bypass the state-tax, in the next step, in the shipping address, the system will only allow delivery to CA. So if the customer wants the goods shipped to Minnesota, then they will need to choose Minnesota in the previous step which means they will also have the state tax added.