Tax overrides and exemptions

Although Shopify automatically calculates most taxes, you can override tax rates to control how much tax you charge for a particular product, and to handle exceptions and exemptions. You can also specify unique tax rates for shipping destinations or to tax-exempt customers.

For example, you can specify overrides for:

  • state tax exemptions in the United States
  • provincial tax exemptions in Canada
  • VAT exemptions in the United Kingdom.

Any overrides that you set apply to online sales and to Shopify POS sales.

To set up a tax override, you can create a collection for the products that are tax exempt, and then apply the override to that collection.

If you do not need to charge sales tax, then you can create overrides and set the tax rates to 0%. Always check with a local tax authority to make sure that you are charging your customers the correct tax rates.

Grow your business

Sufio can help you set up your store to follow EU VAT regulations, including everything from capturing and validating your business customers' EU VAT registration numbers and setting them as tax exempt when applicable, to creating invoices that are fully compliant in Canada and the countries of the European Union. Sufio offers an exclusive plan for Shopify stores. Business customers with valid VAT numbers are not charged VAT during checkout.

Set a product to be exempt from sales tax

If you have just a few products that are exempt from tax, then you can prevent any taxes from applying to these products individually:

  1. In your Shopify admin, click Products, and then click the name of the product.

  2. In the Pricing section, uncheck Charge taxes on this product.

  3. Click Save.

Create a collection for products that need a tax override

To apply a tax override, you first need to group the tax-modified products in a specific collection. To create a collection of products for which you want to specify a tax override:

  1. From your Shopify admin, go to Products > Collections.

  2. Click Create collection, and then enter a name for it.

  3. If you want to hide the collection from any of your active sales channels, then click Manage in the Sales channels section to deselect the check box beside the name of the sales channel. Learn more about sales channel availability.

    Note

    A hidden collection will not be available to customers in your store, but you can still use it to make your tax override work. Any products placed in this collection (hidden or not), will become tax exempt everywhere in your store.

  4. Click Save collection.

Override the taxes on a collection or on shipping charges

You can specify unique tax rates for a collection of products or on shipping charges.

The percentage value that you enter is the amount that will be collected. It's not the amount exempted.

To apply a tax override:

  1. Click the name of the country for which you want to add the tax override:

    Taxov 1
  2. In the Tax overrides section, click Add a tax override:

    Taxov 2
  3. To add an override for products, click Products in the Add Tax Override for country dialog:

    Taxov 3
    1. Click Select a collection, and select the collection that needs an override:

      Add tax override 3

    2. Under Location, select where you want the override to apply.

    3. Under Tax rate, enter the amount of tax that you want to charge for the products in the collection:

      Add tax override 4
    4. Click Add Override.

  4. To add an override to shipping charges, click Shipping in the Add Tax Override for country dialog.

    1. Under Location, select where you want the override to apply.
    2. Under Tax rate, enter the tax rate that you want to apply to the shipping charge.
    3. Click Add Override.
  5. Click Save.

Set up tax-exempt customers

On the Customers page of your Shopify admin, you can set a customer to be fully tax exempt.

Tax exempt customers are not charged any tax when they complete a checkout. These customers need to check out using the same email address as the one listed on their customer account.

To set a customer as tax exempt:

  1. From your Shopify admin, go to Customers.

  2. Find the customer you want to exempt from all taxes, and then click their name.

  3. In the Contact section, click Edit.

  4. Check Customer is tax exempt.

  5. Click Save.

New York, Massachusetts, and Rhode Island clothing rules

Shopify has built-in tax overrides for clothing products for the states of New York, Massachusetts, and Rhode Island. The following state tax exemptions for clothing products apply:

  • New York: Clothing products, footwear products, and items used to repair clothing products with an individual price under $110 are exempt from state sales tax. For example, two items with a combined price of $200 will each be exempt from sales tax, but one item with an individual price of $110 will be subject to sales tax.
  • Massachusetts: Clothing products with a price under $175 are exempt from state sales tax, and clothing products with a price of over $175 will collect tax only on the amount that their price is over $175. For example, an item of clothing with a price of $200 will be taxed on $25 because the first $175 is not taxable.
  • Rhode Island: Clothing and footwear products with an individual price of $250 or less are exempt from state sales tax, and only the incremental amount above $250 is subject to sales tax. For example, if a suit costs $275, then the tax applies only to $25.

For Shopify to apply the built-in tax override automatically, your store must have a physical presence in the state, and you must create a collection with a title of tax:clothing for the products that are tax exempt.

To create a tax:clothing collection:

  1. From your Shopify admin, go to Products > Collections.

  2. Create a collection and give it the title tax:clothing:

    Add tax override 7
  3. Click Manually select products.

  4. Click Save.

  5. In the Products section, add all the products that are potentially eligible for the tax exemption.

  6. If you want to hide the collection from any of your active sales channels, then change the collection's availability settings.

  7. Click Save.

After saving the tax:clothing collection, the applicable clothing rule will be applied automatically, and the correct amount of tax will be collected for the products in that collection.

Use the tax:clothing collection only for the states of New York, Massachusetts, and Rhode Island. If another clothing exemption applies in your jurisdiction, use other tax override methods or mark your products as nontaxable in the Pricing section of the product page.

Charge PST in GST-exempt Canadian stores

If your store is in Canada and you have sales less than the $30,000 threshold that is set by the federal government, then you are usually exempt from charging GST.

However, you might still need to charge provincial sales tax (PST) and then remit those taxes to the appropriate government.

Check with your tax accountant or government authority to make sure you charge and remit sales taxes correctly in each jurisdiction where you ship or sell your products.

To set up your taxes to charge PST but not GST:

  1. Make sure that your store address is in Canada, and that you have set up your shipping zones in Canada.
  2. Go to Settings > Taxes > Canada.
  3. In the Base taxes section, leave the Country Tax set at the default 5%.
  4. For the province that you ship or sell to, set the tax rate to the appropriate rate, enter PST or another appropriate name for the tax, and select instead of 5% federal tax.
  5. Click Save.

Example

Suppose a store in Ontario is exempt from GST because its annual sales are $25,000. The owner leaves the default country tax set to 5%, and changes the default 13% HST rate in Ontario to 8% PST as follows:

Image of 8% PST instead of 5% federal tax

The owner also makes sure that each of her products has Charge taxes on this product checked on each Product page.

Set a 0% tax rate for most of your products

If most or all of your products are exempt from sales tax and you are in a country that has both federal tax and regional taxes, then you can override the defaults to 0% in the Base taxes section.

However, for your products that are taxable, you will need to add those products to a collection, and then create a tax override for that collection. In this scenario, go to Settings > Taxes, and click the country name. In the Base taxes section, specify that the regional tax rate is added to 0% federal tax. Then, when you create the tax override for the collection, you can specify that you are overriding the rate for the country or for a region in the Add Tax Override for country dialog.

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