Developer’s Cheat Sheet: 5 Sales Tax Questions to Ask WooCommerce Clients

Written by Jake Johnson on February 13, 2018 Blog.

You’re a WooCommerce store developer with a lot on your plate. The last thing you need are sales tax questions or omissions – an often-forgotten but vital aspect of a website throwing off your development timeline. That’s why we put together the last cheat sheet you’ll ever need for helping clients set up sales tax on their online store.

5 Sales Tax Questions to Ask Clients

There are five essential questions to ask clients before setting up sales tax collection in their WooCommerce store. We’ll go over each one and why you need to know the answer to best provide a full-service sales tax setup.

1. In what states and countries do you collect sales tax?

The way the U.S. sales tax system works, most merchants are not required to collect sales tax from all buyers. Instead, retailers are only required to collect sales tax in states where they have sales tax nexus. Your client may only be required to collect sales tax in their home state, or they may be required to collect sales tax in multiple U.S. states or multiple countries. You’ll need to know this to ensure they’re not making mistakes, such as attempting to collect sales tax from every buyer, or not collecting sales tax at all.

States with sales tax

The state(s) where your client collects sales tax also determines whether they should charge sales tax on shipping charges. Some states consider shipping charges to be a necessary part of a taxable eCommerce transaction, and require online sellers to charge sales tax on any delivery charges. Other states don’t require online sellers to charge sales tax on shipping charges if the charge is clearly separated from the price of the taxable products.

If your client is unsure about where they are required to collect sales tax, you can point them toward educational resources aimed at merchants, such as the Sales Tax Guide for WooCommerce Sellers.

2. From what address(es) will your products be shipping?

You need to ask this question due to another quirk of sales tax. In most U.S. states, the “ship from” address doesn’t matter. These states are “destination-based” sales tax states, meaning that merchants are required to collect sales tax at the tax rate of the buyer’s “ship to” address.

However, a handful of U.S. states are “origin-based” states. That means the merchant can instead charge sales tax based on the origination point of the order (their home, office, store, warehouse, etc.). In this case, you’ll need to know the address from where items will be shipped to products can be taxed at the correct rate.

3. Do you sell any tax exempt or non-taxable items, such as products in these categories?

Clothing
Software as a Service (SaaS)
Digital Goods – books, music, movies, information products, etc.
Food and Groceries
Prescription or Non-Prescription drugs
Books – textbooks or religious books
Magazines
Magazines by subscription

In the U.S., most “tangible personal property” is taxable. So if your client sells coffee mugs or lamps or furniture or most other products, then they will most likely be required to collect sales tax on those sales. But some products are non-taxable in some states.

For example, grocery items are non-taxable in most U.S. states, though some states – like Illinois – consider them taxable, though taxed at a reduced rate. Prescription drugs are non-taxable in every state, while non-prescription drugs are non-taxable in most states. And while clothing is taxable in most U.S. states, there are some notable exceptions like New York, where clothing is non-taxable as long the selling price of the individual garment is under $110.

Grocery taxability

If your client sells products that are sometimes tax exempt, be sure to properly categorize those products in their store. For example, say your client sells jeans and has an obligation to collect sales tax in both Pennsylvania, where clothing is non-taxable, and Florida, where clothing is taxable. In this case, apply product tax codes to your client’s SKUs to ensure that they collect sales tax where needed, and leave off the tax when shipping a pair of jeans to a customer living in a state where clothing is tax exempt.

To exempt products from tax, take advantage of the “Reduced Rate” and “Zero Rate” tax classes provided by WooCommerce or set up additional tax classes for specific categories such as “Clothing.” From there, assign your client’s products to these tax classes and manually set up tax rates only in states where a given category is taxable.

To automate this process and not worry about constantly changing legislation around product taxability, consider a WooCommerce sales tax plugin that can handle product exemptions for you.

4. Do you sell to any tax exempt customers such as tax exempt entities or resellers?

Just as some products are non-taxable, some entities are authorized to buy products tax free. For example some government entities, schools, and nonprofits can buy products tax free. Retailers that purchase products to resell can also buy products tax free.

If your client sells to tax-exempt entities, or plans to in the future, they need a way to mark customers as exempt or otherwise refrain from collecting sales tax from specified customers.

To exempt customers from tax, extend the Customer role in WooCommerce with a third-party plugin such as Capability Manager Enhanced. Then programmatically exempt a customer using `set_is_vat_exempt`:

global $woocommerce;

if ( is_user_logged_in() ) {
$tax_exempt = current_user_can( ‘tax_exempt_role’ );
$woocommerce->customer->set_is_vat_exempt( $tax_exempt );
}

5. How do you file and pay sales tax returns?

Some larger clients will have an in-house accounting department that takes care of sales tax reporting and filing, while others will want a solution that integrates with their WooCommerce store. Your client may already have a preferred sales tax software or look to you to provide them with recommendations that work seamlessly with the store you built for them. It’s helpful to know in advance, so compatibility won’t be an issue in the future.

For accurate, real-time sales tax calculations at checkout for WooCommerce, TaxJar provides an easy-to-use plugin to get up and running fast. Install the TaxJar WooCommerce extension and paste in your client’s TaxJar API token. From there, sync your nexus addresses and enable calculations. You’re all set! Learn how to get started.

When a customer resides in one of your client’s nexus states, the plugin calculates sales tax at checkout by requesting a rate from TaxJar’s sales tax API, SmartCalcs. The tax rate is saved inside WooCommerce’s native tax rate table, and then tax and order totals are calculated automatically by WooCommerce. Out of the box you get full support for shipping taxability, product exemptions, sourcing logic, itemized discounts, and sales tax holidays. Calculations are available for more than 30 countries, including the U.S., Canada, Australia, and the European Union.

You can also turn on sales tax reporting and filing directly inside the TaxJar sales tax plugin. Once enabled, TaxJar automatically imports client’s orders from WooCommerce to generate return-ready state reports for manually filing returns. Even better, you can enroll clients in AutoFile to automatically file later.

For more about sales tax, check out our Sales Tax Guide for WooCommerce Sellers.

TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Get the free extension and a 30-day-free trial of TaxJar today to eliminate sales tax compliance headaches from your life!
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2 Responses

  1. Megri Outreach
    February 21, 2018 at 10:12 am #

    Jake, you have written a really informative post. I am glad to inform you that I have decided to take your advice.

  2. Marlon
    June 27, 2018 at 3:09 pm #

    Very useful! Thanks

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