How to Setup Tax overrides and exemptions in Shopify

Posted on by Summa Lai

Tax overrides and exemptions

Taxes are calculated automatically within Shopify, but you can override these tax rates for greater control over the taxes you charge. Use overrides if you need to do any of the following:

  • control how much tax you charge for a particular product
  • handle tax exceptions and exemptions
  • specify unique tax rates for shipping destinations
  • specify unique tax rates for tax-exempt customers.

For example, you can specify overrides for state tax exemptions in the United States, provincial tax exemptions in Canada, or VAT exemptions in the European Union or the United Kingdom.

Overrides apply to online sales and to Shopify POS sales.

Note

For information about Canadian tax overrides, refer to Canadian tax override requirements.

To set up a tax override, create a manual 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

You can use the Sufio app or the Digital Takeout: Easy Invoice app to set up your store to follow EU VAT regulations. For example, you can capture and validate business customers’ EU VAT registration numbers to set those customers to be tax exempt, and create invoices that are compliant in the European Union.

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.

Steps:

  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 manual 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 manual collection.

Hidden collections can be used for tax overrides. Any products placed in the collection that you create will become tax exempt everywhere in your store, whether the collection is hidden or not.

Steps:

  1. From your Shopify admin, go to Products > Collections.
  2. Click Create collection, and then enter a name for it.
  3. Under Collection type, select Manual
  4. If you want to hide the collection from any of your active sales channels, then click Manage in the Collection availability section to deselect the check box beside the name of the sales channel. Learn more about sales channel availability.
  5. Click Save.

Note

Only manual collections can be used to set up tax overrides. Automatic collections can’t be used.

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.

Note

If you set up calculated shipping rates using Canada Post, their rates will be used even if you create a shipping tax override.

Steps:

  1. From your Shopify admin, go to Settings > Taxes.
  1. Click the name of the country for which you want to add the tax override.
  2. In the Tax overrides section, click Add a tax override.
  3. To add an override for products, click Products in the Add Tax Override for country dialog
    1. Click Select a collection, and select the collection that needs an override
    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.
    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.

Note

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

Steps:

  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 Tax settings section, click Manage.
  4. Uncheck Collect tax.
  5. Click Save.

Built-in tax exemptions

Shopify has built-in tax overrides for two specific cases:

  • US merchants selling clothing in New York, Massachusetts, and Rhode Island
  • Canadian merchants selling vapor products in British Columbia and Saskatchewan

Clothing tax rules in US states

The following states have tax exemptions for certain clothing products:

  • New York: In some jurisdictions, 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. This exemption also applies to the local tax rates of the following jurisdictions:
    • Bronx
    • Brooklyn
    • Chautauqua
    • Chenango (except the city of Norwich)
    • Columbia
    • Delaware
    • Greene
    • Hamilton
    • Manhatten
    • Queens
    • Staten Island
    • Tioga
  • 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 calculate the correct tax rates, your store must have a physical presence in the state, and you need to create a collection for the applicable clothing products with a title of tax:clothing.

Steps:

  1. From your Shopify admin, go to Products > Collections.
  2. Click Create collection.
  3. In Title, enter tax:clothing in lowercase letters.
  4. Under Collection type, select Manual
  5. Add products to the collection manually.
  6. Optional: To hide the collection from any of your active sales channels, change the collection’s availability.
  7. Save your collection.

After you save 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.

British Columbia vapor product tax rules

British Columbia applies a higher PST rate to vapor products. In addition, GST is compounded on the PST. For Shopify to calculate the correct tax rates, you need to create a collection for the applicable vapor products with the title tax:eliquid_vaporizers.

For more information about the PST rate for vapor products, refer to the Government of British Columbia website.

Before you begin

For the override to apply correctly, you need to set up your tax accounts for Canada and British Columbia first.

Steps:

  1. From your Shopify admin, go to Products > Collections.
  2. Click Create collection.
  3. In Title, enter tax:eliquid_vaporizers in lowercase letters.
  4. Under Collection type, select Manual
  5. Add products to the collection manually.
  6. Optional: To hide the collection from any of your active sales channels, change the collection’s availability.
  7. Save your collection.

After you save the tax:eliquid_vaporizers collection, the applicable sales taxes are applied automatically, and the correct amount of tax will be collected for the products in that collection.

Saskatchewan vapor product tax rules

Saskatchewan applies a Vapour Products Tax, or VPT, to vapor products. For Shopify to calculate the correct tax rates, you need to create a collection for the applicable vapor products with the title tax:eliquid_vaporizers.

For more information about the VPT for vapor products, refer to the Government of Saskatchewan website.

Before you begin

For the override to apply correctly, you need to set up your tax accounts for Canada and Saskatchewan first.

Steps:

  1. From your Shopify admin, go to Products > Collections.
  2. Click Create collection.
  3. In Title, enter tax:eliquid_vaporizers in lowercase letters.
  4. Under Collection type, select Manual
  5. Add products to the collection manually.
  6. Optional: To hide the collection from any of your active sales channels, change the collection’s availability.
  7. Save your collection.

After you save the tax:eliquid_vaporizers collection, PST is no longer collected on products in the collection, and it is replaced by VST.

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.

Ref: https://help.shopify.com/en/manual/taxes/tax-overrides