How to add taxes on Shopify (Include taxes in product prices)

Tony Pham Sep 03 2024

After setting up taxes for your Shopify store, you need to decide whether to include taxes in the prices of your products. This is an impactful decision that will affect your sales number and profit. In this article, NextSky will show you how to add taxes on Shopify for your products.

How to add taxes on Shopify for your products

Follow these steps to include or exclude taxes from the prices of your products:

From the Shopify admin Dashboard, go to Settings. On the left sidebar, choose the Taxes and Duties tab.

Scroll down to the Global settings at the bottom.

Tick the Include sales tax in product price and shipping rate box to include taxes in your product prices on Shopify.
Untick the Include sales tax in product price and shipping rate box to remove taxes from your products on Shopify.
Click Save.

Follow these steps if you only want to add taxes to products for certain markets:

From the Shopify admin Dashboard, go to Settings. On the left sidebar, choose the Market tab.
Click on Preferences on the top right of the screen.

In the Taxes section, enable Tax inclusion.

Click Save.

What is the difference between including and excluding taxes?

Including and excluding taxes in product prices have different impacts on how prices are displayed to customers and how taxes are handled at checkout.

Include taxes in your prices

When you include taxes in your prices, the price shown to customers already has the tax amount built in. For example, if an item costs $100 and the tax rate is 10%, the customer will see a total price of $100, which includes $90.91 for the item and $9.09 as tax.

This approach simplifies the buying process because customers see the final price upfront, avoiding any surprises when they go to checkout. This method is common in regions like the European Union, where displaying tax-inclusive prices is often required by law. Including taxes can make prices appear more straightforward and transparent, which helps build trust with customers by showing them the exact amount they will pay.

Exclude taxes from your prices

On the other hand, when you exclude taxes from your prices, the tax amount is added during the checkout process. For instance, if an item is listed at $100 and the tax rate is 10%, the final price at checkout will be $110. This means customers initially see a lower price, but the total they pay will increase when taxes are applied.

This method is typical in countries like the United States and Canada, where taxes are generally added at checkout. Excluding taxes can make prices look more competitive at first glance, but it might also lead to some customers feeling surprised or confused when they see the final price at checkout.

The main difference between including and excluding taxes lies in the presentation and customer perception. Including taxes shows the full price upfront, which provides a clear expectation of what the customer will pay, enhancing their shopping experience. Excluding taxes, while showing a lower initial price, adds the tax amount at the last step, which can affect how customers perceive the value of your product.

The choice between these methods depends on regional regulations, customer expectations, and the kind of shopping experience you want to create for your customers.

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Frequently Asked Questions (FAQs)

Does Shopify automatically add sales tax?

Yes, Shopify can automatically calculate and add sales tax based on the customer’s location and your store’s settings. Shopify uses default tax rates, which are regularly updated, to help you meet compliance requirements. However, these rates are based on the information Shopify has and may not cover every scenario.

You need to enable the automatic tax settings and ensure that your store’s tax setup matches the local tax laws applicable to your business. It’s always recommended to review the rates and consult with a tax professional to make sure your tax settings are accurate.

How do I add VAT on Shopify?

To add VAT (Value-Added Tax) on Shopify, follow these steps:

Log in to your Shopify admin panel and click on Settings at the bottom left corner.
Click on Taxes and Duties: In the settings menu, select Taxes and duties.
Under the appropriate region (e.g., European Union), click Set up. Enter your VAT registration number if required.
Ensure that the setting to calculate taxes automatically is enabled. Shopify will calculate VAT based on the customer’s location and the tax rates you have set up.
Decide whether you want to include VAT in your product prices or add it at checkout. You can set this in the Tax calculations section.

Make sure that your products are set to charge taxes by checking the Charge taxes on this product box in each product’s settings.

How to I add a tax code to Shopify?

From the Shopify admin, go to Settings > Taxes and duties. In the Manage sales tax collection section, click your country or region. Click Collect sales tax. In Tax number, enter your tax number.

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Tony Pham

Hello! I'm Tony Pham, a full-stack Shopify, Magento, and WordPress developer with over 12 years of experience in both front-end and back-end development.

Since 2016, I have been proudly working at Nextsky as the Tech Lead, where I continue to enhance my skills and contribute to exciting projects. One of my proudest works is the Agile theme, which passed Shopify's high standard and is currently available on Shopify Theme Store.

I am passionate about researching new technologies and staying updated with the latest trends in the industry. It not only makes my life more fulfilling and exciting but also allows me to bring better service to clients.

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