Magento Tax Configuration Tutorial with Video
After learning how to setup taxes in Magento, I felt like I was ready to apply for a job at H&R Block... I mean all the ways that you can setup your taxes in Magento will really make your head spin.
You can setup everything from percentage based taxes on a country level, state or region level, based on zip/postal code or partial match zip/postal code etc. You can even setup FPT tax which stands for flat product taxes. These FTP taxes are great if you need to charge eco tax or something similar.
In the video below I demonstrate how to setup taxes rates for US states and I even show an example of how to setup taxes for countries other than the US. In the example, I setup taxes for the UK. I also show you how to charge tax on shipping.
In addition to that, I also show you how to setup separate tax rates for wholesale customers and even show you how FPT works. Believe it or not, the video is over 19 minutes long and there are still some things that I could have covered.
Can't view the video? Watch it on YouTube
Below is a brief written tutorial of how it all works.
To setup percentage based taxes
Go to "Sales > Tax > Product Tax Classes".
A product tax class allows you to create tax rules that you can apply to your items on the item creating page. Setting up a tax class is easy. Simply click on "Add New" and then enter a name for your tax class and click save.
The name is there to help you remember what the tax class does when selecting it, so choose a name that you will remember easily. For example, for tax that you charge on shipping, you can simply enter the name 'shipping'. On a tax class for your products, you can add the name "product tax" etc.
Next you can setup a tax class for your customers. For example, if you have a store which sells to wholesale customers as well as retail customers, you can create a customer tax class named "retail" and another class named "wholesale".
To set this up, simply go to "Sales > Tax > Customer Tax Classes".
Then click "Add New", enter a name for your customer tax class and save.
Once you've setup these 2 classes, go to "Sales > Tax > Manage Tax Zones & Rates".
This is the page where you enter your rates for specific countries, regions, states, zip/postal codes etc.
For the Tax identifier, you can enter something that you will remember easily. In the video, I setup tax rates for retail and wholesale customers in FL. I enter in 'fl-retail-7' because I use a rate for Florida that is 7% for retail customers.
For country, I select "United States".
For state, I select "Florida". Note that the asterisk (*) means all states. If you leave the asterisk, you will charge everyone in the country that you select, the same percent that you enter in the 'rate percent' field.
As for Zip/Post is Range, if you select "Yes" for this option, you will be required to enter a Zip/Post range. For example, if you enter "33771" in 'range from' and "33779" in 'range to', you will limit the 'rate percent' to zip codes that range from 33771, 33772, 33773 etc., all the way up to 33779.
If you enter "No" for 'zip/post is range', you can enter in a specific zip/post code or a partial match zip/post code using an asterisk (*). For example, if you enter "337*", you will charge what ever percentage you enter in the 'rate percent' field for zip codes matching 33773, 33743 etc.
If you enter an asterisk (*) in 'zip/post code' box, you will charge what ever percentage you enter in the 'rate percent' field for all areas in FL.
So for all countries, regions and states that you wish to charge tax in, simply follow the same steps.
Once you've setup your tax rates, you can setup your tax rules...
Simply go to "Sales > Tax > Manage Tax Rules".
To add a new rule, simple click 'add new tax rule'.
The way I had this setup... I basically setup a tax rule for retail and a tax rule for wholesale due to having 2 rates in FL (a retail rate and a wholesale rate).
So in the 'name' field, I entered 'retail-tax-rule'.
For 'customer tax class', I selected 'retail customer'.
As for the 'product tax class', I choose 'taxable goods' because this is the name of the tax class that I created early on.
For 'tax rate', I choose 'fl-rate-7', 'ny-retail-8.5' and 'uk-tax'.
After filling in the required information, I clicked on 'save rule'.
I then created another tax rule for wholesale customers. That tax rule was named 'wholesale-tax-rule' and I selected 'fl-wholesale' as my 'tax rate', 'wholesale customers' for 'customer tax class' and selected all other fields with the same values that I selected for my retail rule.
So after you've created your tax rules and assigned them to a product tax class, you can select the product tax class on the item creation page using the 'tax class' select menu.
Of course, if you're looking to charge your wholesale customers, the wholesale tax rate, you will need to first setup a customer group for those wholesale customers by going to "Customers > Customer Groups".
Then click on 'add new customer group'. Once on the add new customer group page, simply enter a name for the group and select the tax class. In the case of wholesale, you select your wholesale tax class.
After you've created your group, simply go to "Customers > Manage Customers", click on the customer that you would like to change the tax rate for and once on the customer information page, go to 'account information' and change the customer group to the new customer group that you would like to use and then click 'save customer'.
To setup flat product tax
Simply go to "System > Configuration".
Once on the configuration page, click "Sales > Tax". In the 'fixed product tax' section, simply select "Yes" for enable FPT.
Then go to "Catalog > Manage Attributes" and create a new attribute with the 'catalog input type for store owner' field selected as 'flat product tax'. Then save your attribute and add it to an attribute set.
When listing an item that you wish to charge FPT on, make sure to use the attribute set which has the FPT attribute added to it. On the item creation page, simply look for the new FPT attribute and add the flat tax rate that you wish to charge.
You will notice that the field has an 'add tax' button. Simply click this button and select your country and region/state. Remember that the asterisk (*) serves as a wild card. So if you select 'United States' for the country and leave the (*) for the state field. You will charge everyone in the US, the tax rate that you specify in the tax field.