US sales tax in Ecwid
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).
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 — use automatic taxes. 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.
Enabling automatic sales tax in Ecwid
To enable automatic taxes in your store:
- Add your company address in your Ecwid admin, in Settings → General → Store profile.
Make sure you don't have any 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 tax calculations in your Ecwid admin, in 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.
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.
Generally, you only have to collect and report sales taxes in the 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 "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
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.
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. 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 your Ecwid admin, in Settings → Taxes. Once the option is enabled, your store will automatically calculate and charge sales tax at checkout.
- Install the TaxJar application from 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.
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 from the Ecwid App Market allows you to automate tax reporting. TaxJar will automatically report and file your sales tax returns to the state for you. The app costs from $19 to $99+ a month and has a free trial period.
To report and files sales tax returns automatically:
- 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, in 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 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 Ecwid admin, 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 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 simple words, you must charge applicable taxes only from customers who come from the same state as your company. For instance, your company is located in Texas. When a customer from Texas places an order in your store, they are charged a tax. 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. And you can set it up in Ecwid.
In this case, you will need to set up taxes manually and assign appropriate tax rates to products. See the instructions in the article: Product-specific tax rates.
How can I charge the Colorado Retail Delivery Fee in my store?
If you’re a Colorado merchant and you ship/deliver to buyers in your state, then you must comply with the new rules that come into force on July 1, 2022. You are liable to collect and remit the retail delivery fee, that is $0.27 per sale. This fee is applied if at least one item in the order is subject to state sales or use tax.
Currently, the retail delivery fee is not included in your store’s automatic taxes. You can charge it to your customers by adding a handling fee.
To set up the fee:
- From your Ecwid admin, go to Shipping & Pickup.
- Scroll down and click Set Up Handling Fee.
- Fill out the Title and Amount fields, and add a description if you like:
- Click Submit.
We do not recommend using this workaround if:
- You also have order pickup or curbside pickup in your store.
Reason: The handling fee is applied to all the orders that require shipping or pickup, irrespective of the delivery method your customers choose.
- You have product-specific free delivery set up in your store.
Reason: In case free delivery is specified for all the items in the order, the fee will not be applied.