Collect Tax on Your Online Store
TL;DR:
- Set up Sales Tax, VAT, or GST collection based on where your customers are located
- Use automated tax calculations to reduce errors and stay current with changing rates
- Manual tax rates work fine if you have consistent rates across all products
- Tax gets calculated based on shipping address for physical goods, billing address for digital items
- Always check with a tax advisor to make sure you're compliant with local laws
Getting tax collection right on your online store matters. You need to collect the right amount from the right customers, and you need to do it without making checkout complicated.
The main tax types you'll deal with are Sales Tax (mainly US), VAT (EU and UK), and GST (used in countries like Australia and Canada). Which one applies depends on where your customers are located, not where you are.
Understanding Tax Types
Sales Tax gets added at the point of sale and varies by state, county, and even city in the US. VAT is built into the price in most countries that use it, though you can show it separately. GST works similarly to VAT but with different rates and rules.
The key thing is that these taxes apply based on your customer's location. Someone buying from you in California pays California sales tax. Someone in the UK pays UK VAT.
Setting Up Automated Tax Rates
Automated tax calculations handle the heavy lifting for you. Here's how to set it up:
- Go to the Taxes panel in your Squarespace account
- Turn on automated tax calculations
- Enter your business location and tax registration details
- Make sure you're actually registered to collect tax in the locations where you do business
Automated systems update when tax rates change, which saves you from having to monitor every jurisdiction where you sell. They also handle the complex calculations when you have customers in multiple tax zones.
Manual Tax Rate Setup
If you sell products that all have the same tax rate, manual setup might work better for you. Go to the Taxes panel and enter your rates directly.
This gives you complete control and works well if you only sell to customers in one or two locations. You'll need to update rates yourself when tax laws change, but that's usually not too frequent.
How Tax Gets Applied at Checkout
The system calculates tax based on:
- Shipping address for physical products
- Billing address for digital products and services
- Business location if the customer chooses local pickup
Tax gets calculated on the final price after any discounts are applied. So if someone uses a 10% off coupon, they pay tax on the discounted amount.
Tax-Inclusive vs Tax-Exclusive Pricing
You have two options for displaying prices:
Tax-Inclusive Pricing shows the final price including tax. Customers see exactly what they'll pay. This works well in countries where tax-inclusive pricing is the norm.
Tax-Exclusive Pricing adds tax at checkout. Customers see the base price, then see tax added as a separate line item. This is more common in the US.
You can set this preference in the Taxes panel. Pick the approach that matches what customers expect in your main markets.
FAQs
How does automated tax calculation save time?
It updates rates automatically when tax laws change, calculates complex multi-jurisdiction taxes, and reduces the chance of errors. You spend less time managing tax settings and more time running your business.
Can I set different tax rates for different products?
Yes, you can set specific rates for different products in the Taxes panel. This is useful if you sell items that have different tax treatment, like books vs electronics.
What should I do if tax laws change?
If you're using automated calculations, they usually update automatically. With manual rates, you'll need to update them yourself. Either way, check with a tax advisor if you're unsure about new requirements.
How do I handle taxes for international sales?
Research the tax requirements for each country you sell to. Some countries require you to register and collect tax once you hit certain sales thresholds. Others don't require collection at all.
Jargon Buster
- Sales Tax: Tax added at the point of sale, common in the US with rates varying by location
- VAT (Value-Added Tax): Tax on goods and services used in the EU, UK, and other countries
- GST (Goods and Services Tax): Single tax on goods and services used in countries like Australia and Canada
Wrap-up
Tax collection doesn't have to be complicated. Start with understanding what tax applies to your customers, then choose between automated or manual setup based on your needs. Automated works well for most businesses, especially if you sell to customers in multiple locations.
The most important thing is making sure you're actually required to collect tax in the first place. Just because you can collect tax doesn't mean you legally need to. Get advice from a tax professional who knows the rules in your area.
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