WooCommerce and Sales Tax: What Your Business Needs to Know
- Feb 6, 2016 | Stephanie Faris
For businesses running their websites through WordPress, the WooCommerce plugin has made it easy to sell items. With just a few clicks, retailers can add the plugin to their sites and start selling for free. Creating an online catalog is as simple as uploading a WordPress blog, with businesses adding descriptions, setting prices, and monitoring their inventories through the plugin.
But as with any store, business owners are still responsible for paying taxes and keeping track of accounting. Sales tax liability always falls primarily on the seller, whether that seller owns a chain of brick-and-mortar retail outlets or sells online through a third-party provider. Here are a few tools to help businesses collect taxes through their WooCommerce stores.
The best resource for collecting tax on WooCommerce sales is WooTax, a free plugin designed to calculate tax rates based on individual state laws. The plugin is actually TaxCloud, a free internet sales tax management tool that calculates rates in real time for each state, county, city, and special jurisdiction in the U.S. The software has been certified by 24 states to provide automated registration, filing, remittance, and audit response. TaxCloud is working on expanding that list to include more states.
When an item in a customer’s shopping cart is sent to TaxCloud for taxability information, an identifier known as a Taxability Information Code (TIC) is sent to the server. TaxCloud then matches the item and the buyer’s location to the information in its database and delivers a tax rate that is compliant with local laws. The seller is responsible for assigning TICs during the process of adding the item to its catalog, so there is room for error if the TIC is incorrect.
Setting up taxes within WooCommerce is easy. Sellers start by choosing WooCommerce-->Settings-->Tax. Once you’ve chosen to enable tax calculations, you’ll be able to choose to collect taxes based on the customer’s shipping or billing address, as determined by where the item will be consumed.
In rare cases, the purchaser may be shipping the item to a location that differs from where it will actually be used, such as a work address, so the billing location would be the correct sales tax to apply. But in most cases, shipping address will be the correct one.
WooTax isn’t the only option for sellers. Businesses that offer items on a variety of marketplaces may choose a third-party app to manage sales tax on their WooCommerce sales. Since third-party providers offer their own unique features and pricing models, even businesses that plan to only sell through WooCommerce may find good reasons to choose these alternatives over WooCommerce’s built-in plugin. These alternatives may be more scalable, as well, growing with you once you choose to move off of WooCommerce and sell on a more robust platform.
“In the free software our welcome wizard automatically imports your tax rates based on Geolocation,” says Patrick Rauland, product manager for WooCommerce. “We also have several partnerships that allow integration with WooCommerce. These apps set your tax rates, keep them up to date, and help you pay your taxes at the end of the year. For a nominal fee, you really don't have to worry about taxes.”
For businesses using WooCommerce to host their online stores, sales tax collection can easily be automated. Whether businesses use the free tools provided by WooCommerce or pay a small fee to use an add-on, sales tax collection can be automated, allowing professionals to concentrate on selling products rather than bookkeeping.