Include taxes in product prices

In some countries, such as the United Kingdom, you need to include sales tax in the displayed prices for most types of merchandise.

Note

As of October 22, 2020, new stores that are based in Japan are set to include tax in product prices by default.

When you activate this feature, tax is calculated by using the formula Tax = (Tax Rate X Price) / (1 + Tax Rate). Tax is displayed as a line item for both you and your customers, even though no taxes appear to be added. The subtotal and total are the same, but the amount of tax that you need to remit for an order is also indicated.

Steps:

1. From your Shopify admin, go to Settings > Taxes and duties.

2. Select Include sales tax in product price and shipping rate.

3. Click Save.

4. Optional: To use your customer's local tax rate, do the following:

5. From your Shopify admin, go to Settings > Markets.

6. In the Other markets section, click Preferences.

7. Select Include or exclude tax based on your customer's country.

8. Click Save.

After you set up your prices to include taxes, leave Charge tax on this product selected on your product pages so that taxes are included in the displayed price. The included amount of tax is displayed to customers next to the total at the checkout.

Setting up your prices to include taxes does not affect your tax reporting.

Note

If you set a customer to be tax exempt, but you use tax-included pricing, then the customer is still charged the full listed product price.

For example, Maya and Gabriel both live in the same region and both have online stores. The region has a 10% tax rate and allows business owners to choose whether to include taxes in their prices.

• Maya doesn’t include taxes in her prices. If she lists a product for $100, then the tax is calculated to be $10, for a total sale price of $110. The formula for this is Total = List Price X (1 + Tax Rate):

  $100 X (1 + 0.1) = $100 X 1.1 = $110

• Gabriel decides to include all taxes in his listed prices. To arrive at a $100 total listed price that includes tax, the tax-included formula is used to calculate the tax portion. The formula for this is Tax = (Tax Rate X Price) / (1 + Tax Rate):

  Tax portion of price = (0.1 X $100) / (1 + 0.1) = $10 / 1.1 = $9.09

  Product portion of price = $100 - $9.09 = $90.91

  These calculations are performed automatically. The tax amount appears in the details of all orders, so that the actual tax amount charged is displayed to both Gabriel and his customers.

Include or exclude tax based on your customer's country

Note

If you use new Markets, then refer to Setting duties and taxes for specific markets instead.

If you sell internationally, then you can include or exclude taxes in your product prices based on your customer's location. If you activate this setting, then customers in countries or regions such as the United Kingdom have prices displayed inclusive of their local value added tax (VAT), or exclusive of taxes in countries or regions such as the United States, where customers expect to have taxes added at checkout.

If you use tax overrides for certain products or collections of products, then your margins might be affected. Learn more about considerations for including or excluding tax based on your customer's country.

For example, Gabriel lives in a region with 10% tax, has his prices set to include tax, and sells to several regions outside his own. He activates the Include or exclude tax based on your customer's country setting. He sells a product for $100.

• In his own region, the product costs $100. Using the formula Tax = (Tax Rate X Price) / (1 + Tax Rate), the product portion of the price is $90.91, and the tax portion of the price is $9.09.
• In regions where Gabriel is not required to charge tax, the price of the product at checkout is $90.91, the product portion of the price.
• In a region where Gabriel is required to charge tax at a 20% tax rate, the price of the product at checkout is $109.09. This price is calculated by applying the region's 20% tax rate to the product portion of the price.

Your store address in the Shopify admin is used to determine your home tax rate, which is deducted from your tax-inclusive prices when you sell to another tax-inclusive country or region. Changing your store's address in the admin to another country or region changes the home tax rate.

Considerations for including or excluding tax based on your customer's country

Before you activate Include or exclude tax based on your customer's country, review the following considerations.

• Including or excluding tax based on your customer's country or region isn't supported in the following cases:
  • Stores on the Shopify Plus plan that use Avalara AvaTax.
  • Stores that use third-party apps that offer post-purchase upselling.
  • Accelerated payment methods, such as Google Pay or Apple Pay, are supported for merchants using Shopify Payments only. Accelerated payment methods aren't supported for merchants using other payment gateways.
  • Accelerated checkout buttons aren't supported for use with including or excluding tax based on your customer's country. If you want to include or exclude tax in your prices based on your customer's location, then deactivate your accelerated checkout buttons.
• Your home tax rate is determined by your store's address. This might affect your tax overrides. For example, if you have an override for a product that has a 10% tax rate, but your store's home tax rate is higher, then the higher home tax rate is deducted from these products when shipping internationally. This might affect your margins. If you want to prevent such items from shipping internationally, then use shipping profiles.
• Your home tax rate is used to calculate the price at checkout. This might cause inaccuracies if you have fulfillment locations in regions with different tax rates.
• After you activate the Include or exclude tax based on your customer's country setting, prices are displayed correctly at checkout. However, the product pages or the cart don't display the prices correctly unless either of the following is true:
  • You sell in multiple currencies and use Shopify payments. In this case, prices are displayed correctly at checkout, on the product pages, and in the cart.
  • Customers make their purchases using an address that is located in a region that is eligible for price adjustment, have cookies activated, haven't cleared their browser cache, and aren't visiting the store using incognito mode. In this case, prices are displayed correctly at checkout, on the product pages, and in the cart in subsequent visits to the store.

Note

If you set specific product prices using international pricing, then add your prices at exactly the amount you want them to be charged. Adjustments aren't made to specific prices per region.

Considerations for tax exemptions with tax-included prices

If you include taxes in your product prices, then you can't display a tax-exempted price for certain customers, such as GST exemptions for customers outside Australia and New Zealand.

If you need to provide an exemption to specific customers, then consider the following options:

• Don't include taxes in your prices.
• Modify your theme to display tax exempt prices in your store, and use Shopify Scripts to apply the 20% VAT exemption during checkout.

Set tax to include or exclude tax based on your customer's country

1. From your Shopify admin, go to Settings > Markets.

2. Click Preferences.

3. Toggle Include or exclude tax based on your customer's country to on.