If you’re a US merchant, you’re most likely required to pay sales tax according to state and local laws. In this article, we will explain how to set up your Ecwid store so that you are able to collect, report and file sales tax properly.
Sales tax apply to the sale of most products and some services in most states. The rates and rules notably differ from state to state, though. For example, California has the highest state-level sales tax rate at 7.5 percent. The lowest sales tax is in Colorado, which has a rate of 2.9 percent.
In order to know what taxes apply to your business, please use this helpful State Sales Tax Map (click your state on the map).
Enable automatic sales tax in Ecwid
- Add your company address in your Ecwid admin, go to Settings → General → Store profile.
- Enable automatic tax calculations in your Ecwid admin, go to Settings → Taxes:
Once the automatic tax rates are enabled, your store will charge a precise tax rate depending on where you and your customer are located.
How the automatic sales tax tool works
In general, if your business has a physical presence in a state (also known as nexus), 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 quite challenging to take into account tax rates for all locations and manually track tax regulations updates. That's why we are offering you an easy way — our automatic tax rates feature. When automatic tax rates are enabled:
- Ecwid automatically calculates tax rates depending on your state tax law, store and customer location.
- Ecwid 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 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.
If you don't want to charge taxes on some of your customers, e.g. non-profit organizations or wholesalers, it also can be done easily. Just mark them as tax exempt on the "Customers" page in your Control Panel. Refer to this article for more details: Tax exempt customers in Ecwid.
By default Ecwid 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. But if your business is distributed over several states, i.e. you have multi-state sales tax nexus — 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 from the Ecwid App Market will help you with that. Follow this instruction to enable multi-state nexus in your store:
- Enable Automatic Taxes in your Ecwid admin, go to Settings → Taxes. Once the option is enabled, your store will automatically calculate and charge sales tax on checkout.
- Install the TaxJar application in the Ecwid App Market.
- Open your TaxJar dashboard
- Navigate to Account → SmartCalcs API.
- Enable the "Use Personalized Sales Tax Calculations in your Ecwid Store" option so that Ecwid can use your TaxJar nexus address settings in tax rate calculations.
- In the same page, find the Nexus Address Configuration section and add your store nexuses.
Now you have multi-state nexus set up, and Ecwid will automatically calculate tax rates according to your nexus states.
Generally, you only have to collect and report Sales tax in a state, where your business resides. But more precise rule here is the following one: 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 a "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 or not your business qualifies as a physical presence, you should contact your state's revenue agency. Read this article for more details on the matter: http://blog.taxjar.com/sales-tax-nexus-definition
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.
TaxJar app for Ecwid allows you to automate tax reporting which means TaxJar will automatically report and file your sales tax returns to the state for you. Here is a step-by-step instruction on how you can use that:
- Make sure your Ecwid store charges every customer a proper tax amount. The easiest way to do that is to enable Automatic Taxes in your Ecwid admin, go to Settings → Taxes. Once enabled, your store will automatically calculate and charge the appropriate sales tax on checkout.
- Install the TaxJar application from the Ecwid App Market.
- 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 TaxJar 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.
If there are non-taxable products in your store, you can set up a zero tax for them using manual tax rates option. You can either exclude the product from tax calculation or create a special 0% tax rate and apply it to the product. See this instruction on how to set up taxes manually: How to create a new tax rate.
To manage the manually configured tax rates per product, go to your Ecwid admin in Catalog → Products → individual product page → Tax and shipping tab and choose tax rates you want to enable or disable for that product: