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How To Not Charge Taxes On Shopify

 

How To Not Charge Taxes On Shopify?

You can exclude taxes on your Shopify orders by creating tax overrides and exemptions in your Shopify admin. Taxes are calculated automatically in your Shopify store.

By defining Shopify markets, creating shipping zones for your customers, and setting up your Shopify taxes, Shopify automatically suggests the latest sales tax rates and charges sales tax on your customer orders at the checkout.

This works well when you are in a nexus with a state and need to charge your sales tax to your customers at the rates applicable in that state.

But, what about unique tax situations like tax exemptions and exceptions, where you don’t need to charge any sales tax on your customer orders? How to charge a 0% tax on your tax-exempt customers? In other words, how not to charge taxes on Shopify orders?

If you want to know how you can not charge taxes on Shopify, look no further. In this article, we will guide you on how to create tax overrides and exemptions so that you can handle tax exemptions and take control of the how much tax rate you can charge on your exempt customer’s purchase orders. So let’s get started.

What Are Tax Overrides?

Tax override and exemption is a feature in Shopify that allows you to set customized sales tax rates to deal with unique sales tax situations.

Your Shopify store charges sales tax automatically based on the regions you include under the Shopify markets, the shipping zones you define, and the sales tax laws that apply to such regions.

Accordingly, based on where you are registered as a seller and where your customer’s order is bound for delivery, your Shopify store will apply the latest sales tax rates and charge the customer order with sales tax at the checkout.

Read: How To Charge Sales Tax In Shopify?

However, there may be cases where the sales tax rates as suggested by your Shopify store may not apply. This could be because of unique tax situations, where you would want to have greater control over the sales tax rates to be charged on certain orders.

These would typically include:

  • managing tax exemptions and exceptions
  • charging 0% sales tax on tax-exempt customers
  • charging unique tax rates for shipping destinations
  • controlling how much tax you can charge on specific products

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How Not To Charge Tax On A Few Exempt Products?

One of the most frequently asked questions by Shopify merchants is ‘How do I remove tax from Shopify orders?’ Or ‘How do I exclude tax on Shopify?’ If you are a merchant selling a few products that are exempt from tax, you can keep away from applying sales tax on such products. All you need to do is follow the below-mentioned steps.

1. Log in to your Shopify Admin and click ‘Products.

How To Not Charge Taxes On Shopify?

2. Select the product you don’t want to charge tax on.

How To Not Charge Taxes On Shopify?

3. Once you open the product, scroll down to the pricing section of this product page. Uncheck ‘Charge Taxes on this Product’.

How To Not Charge Taxes On Shopify?

4. Click ‘Save’.

How To Not Charge Taxes On Shopify?

How To Create A Tax Override On Product Collections?

If you have only a few products on which you don’t want to charge tax, you simply need to uncheck ‘charge tax on this product’ manually for each product. But about times when you have several products that need the same override? In such cases, you can create a product collection of the products that need the same override and apply the tax override to that product collection.

Once you apply a tax override to a product collection, the override will apply to all the products that you keep adding to that collection. Remember, you will be able to create product overrides using manual collection. You cannot create tax overrides using automatic collections.

Check our article on Tax Override Shopify to learn how to create a manual product collection that needs a tax override step-by-step.

How To Create Tax Override On Shipping Charges?

Many Shopify store owners typically ask the question ‘Why is Shopify charging tax on shipping?’ Shopify may be charging tax on shipping charges due to the state laws of the region where the goods are shipped, default settings in your Shopify admin, the way sales tax has been configured in your Shopify admin, etc. This may require you to create a tax override on shipping charges so that you can apply a custom tax rate on shipping.

How To Set Up Shopify Tax-Exempt Customers?

Another way not to charge taxes on Shopify is by setting customers as fully tax-exempt. Setting a customer as tax-exempt would mean a 0% sales tax rate being charged on the tax-exempt customer’s order.

Shopify allows you to set customers to be fully tax-exempt. Such customers do not have to pay any sales tax on their orders at the checkout.

However, you must ensure that you are not using tax-including prices on your Shopify admin. That is, prices displayed are not the total list price which includes both the product price and the tax on the product. This is because if you have set a customer as tax-exempt and are using tax-including prices on your Shopify store, your tax-exempt customer will be charged the price inclusive of tax despite the customer being set as tax-exempt.

Follow the below-mentioned steps to set a customer as tax-exempt.

1. Log in to your Shopify account and from your admin go to ‘Customers’.

How To Not Charge Taxes On Shopify?

2. Identify the customer you want to set as exempt from all taxes and click on his name.

 

How To Not Charge Taxes On Shopify?

3. Then, click on ‘Manage’ in the ‘Tax Settings’ section.

How To Not Charge Taxes On Shopify?

4. Now, uncheck ‘Collect Tax’ and click ‘Save’.

How To Not Charge Taxes On Shopify?

How To Set A 0% Tax Rate When Majority Of Your Customers Are Tax Exempt?

This applies to you if you are a Shopify store owner who has a majority or all of his customers as tax-exempt. If you are such a Shopify store owner and put up in a country that has both federal and regional taxes, then you can set a 0% tax rate to override the default taxes under the ‘Base Taxes’ section.

But if you have taxable products, you will have to create a product collection, add that product to the collection, and create a tax override for the same.

Follow the below-mentioned steps to override the default to 0% tax.

1. Log in to your Shopify admin and go to ‘Settings’. Click ‘Taxes and Duties’.

How To Not Charge Taxes On Shopify?

How To Not Charge Taxes On Shopify?

2. Now, select the country for which you want to create a tax override.

How To Not Charge Taxes On Shopify?

3. In the ‘Base Taxes’ section, mention that the regional tax rate is added to a 0% federal tax.

How To Not Charge Taxes On Shopify?4. Now, click ‘Add a Tax Override’ in the ‘Tax Overrides’ section.

How To Not Charge Taxes On Shopify?

5. In the ‘Select A Collection to Apply a Tax Override to’ section, select a product collection to which you want to apply the tax override.

How To Not Charge Taxes On Shopify?

6. Select the region or country you want the tax override to be applicable under ‘Location’.

How To Not Charge Taxes On Shopify?

7. Click ‘Add Override’.

How To Remove Tax Included In Shopify?

The above sections dealt with not charging tax to tax-exempt customers and setting products to be exempt from sales tax. That is, charging no tax or 0% tax on orders of customers eligible for such a tax exemption or charging 0% tax on certain products that are tax exempt.

Now, one thing you have to be very careful about when setting your customers as tax-exempt is if you are using the ‘Include sales tax in price’ feature and have set a customer as tax-exempt, that customer will see the final price inclusive of sales tax and not the price exempt from sales tax.

To be able to display tax-exempted prices to your exempted customers, you must not use the ‘include tax in prices’ feature. That is, you will have to remove taxes from the prices in Shopify.

Follow the below-mentioned steps to remove taxes from your Shopify product price.

1. Log in to your Shopify admin and click ‘Settings’.

How To Not Charge Taxes On Shopify?

2. Go to ‘Taxes and Duties’.

How To Not Charge Taxes On Shopify?

3. Head towards the ‘Tax Calculations’ section and uncheck ‘Show All Prices With Tax Included’.

How To Not Charge Taxes On Shopify?

FAQs

1. How Do I Manage Taxes On Shopify?

To manage taxes on Shopify, you first need to determine if you are obligated to charge sales tax as a Shopify merchant. If you are a merchant selling in the US and are obligated to charge sales tax from customers, you will have to register with relevant state sales tax authorities and obtain a sales tax ID to set up taxes in Shopify. However, if you are selling in countries that use location-based sales tax rates, you will charge sales tax based on the rates charged in regions where your goods are delivered. To know how to manage taxes on Shopify, read our article ‘How to Set Up Taxes in Shopify?’

2. What Happens If You Don’t Charge Tax On Shopify?

If you are selling products that are tax-exempt or selling goods to tax-exempt customers, you can create a tax override and set the sales tax rate as 0%. However, if you are liable to collect sales tax from customers in regions where you are selling and are not charging sales tax from customers, you can face penalties. It’s always better to contact local tax professionals to know which states have you reached nexus with and at what rate are you required to charge sales tax from your customers.

3. Why Is Shopify Charging Tax On Shipping?

Shopify may be charging tax on shipping charges due to several reasons. This could include the state laws of the region where the goods are shipped, default settings in your Shopify admin, the way sales tax has been configured in your Shopify admin, etc. To know in detail in detail why Shopify charges tax on shipping, read our article ‘How to Handle Shopify Tax on Shipping?’

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