Note: The below-given information is relevant for merchants with Online Store and Advanced Store plans 💡
If you’re a US merchant, you’re most likely required to pay sales tax according to state and local laws.
Table of contents
What tax should I pay?
Sales tax applies to the sale of most products and some services in most states.
The rates and rules differ from state to state.
In order to know what taxes apply to your business, please use this State Sales Tax Map (click your state on the map).
Collecting the correct amount of sales tax in your store
In general, if your business has a physical presence in a state, such as a store, office, or warehouse, you must collect applicable state and local sales tax from your customers.
As you might already know, tax rates normally vary depending on the customer location. Plus, state laws change from time to time and tax rates get updated.
It may be challenging to take into account tax rates for all locations and manually track tax regulations updates. That's why we recommend using automatic taxes. When automatic tax rates are enabled:
We automatically calculate tax rates depending on your state tax law, store, and customer's location.
Your store stays up to date on the tax law. Once tax laws are changed in your state, county, or even city government, your store will “know” the new rules and apply them at checkout. No actions are required on your side.
The tax rate is calculated with a zip code accuracy. If your customer provides zip+4, it will be calculated with even higher precision. In some states (and the number of such states is growing), the tax is calculated with a street address level precision.
Enabling automatic sales tax
To enable automatic taxes in your store:
Add your company address in your Store Manager → Settings → General → Store profile. Make sure there are no spelling mistakes or extra spaces in the address. We also recommend providing zip+4 to get the most accurate tax rates, as the tax is calculated with a street address level precision.
Enable automatic taxes in the Settings → Taxes & Invoices:
Once the automatic taxes are enabled, your store will charge a precise tax rate depending on where you and your customer are located.
If this solution doesn’t cover your needs entirely (i.e., you need to mark some of your products as tax-free), you can set up taxes manually. In the Settings → Taxes & Invoices, find the Manual section and click Manage tax rates to be able to add rates manually – learn more 💡
Handling tax-exempt customers
If you don't want to charge taxes on some of your customers, e.g., non-profit organizations or wholesalers, simply mark them as tax-exempt in the Store Manager → My Sales → Customers.
Refer to this article for more details: Tax-exempt customers 💡
Setting up multi-state nexus
Generally, you only have to collect and report sales taxes in the state where your business resides. But the more precise rule actually goes like this: if your company has a physical presence in a state, such as a store, office, or warehouse, you must collect applicable state and local sales tax from your customers in that state. In legal terms, this physical presence is known as nexus.
Each state defines nexus differently, but all agree that if you have a store or office of some sort, a sales tax nexus exists — and you need to charge and report tax there. If you are uncertain whether your business qualifies as a physical presence, you should contact your state's revenue agency. Read this article for more details on the matter: What is Sales Tax Nexus? 💡
By default, Zyro detects your nexus state from your store address and, once you have automatic taxes enabled, it will calculate tax rates accordingly. If you have only one nexus, just enable automatic taxes, and it's all set.
If your business is distributed over several states, it’s also possible to set up your taxes so that your customers from the other nexus states will be charged proper sales tax. The TaxJar app will help you with that. The app costs from $19 to $99+ a month and has a free trial period.
To enable multi-state nexus in your store:
Enable automatic taxes in the Store Manager → Settings → Taxes & Invoices. Once the option is enabled, your store will automatically calculate and charge sales tax at checkout.
Install the TaxJar application.
Open your TaxJar dashboard.
Navigate to Account → SmartCalcs API.
Enable the Use Personalized Sales Tax Calculations.
On the same page, find the Nexus Address Configuration section and add your store nexuses.
Now you have multi-state nexus set up, and we will automatically calculate tax rates according to your nexus states.
Reporting and filing sales tax returns
If you sell taxable products, you must report taxes and file tax returns with a state and locality, in which you’re collecting sales tax. The frequency of tax reports and returns depends on the volume of your sales. In most states, you must prepare tax returns monthly if you have a high volume of sales, but at least quarterly in almost every state.
The TaxJar app also allows you to automate tax reporting. It will automatically report and file your sales tax returns to the state for you.
To report and file sales tax returns automatically:
Make sure your store charges every customer a proper tax amount. The easiest way to do that is to enable automatic taxes in your Store Manager → Settings → Taxes & Invoices. Once enabled, your store will automatically calculate and charge the appropriate sales tax at checkout.
Install the TaxJar application.
Once installed, the app will automatically start synchronizing your sales and will guide you through any additional steps.
While it synchronizes your sales, open your TaxJar account settings and fill in your business profile to let the app automate everything for you.
When TaxJar finishes exporting your sales, follow the instructions they provide to generate tax reports and enable automatic filing and reminders.
Handling non-taxable items
If some products in your catalog should be tax-free, automatic taxes won't work for you as they apply to all products, and you can't mark products as tax-free. In this case, you should set up taxes manually, so you could waive taxes on certain items.
Once the manual taxes are set up, disable taxes for products that should be tax-free:
From your Store Manager, go to Catalog → Products and open a product that taxes shouldn't apply to.
Open the Taxes tab.
Disable taxes for this product.
Save the changes.
Once saved, the taxes that you set up in your store in Settings → Taxes & Invoices won't apply to this product. Repeat the steps for other products that should be tax-free.
I set up automatic tax rates, but taxes won’t apply.
If you’ve set up automatic taxes and get orders with zero taxes charged, check the addresses of the customers who placed those orders. You must collect sales tax only from buyers from your state or from states where you have nexus.
So, if a customer is not from your state, it’s absolutely fine that they are not charged any tax.
In a nutshell, you must charge applicable taxes only from customers who come from the same state as your company.
Let's say your company is located in Texas. When a customer from Texas places an order in your store, they are charged tax. But if a customer is from New York or any other state, i.e., not from Texas, they won’t be charged any tax. Learn more about Sales Tax Nexus in the TaxJar blog.
If you have nexus in several states, set up multi-state nexus to charge taxes correctly.
How to apply different tax rates to different types of products?
Different types of products can be taxed at different rates. For example, if you sell alcohol and food in your store, you will most likely need to charge different tax rates for these products. In this case, you will need to set up taxes manually and assign appropriate tax rates to products.