How taxes work in WooCommerce

A plain-English explanation of how WooCommerce handles sales tax, including how to set it up and your responsibilities as a store owner.

Tax laws are different in every country, state, and sometimes city. WooCommerce gives you tools to collect the right tax — but it's your responsibility (or your accountant's) to make sure you're collecting the right amounts. This guide explains how the system works.

Quick summary

Enable tax in WooCommerce → Settings → General and configure tax rates under the Tax tab. You can enter rates manually or use an extension like WooCommerce Tax (formerly WooCommerce Shipping & Tax) or TaxJar to calculate rates automatically. Always confirm your tax obligations with an accountant — this guide explains the tools, not legal tax advice. WooCommerce says the same thing about its own docs: "We are not tax professionals; our advice only applies to how to use our software."

This is not tax advice

Tax law is complex and varies by location. Always consult a tax professional or accountant for guidance on what you're required to collect and where.

Enabling tax in WooCommerce

Tax is disabled by default. To turn it on:

Go to WooCommerce → Settings → General.

Scroll to the "Taxes and coupons" section and tick Enable tax rates and calculations.

Click Save changes. A new Tax tab will appear in the Settings menu.

The Tax settings tab

Once enabled, go to WooCommerce → Settings → Tax to configure how tax works. Its main settings:

Setting	What it does
Prices entered with tax	Choose whether the prices you type in already include tax, or are exclusive of it.
Calculate tax based on	Customer shipping address (the default), Customer billing address, or Shop base address.
Shipping tax class	Which tax class applies to shipping charges. The default, "Shipping tax class based on cart items," inherits it from the products being shipped.
Rounding	"Round tax at subtotal level, instead of rounding per line" calculates rounding on the subtotal rather than line by line.
Additional tax classes	The extra tax classes your store offers, one per line.
Display prices in the shop	Whether catalogue prices show Including tax or Excluding tax.
Display prices during cart and checkout	The same choice, for the cart and checkout.
Price display suffix and Display tax totals	Text after the price, and whether tax shows as a single total or itemised.

Mixing the display settings can cause odd rounding

WooCommerce warns that if the three display settings aren't all set to either include or exclude tax, a calculated price can end up with more decimal places than your store shows, which produces off-by-one rounding differences. Pick one and use it consistently.

Setting up tax rates manually

WooCommerce gives you a Standard rates table, plus a rates table for each additional tax class. Out of the box those extra classes are Reduced rate and Zero rate. Most stores only need Standard rates.

Go to WooCommerce → Settings → Tax → Standard rates.

Click Insert row to add a rate.

Fill in the country code, and the state code and postcode if they apply. Leave the * wildcard in a column to match everything in it.

Enter the rate in the Rate % column as a plain number — 20 means 20%. Get the actual figure from your accountant or your tax authority, not from a guide like this one.

Give it a Tax name (for example "Sales tax" or "VAT"). This is what customers see if you itemise tax.

Click Save changes.

The rate rows also have Priority, Compound and Shipping columns. Priority matters if more than one rate can apply: WooCommerce uses only the first matching rate at each priority, so rates meant to stack need different priorities. Shipping is ticked by default and means the rate applies to shipping too. You can also bulk-load rates with the Import CSV and Export CSV buttons.

Manual rates need regular updates

Tax rates change. If you enter rates manually, you're responsible for keeping them up to date. Consider using an automated tax plugin (see below) to avoid this.

Automated tax plugins

Entering and maintaining tax rates for every state and country is a lot of work. These extensions do the calculation for you:

Extension	Description
WooCommerce Tax	Free, by Woo (formerly WooCommerce Shipping & Tax). Calculates tax at checkout for stores based in the US, Canada, Australia, the UK and a list of EU countries. It needs your site connected to WordPress.com, but not the Jetpack plugin.
TaxJar for WooCommerce	A sales tax service by TaxJar. The extension needs a paid TaxJar account; check TaxJar's own site for what its plans include.
Avalara for WooCommerce	A sales tax service by Avalara. The extension needs an Avalara account you buy from Avalara; check Avalara for what it covers.

Automated calculation is not filing

WooCommerce is explicit about this: WooCommerce Tax "does not file returns, remit tax, or determine where your business has a tax obligation." Working out where you owe tax, and actually filing and paying it, stays with you and your accountant.

WooCommerce Tax is switched on at WooCommerce → Settings → Tax, by setting Automated taxes to Enable automated taxes. While it's on, most of the manual settings above are greyed out, because the extension is doing the calculating. Set it back to Disable automated taxes if you need the manual settings again.

We can set up any of these for you. Just let us know which option fits your business.

Tax classes and products

WooCommerce uses "tax classes" to apply different rates to different products. Out of the box you get:

Standard — the class most products use.
Reduced rate — for items your jurisdiction taxes at a lower rate.
Zero rate — for items taxed at zero.

Which items belong in which class is a question for your accountant, not for WooCommerce. You can add your own classes under Additional tax classes on the Tax settings tab, one per line. Standard rates can't be removed.

Set a product's Tax status (Taxable, Shipping only, or None) and Tax class on the product editing page, under the General tab in the Product data section.

Common questions

Do I have to collect sales tax in every US state?

It depends on where you have "nexus" — a legal connection to a state, such as a physical location or passing that state's sales threshold. US sales tax law is complex and varies by state, so please consult a tax professional. The Supreme Court's decision in South Dakota v. Wayfair, Inc. (decided 21 June 2018) changed things significantly for online sellers: it overruled the earlier rule that a state could only require a seller to collect sales tax if the seller had a physical presence there. States set their own thresholds, so where you have to collect is a state-by-state question.

What is VAT?

VAT (Value Added Tax) is a consumption tax used in the UK, EU, and many other countries. If you sell to customers in those regions, you may need to register for VAT and collect it. Rules vary significantly — consult an accountant familiar with international e-commerce.

Should I show prices with or without tax?

This is partly a legal question (some regions require tax-inclusive pricing) and partly a business decision. In the US, prices are typically shown excluding tax. In the UK and EU, consumer-facing prices typically include VAT. Your accountant can advise.

How do I handle tax on shipping?

Whether shipping is taxable depends on your location and the product type. In WooCommerce, the Shipping tax class setting on the Tax settings tab controls it. The default is "Shipping tax class based on cart items," which means shipping is taxed at whatever class the products in the order use. If your jurisdiction treats shipping differently, pick a specific class instead. Your accountant can tell you which applies.

Need a hand?

If you're stuck, email support@chykalophia.com and we'll help. Include your website address and a screenshot if you can.