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Charge Tax on This Product Shopify

What Does Charge Tax On This Product Shopify Mean?

Shopify Charge Tax On This Product’ is a feature that allows you to add sales tax to the price of the product on your Shopify store. Enabling this feature in your Shopify admin will add the applicable sales tax amount to the product price and will display a price that is inclusive of sales tax to your customers visiting your Shopify store.

You as a Shopify merchant can choose to include or exclude the sales tax amount to a product’s price depending on the location where you are selling your products.

Also, you have to be careful about unchecking the ‘Shopify Charge Tax on This Product’ checkbox if you are selling exempted products or selling products to tax-exempt customers. This is because leaving ‘Charge Tax on This Product’ checked will show the price inclusive of sales to exempt customers who are not liable to pay sales tax on the merchandise they purchase.

Don’t know what ‘Charge Tax on This Product Shopify’ means for you as a store owner? Don’t worry as we have got you covered. To understand how including taxes in price affects you and your customers, let’s first have a look at what including sales tax on the product price means in Shopify.

Read: How To Charge Sales Tax In Shopify?

Include Sales Tax in Prices

As a Shopify store owner, you must know that selling products in certain regions requires you to include sales tax in the price at display on your Shopify store.

For instance, if you are selling products in the United Kingdom, the display prices on your Shopify store on most types of merchandise include tax. If this feature of including tax in the price is turned on, your customers and you will see display prices that include tax.

Although the tax will appear separately as a line item at the checkout, it will not be added to the price since the price is already inclusive of the sale tax amount. Tax in this case appears as a separate line item just to tell the customer the amount of tax he’s paying on a particular order. Thus, the total price and the sub-total are the same as the tax is already included in the product price displayed.

The formula used to calculate a price inclusive of tax is as follows:

Sales Tax = (Tax Rate x Price)/(1 + Tax Rate)

Let’s take an example here to understand how prices inclusive of sales tax work.

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Example: Price Inclusive Of Sales Tax

Let’s say Angelina and Katy are selling in the same region which allows sellers to include or exclude sales tax in the prices. The sales tax rate of the region is 20%. Let’s say that the price of the product they are selling is $1000.

Angelina chooses to include sales tax in the price. Using the above formula, the product portion of the price is as follows:

Sales Tax = (tax rate x price)/(1+tax rate) 

= (0.20 x $1000)/(1+0.20)

= 200/1.20

= $166.67 

Therefore, the product portion of the price is $1000 – $166.67 = $833.33

And the Sales Tax portion of the price = $166.67 

Thus, Display Price Inclusive of Sales Tax = $833.333 + $166.67 = $1000

On the other hand, Katy chooses not to include taxes in her prices. Accordingly, if she lists the price of a product as $1000, then the sales tax at 20% would be calculated using the following formula:

Total Price = List Price x (1+ tax rate)

Accordingly, the product portion and the sales tax portion of the price would be as follows:

Total Price = $1000 x (1+ 0.20)

= $1000 x (1.20)

= $1200

Therefore, the product portion of the price is $1000 

And the Sales Tax portion of the price = $200

Thus, Display Price after Sales Tax = $1200

Read: How To Find Sales Tax Collected In Shopify App?

What Does Charge Tax On This Product Shopify Mean?

How To Enable ‘Include Sales Tax In Prices’?

Follow the below-mentioned steps to enable the ‘Include Sales Tax in Price’ feature.

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

Charge Tax on This Product Shopify

2. Go to ‘Taxes and Duties’.

Charge Tax on This Product Shopify

3. Check ‘All Prices Include Tax’.

Charge Tax on This Product Shopify

4. Click ‘Save’.

When you have checked ‘Include Tax in Prices’, you also have to ensure that the ‘Shopify Charge Tax On This Product’ is also checked on your product pages. This is to ensure that the sales tax is included in the display prices across your Shopify store. This way, your customers will be able to see tax included price beside the total at the checkout.

Follow the below-mentioned steps to check the ‘Charge Tax on This Product’ checkbox on your product pages.

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

Charge Tax on This Product Shopify

2. Select the product you want to charge tax on.

Charge Tax on This Product Shopify

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

Charge Tax on This Product Shopify

4. Click ‘Save’.

Charge Tax on This Product Shopify

Include or Exclude Sales Tax Based on Your Customer’s Region/Country

There’s another that you can enable when selling internationally. Enabling ‘Include or Exclude Tax Based on Your Customer’s Country’ will allow you to include or exclude sales tax in the product prices based on your customer’s region/location. For instance, if you enable this setting and are selling merchandise in the United Kingdom, your customers in the UK will see prices inclusive of VAT. On the other hand, if you are selling products in the USA, customers in the USA will see prices exclusive of the sales tax. In the USA, customers want to see the sales tax added to the product price at the time of checkout.

Follow the below-mentioned steps to enable ‘Include or Exclude Tax Based on Your Country’ settings:

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

Charge Tax on This Product Shopify

2. Go to ‘Taxes and Duties’.

Charge Tax on This Product Shopify

3. Check ‘Include or Exclude Tax Based on Your Country’.

Charge Tax on This Product Shopify

4. Click Save.

What To Do When Selling Exempt Products or Selling to Exempt Customers?

Let’s say Angelina has set certain customers tax-exempt. If she continues to use ‘All Prices Include Tax’ and has ‘Charge Tax on this Product’ checked, the customer will see the display price inclusive of the sales tax amount. In other words, Angelina will not be able to display tax-exempt prices, and her store will display $1000 (inclusive of sales tax) as she is using the tax-inclusive pricing feature.

To display tax-exempt prices for exempt customers or selling tax-exempt products, she will have to disable this feature and uncheck the ‘Charge Tax on This Product’ checkbox.

Read: Who Is Eligible For Sales Tax Exemption? 

How To Remove Taxes In Shopify?

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

Charge Tax on This Product Shopify

2. Go to ‘Taxes and Duties’.

Charge Tax on This Product Shopify

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

Charge Tax on This Product Shopify

Once you disable the ‘All Prices Include Tax’ settings, make sure that each of the product pages has the ‘Charge Tax On This Product’ checkbox unchecked. You can read our article ‘How to Not Charge Tax on Shopify’ to learn more about not charging sales tax on exempt products.

Want Help With Shopify Taxes And Accounting?

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