How to add sales tax

This guide is for merchants who sell in the United States. It’s your responsibility to consult with local tax authorities or a tax professional to verify that you charge your customers the correct tax rates, and to ensure you file and remit your taxes correctly.

If you’re new to Shopify, then before you start selling, you need to determine whether you should charge sales tax. You might need to register with various tax agencies. After that, you can set up your taxes in Shopify to help ensure that you charge the correct rates wherever you sell in the United States.

If you’re already selling on Shopify, then refer to Using the new US taxes feature instead.

Before you begin

Before you add tax registrations in your admin at Settings > Taxes, review the following considerations.

Determine whether you need to charge sales tax

You need to determine whether you should charge sales tax. If you’re not sure, then consult with a US state tax authorities or a tax professional.

For a summary of state tax rules, refer to US taxes reference.

Register with your tax agencies

If you need to charge sales tax in one or more US jurisdictions, then you need to contact each of the relevant agencies and register with them. The process varies depending on where your business is based and where you sell, and on the individual government requirements.

For links to various US tax agencies, refer to State tax reference.

Manage your locations

To ensure that your tax rates are correct, create a location for your business if your inventory is fulfilled from a location that’s different from the address you have set in your Shopify admin at Settings > General.

If the address that you set in the Store address section in your Shopify admin at Settings > General is different from the address that you set as a location, then the location address is used to determine nexus. The general settings address is not used if you have created a location.

Set up the regions in which you’re registered

After you’ve registered with the tax agencies and have your sales tax ID, you can set up your taxes.


  1. Go to Settings > Taxes.
  2. In the Tax regions section, beside United States, click Set up.
  3. In the Sales tax collection section, click Collect sales tax.
  4. Select a state in which you are registered.
  5. In Sales tax ID, enter your sales tax ID. If you have applied for a sales tax ID but don’t yet have one, then leave this field blank. You can update it when you receive your sales tax ID.
  6. Optional: If your business is located in a state where tax laws regarding shipping vary, then you can choose whether you want to charge tax on shipping.
    1. Click Advanced options.
    2. Under Shipping tax, choose whether you want to apply shipping tax.

    Some states have laws that affect whether shipping is taxable. If you’re registered to charge tax in California, Colorado, Florida, Illinois, Louisiana, Maine, or Maryland, then you can choose whether to charge taxes on shipping.

    If you’re not sure whether you should charge taxes on shipping, then leave this option on the default setting and check with US state tax authorities or a local tax professional.

    Next steps

    You can create tax overrides for products where the default tax rates don’t apply, or shipping rates for specific states.

    How to calculate sales tax in Excel?

    As we know, we always pay the sales tax when shopping except purchasing duty-free goods. But do you know how many sales tax you have paid? There are two conditions to calculate the sales tax in Excel.

    • Calculate sales tax if you get price exclusive of tax
    • Calculate sales tax if you get tax-inclusive price

    How to add sales tax

    Calculate sales tax if you get price exclusive of tax

    Sometimes, you may get the price exclusive of tax. In this condition, you can easily calculate the sales tax by multiplying the price and tax rate.

    Select the cell you will place the calculated result, enter the formula =B1*B2 (B1 is the price exclusive of tax, and B2 is the tax rate), and press the Enter key.

    And now you can get the sales tax easily. See screenshot:
    How to add sales tax

    Calculate sales tax if you get tax-inclusive price

    In some regions, the tax is included in the price. In the condition, you can figure out the sales tax as follows:

    Select the cell you will place the sales tax at, enter the formula =E4-E4/(1+E2) (E4 is the tax-inclusive price, and E2 is the tax rate) into it, and press the Enter key.

    And now you can get the sales tax easily. See screenshot:
    How to add sales tax

    With Square, you can create and manage taxes from the Square app and online Dashboard. Square’s fees are taken out of the total amount of each transaction, including tax and tip.

    To track your taxable and non-taxable sales, visit your online Square Dashboard.

    Create Item Sales Tax Online

    Visit Sales Taxes in your online Square Dashboard, then go to Items > Sales Tax

    Click Create Tax at the top-right of the page.

    Enter the tax information and make sure to toggle Enable Tax on. Note: You can choose to Add Tax to Item Price, which adds the tax as a separate line item to the price, or Include Tax in Item Price, which shows one amount – the combined sales tax and item price.

    Select the applicable locations.

    Click Save.

    Apply the tax to your items > Apply to Items.

    Select individual items or click Select All > Apply to Items.

    You can also adjust your taxes from the item level:

    Click on an item to bring up the item details page. Under Taxes > No Taxes or select the name you gave your tax.

    Enable tax rate(s) you’d like to apply.

    Note: Taxes will automatically apply to sales where a custom amount is entered. To disable taxes for custom amounts visit your tax settings in the Square app.

    Create Item Sales Tax from the App

    With the Square app, you can create multiple tax rates and customize how tax is applied to your items.

    From the navigation bar at the bottom of your screen, tap More.

    Tap Settings > Checkout > Taxes.

    On a mobile device, tap the + icon in the top-right corner. On a tablet, tap Add a New Tax.

    Enter the tax information and toggle on Enabled to automatically apply this tax at checkout.

    Tap Applicable Items to choose which items this tax will automatically apply to. Toggle on Custom Amounts to apply this tax to amounts entered at the time of a sale.

    Tap the back arrow > Item Pricing. Select if this tax will be included in item prices or added to a price at the time of sale.

    Make sure to save your updates.

    Edit Taxes at the Time of Sale

    From the Square app, tap Review Sale and tap an item.

    Under Taxes, toggle applicable tax rates on or off.

    Note: From the Sale screen, you can also tap Tax to view all tax rates applied to the current sale. Tap the red minus icon to remove a tax rate from applicable items within the sale.

    You can enable your employees to edit taxes at the time of a sale through your team permissions.

    Disable Tax In-App

    From the navigation bar at the bottom of your screen, tap More.

    Tap Settings > Checkout > Taxes and select the tax you’d like to remove.

    Whatever thing we buy, we pay sales tax because it is necessary to know how much you would need to pay for any item on its purchase.

    You will not pay only the amount of the item, but also pay the extra amount as sales tax.

    Sales taxes are the essential and major parts of any country’s governments, so governments get tax from the public and then use such tax money for providing facilities to the public.

    So, there is no tax and tax relief; especially sales tax is compulsory to pay on each item purchase from the merchant’s stores.

    As it is the era of inflation and everything is becoming costly, we need proper management in our budget, and we need sufficient amounts to meet our expenses.

    A proper calculation of everything makes us able to clear and reliable idea about our future expenses. We also consider the sales tax when we include the prices of our needy items.

    Here we will help you calculate sales tax using a netherland tax calculator, which will help you get the real payments you will need to pay for any item.

    How to calculate sales tax on a sales tax calculator?

    How to add sales tax

    Before knowing the sales tax method, you will need to learn about sales calculators.

    You can access any sales calculator on the web and calculate the sales tax for your product.

    There following menus that you will see on the sales tax calculator.

    • Amount (sales tax inclusive, sales tax exclusive)
    • Tax rate
    • Net amount
    • Tax
    • Gross amount

    Amount (inclusive tax. Exclusive tax)

    The amount has two options sales tax inclusive and sales tax-exclusive, sales tax inclusive means that price also contains the amount of tax in it, while sales tax exclusive means price of any item without an amount of sales tax.

    How to add sales tax

    Tax Rate

    While the tax rate is simple to understand, you should know the tax rate in your area.

    In some areas, people are bound to pay local government tax, while people pay both local and federal government taxes in some areas.

    Both taxes apply total tax calculated by adding rates by both governments, while a single tax rate only pays local government taxes.

    Net Amount

    The net amount is calculated after deducting the amount of tax if you selected the amount inclusive tax option, while the total amount equals your entered amount if you select, exclusive tax menu for the amount.

    Under this menu, the total amount of tax is shown.

    Gross Amount

    The Gross amount represents the total product price and amount of tax.

    How I calculate?

    • First of all, see the price you are entering, exclusive tax or inclusive tax, enter the amount you need.
    • Now check your area’s tax rate; if you need to pay both taxes, then add both local and federal government taxes and enter in the tax rate menu.
    • Now click on the proceed menu; you will get the net amount, amount of tax, and the gross amount.

    Final Thoughts:

    Sales tax is compulsory to pay for everyone, it is an income of the government, and we need to pay for purchasing any of the items. To get the real amount that you will spend on any product can simply calculate by sales calculator but need the care to enter the rates and amounts.

    To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items that are subject to sales tax) by “1 + the sales tax rate”. In other words, if the sales tax rate is 6%, divide the sales taxable receipts by 1.06. If the sales tax rate is 7.25%, divide the sales taxable receipts by 1.0725.

    Example of the Sales Tax Calculation

    As an example, assume that all of the items in a vending machine are subject to a sales tax of 7%. In the most recent month the vending machine receipts were $481.50. Hence, $481.50 includes the amounts received for the sales of products and the sales tax on these products. The use of algebra allows us to calculate how much of the $481.50 is the true sales amount and how much is the sales tax on those products:

    Let S = the true sales of products (excluding the sales tax), and let 0.07S = the sales tax on the true sales. Since the true sales + the sales tax = $481.50, we can state this as S + 0.07S = 1.07S = $481.50. We solve for S by dividing $481.50 by 1.07. The result is that the true product sales amounted to $450. The 7% of sales tax on the true sales is $31.50 ($450 X 0.07). Now let’s make sure this adds up: $450 of sales of product + $31.50 of sales tax = $481.50, which was the total amount of the vending machine receipts.

    Additional Example of the Sales Tax Calculation

    Now let’s assume that total amount of a company’s receipts including a 7% sales tax is $32,100. The true sales will be S, and the sales tax will be 0.07S. Therefore, S + 0.07S = 1.07S = $32,100. The true sales, S, will be $30,000 ($32,100 divided by 1.07). The sales tax on the true sales will be 0.07 X $30,000 = $2,100. Our proof is $30,000 of sales + $2,100 of sales tax = $32,100. In general journal form the accounting entry to record this information is: debit Cash $32,100; credit Sales $30,000; credit Sales Tax Payable $2,100.

    How to add sales tax

    Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business.

    E-commerce provides businesses with access to much larger markets, but it also complicates even the simplest of retail transactions. One of the most challenging aspects can be figuring out which sales taxes apply to individual sales, especially when you're selling to out-of-state customers. Here's an overview of when you should collect sales taxes for out-of-state sales and how to keep track of everything.

    When To Charge Your Own State's Sales Tax

    You would generally collect your own state’s sales tax on orders placed from within your own state or delivered there. You should not collect local sales tax on out-of-state orders in most states.  

    For example, Massachusetts charges its sales tax when the purchaser does any of the following:

    • Picks up the item in Massachusetts
    • Has the item delivered to a Massachusetts address
    • Places their order while in Massachusetts  

    You would not collect your own state's sales tax if your out-of-state buyer places an order using their computer at home in another state for delivery there.

    Keep the charged sales tax funds in separate accounts for each state, and set up automatic sales tax payments to each required state.

    Use a professional accountant, CPA, bookkeeper, or an outsourced accounting service to track sales taxes and ensure they’re collected accurately.

    What About Local Taxes?

    Many states collect both a statewide sales tax and local city or county sales taxes as well. You must collect all applicable taxes, and you should generally collect the sales tax rate that applies at the location of the sale. California follows this rule.  

    When To Charge Another State's Tax

    You would typically collect sales tax for another state only if you have a physical presence in that state. In legal terms, this is known as having sales tax nexus there.  

    Your physical presence might be a retail store, a warehouse, or a corporate office, even if the facility is not open to the public. Entering into an affiliate agreement with a resident of the state may also establish a physical presence or nexus there in some states.  

    Check with your tax advisor as to whether traveling to a state and conducting business there would create nexus if you do business at your customer's locations. This might cause that state's sales tax rules to trigger.

    How To Determine Location of Online Sales

    A retail transaction that takes place entirely online is sometimes taxed according to the shipping address.  

    States presume that online orders are physically placed from the shipping address with the intent to use the item at the shipping address. Make sure that you read the rules for the specific states in which you do business.

    How To Keep Track of Tax Rates

    You’re responsible for collecting the correct and current sales tax rate on all sales that require that you collect sales tax. Sales tax rates can change at virtually any time with different rates in each state, county, and city, so it’s important to keep on top of them. Each state usually has an online database with current sales tax rates.

    Most e-commerce platforms look up the customer's address automatically and charge the applicable tax rate. You're only responsible for selecting the jurisdictions for which you must collect the taxes.

    Make sure that your technology providers update sales tax rates in real time to ensure that your tax rates remain compliant. It's easier than ever to leverage systems with current accounting technology to make sure you're current with rates.

    What To Do With the Taxes You Collect?

    You must send the sales taxes that you charge to the appropriate state. Many states, such as Michigan, require that you submit monthly sales tax returns when you make payment.

    You're collecting the tax directly from the consumer and segregating it in its separate business bank account, so you wouldn't consider it to be part of your income.

    Failing to pay the correct amount in full and on time is a serious offense, and it could lead to losing the right to do business within the state, as well as hefty fines.

    Frequently Asked Questions (FAQs)

    What happens if you don't collect sales tax?

    If you fail to collect sales tax for a state in which you're responsible for collecting it, you still owe the tax. State and local tax authorities will seek to collect past taxes you should have collected, and they may charge you interest or other penalties on the past-due balance.

    How do I register to collect state sales tax?

    You need to register your business with any state for which you’ll be collecting sales tax. To learn how to register, contact the state’s department of revenue or other tax authority. Be sure to have business information available, including your employer identification number, business address, and banking information if you plan to pay sales tax electronically.

    How much do you need to sell before you collect sales tax?

    Some states have exemptions for total sales below a certain amount, but not all do. Check with any states where you have a business nexus to determine when you need to begin collecting sales tax.

    Retail sales tax is Washington’s principal tax source. Businesses making retail sales in Washington collect sales tax from their customer.

    Here is some helpful information

    • Generally, a retail sale is the sale of tangible personal property.
    • It is also the sale of services such as installation, repair, cleaning, altering, improving, construction, and decorating. Other services include improving real or personal property, retail recreational services, and lawn maintenance. See Services subject to sales tax for examples of retail services. Sales of digital products to consumers are also retail sales.
    • Retail sales tax includes both state and local components.
    • Sales tax amounts collected are considered trust funds and must be remitted to the Department of Revenue.
    • The seller is liable to the Department of Revenue for sales tax, even if it is not collected.
    • Use tax is paid by the consumer when retail sales tax was not collected by the seller/service provider.
    • Businesses that make a purchase for resale must provide a reseller permit to the seller. If not, the seller must charge the buyer retail sales tax on the total purchase.
    • Businesses must pay retail sales tax on purchases for their own use (such as supplies, equipment, or retail services) that will not be resold in the regular course of business.

    What exemptions are available?

    Common exemptions include:

    • Food
    • Prescription Drugs
    • Sales to Nonresidents
    • Federal Government Sales
    • Interstate and Foreign Sales
    • Manufacturers’ Machinery and Equipment Exemption
    • Sales to Indians or Indian Tribes
    • Newspapers

    For a complete list of exemptions, see our list of retail sales and use tax exemptions.

    Are sales to tribal members subject to retail sales tax?

    Retail sales tax is not imposed on sales to Indians if the tangible personal property is delivered to the member or tribe in Indian Country or if the sale takes place in Indian Country. See our Indian Tax Guide for more information.

    What is marketplace fairness?

    Certain marketplace facilitators and remote sellers are required to collect and submit retail sales tax on sales into Washington. For more information, see our Marketplace Fairness webpage.

    What is streamlined sales tax?

    The Streamlined Sales and Use Tax Agreement (SSUTA) is a cooperative effort of multiple states, local governments and the business community. SSUTA pro­vides for a simpler and more uniform sales and use tax structure for businesses selling into multiple states. For more information, see our Streamlined sales tax webpage.

    What is destination-based sales tax?

    Retailers must collect local sales tax based on the location where the customer receives the merchandise or service – “destination-based sales tax.” For more information, see our Determine the location of my sale webpage.

    Now Sales tax setup in Dynamics 365 has remained fairly straight forward over the years / AX versions and I would like to touch upon this topic in D365 F&O specifically as some of the menu paths have now changed. We will have to retrain our minds to look for these setups in a different place now 🙂

    One of the earliest things you will notice is that all tax setups have now been moved from the General Ledger module in the earlier versions to a new module called “Tax” in D365 and it is here that we will find the sales tax codes, tax groups, tax rates and posting setups. I am giving below the step by step method of creating the sales tax setups from scratch:

    Step 1: Ledger posting groups

    Select the tax payable, receivable ledger account that should be hit when sales or purchase transactions are posted.

    How to add sales tax

    Tax Ledger posting groups (Tax > Setup > Sales tax > Ledger posting groups)

    Step 2: Sales tax authority

    Create a new tax authority to whom the final tax amount needs to be remitted. Map a vendor from Accounts payable module to this tax authority, the idea being that when the tax settlement run is done, the final tax due goes to this tax vendor.

    How to add sales tax

    Sales tax authorities (Tax > Indirect taxes > Sales tax > Sales tax authorities)

    Step 3: Sales tax settlement period

    Create a tax settlement period of monthly or quarterly depending on the type of tax that is being configured. Create period interval lines manually for 1st period based on the period interval duration and then for subsequent period lines, click the “New period interval”. Also note the tax authority we created in step 2 needs to be selected here in tax settlement period.

    How to add sales tax

    Sales tax settlement periods (Tax > Indirect taxes > Sales tax > Sales tax settlement periods)

    Step 4: Sales tax codes

    Now we are going to create the individual tax codes and lets say there are 2 rates of taxes in state of Connecticut, then we need to create 2 sales tax codes. Select settlement period and ledger posting groups created in earlier steps.

    How to add sales tax

    Sales tax code (Tax > Indirect taxes > Sales tax > Sales tax codes)

    Click the values button on the top and give in the percentage/rate of tax. There are date ranges to help us keep a history of old tax rates as well as the new tax rates that become applicable from a new date range.

    How to add sales tax

    Tax Rate (Tax > Indirect taxes > Sales tax > Sales tax codes > Sales tax code values)

    Step 5: Sales tax group

    Now lets create a sales tax group for our Connecticut state tax and it is this sales tax group that will be attached to a customer/vendor. In the setup section make sure to attach the sales tax code that we created in step 4.

    How to add sales tax

    Sales tax group (Tax > Indirect taxes > Sales tax > Sales tax groups)

    Step 6: Item sales tax group

    As a last step we need to create the Item sales tax group and attach the sales tax code from step 4 in the setup section.

    How to add sales tax

    Item sales tax group (Tax > Indirect taxes > Sales tax > Item sales tax groups)

    Now point to be noted here is that we can attach more than 1 sales tax code to the sales tax group and item sales tax group. However on a transaction like lets say a vendor invoice journal, we can only attach 1 sales tax group and 1 item sales tax group. What D365 does on seeing the tax groups in the journal is that it searches for the common tax codes between the 2 tax groups and calculates tax on these common tax codes.

    The item sales tax group needs to be attached at the item master level. This will make it easier for the user creating a PO or SO to have the item sales tax group defaulted on the transaction based on the Item selected on the order line.

    How to add sales tax

    And this is how we configure the sales tax in D365. A similar setup exists for AX 2012 as well and it is only the menu paths will be found under General Ledger > Setup > Sales tax.

    Going back to the supermarket example at the beginning of the post, the supermarket would have created 10 different sales tax codes in D365 (assuming each item had a different tax rate) and also would have created 10 Item sales tax groups (attached to each of the 10 Items in the Item master). Now when the biller scanned each of the 10 Items while billing, the Item tax group would have defaulted from the Item master and the sales tax group would have defaulted to a generic/common/ALL sales tax group on the Bill. And these 2 tax groups on the transaction would have calculated the tax on the bill.

    That’s all for today on taxes in D365, will be posting another post on sales tax soon… watch out for this space and also follow my blog on email, twitter to be notified about new posts from me. Cheers!

    Sales tax has an important role in many business transactions. Consumers pay a sales tax when they purchase a product, but it's up to the business to give this money to the government. Therefore, it's important for both businesses and consumers to know the sales tax formula and how sales tax works. In this guide, we discuss what sales tax is and how you can calculate it for yourself.

    What is the sales tax formula?

    The sales tax formula is used to determine how much businesses need to charge customers based on taxes in their area. State and local governments across the United States use a sales tax to pay for things like roads, healthcare and other government services. Sales tax applies to most consumer product purchases and exists in most states.

    The sales tax formula is simply the sales tax percentage multiplied by the price of the item. It's important for businesses to know how to use the sales tax formula so that they can charge their customers the proper amount to cover the tax. For consumers, it's good to know how the sales tax formula works so that you can properly budget for your purchases.

    How to use the sales tax formula

    There are three steps you can follow to use the sales tax formula:

    1. Add up all sales taxes.
    2. Multiply by the sale price.
    3. Add the sales tax to the sale price.

    1. Add up all the sales taxes

    To use this formula, you first need to add up all applicable sales taxes. Start by determining what the sales tax rate is in your state. Then look to see if your county or city applies any additional sales taxes. If so, you want to add all of these numbers together. For example, New York State has a sales tax rate of 4% and New York City has a sales tax rate of 4.5%. If you are buying or selling a product within New York City, the sales tax rate is 8.5% combined.

    2. Multiply by the sale price

    Once you have the combined tax rate, you want to multiply this by the cost of the product. If the purchase comes to $100, the sales tax in New York City would be $8.50 (100 x 0.0850). This is the amount that the government will collect in taxes on that purchase.

    3. Add the sales tax to the sale price

    Consumers are the ones who pay this tax, not the business. You must, therefore, add the sales tax amount to the sales price. A customer buying a $100 product in New York City would now have to pay $108.50 with the inclusion of the sales tax.

    When to collect sales tax

    Sales tax is collected at the time of the transaction. Sales tax is a consumer tax, so businesses need to charge the sales tax amount at the time of purchase. Businesses will then take this sales tax amount and send it directly to the right government agency (depending on whether it is a state, county or city tax).

    Businesses need to charge a sales tax in the majority of cases. However, there are a few instances in which they will not charge a sales tax, such as:

    • States without sales tax
    • Sales tax holidays
    • Exempt products
    • Resale products

    States without sales tax

    Most states within the United States charge a sales tax. However, there are a few exceptions. For instance, Alaska, Delaware, Montana, New Hampshire and Oregon all do not charge a sales tax. Also, state laws can change at any time, so it's possible that your state either no longer charges a sales tax or has implemented one. The best thing to do is to examine the current state sales tax rate in your area and to stay up to date on any changes.

    Sales tax holidays

    Some states charge a sales tax, but also have sales tax holidays. Sales tax holidays are specific days throughout the year when businesses do not need to charge a sales tax. For example, toward the end of spring, Florida has a sales tax holiday for several days that exempts products used for emergencies. As this is right before the worst weather season for Florida, residents can prepare for natural disasters, like hurricanes, by purchasing items, such as generators, without paying a sales tax.

    Exempt products

    Some states exempt certain items from their sales tax. It's important for businesses to know which of their items are subject to sales taxes and which ones are not, especially if you sell different kinds of things. For example, New Jersey does not charge a sales tax on any clothing. If your New Jersey business sells both t-shirts and toys, you should charge a sales tax on the toys and not the shirts. Businesses should learn what products are exempt from the sales tax in their area and regularly check for changes.

    Resale products

    If your business consists of mostly selling products to others who will then resell them, you may not need to pay sales tax. In this instance, it is the seller who pays the sales tax by charging their consumers. Sales tax is a tax on consumers, so if you are not selling your products to someone who will use it, then you likely don't need to pay the tax.

    This is important to know for businesses that operate by distributing their products in bulk to other outlets. Check with the laws in your area to ensure you do not unnecessarily charge a sales tax.


    Here is an example to help illustrate some different uses of the sales tax rate:

    Maggie's General Store provides an assortment of supplies in Florida. The sales tax rate for the state is 6% and the county they are in charges an additional 0.5%. Near the end of May, a customer buys food, socks, an emergency first aid kit and batteries. The total cost of each item is:

    • Food: $60
    • Socks: $12
    • First aid kit: $20
    • Batteries: $8
    • Total: $100

    The date of the sale is during a sales tax holiday that exempts emergency items. At this time, Florida considers food, the first aid kit and the batteries as emergency items, and so does not charge a sales tax on them. However, the socks are not exempt, so the customer must still pay a sales tax on those items. In the end, Maggie's General Store charges the customer $12.78 for the socks (a 6.5% sales tax applied), bringing the total purchase amount to $100.78.