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How To Set Up Sales Tax in Magento


Tax doesn’t have to be taxing, right?

That’s how the saying goes, but how easy is it to set up your sales tax in Magento? If it’s not something you’ve dealt with before, this guide will show you how to get your taxes set up right.

Magento allows eCommerce website owners to set up different tax classes and rates for their business.

It also allows you to define specific product tax classes and assign them to products.

How to set up sales tax in Magento

Before you start setting up your tax parameters in your Magento store, you should familise yourself with the tax requirements for your location.

Then you will know what configurations you need to make for your eCommerce business.

Using Admin Permissions, you can decide who gets access to the tax configurations.

To do this select both the Sales/Tax and System/Tax resources.

If you want to set up tax parameters for a region different from your delivery point of origin, you will need to allow access to the System/Shipping resources for the role, because the delivery settings determine the tax rate used for catalog prices.

Setting Up Tax Classes

This is the first step on the road to tax setup perfection.

1) First head over to the Admin menu, and select System > Configuration.

2) In the left hand panel, under the Sales tab, you will see a sub-heading called Tax. Click to expand.

3) Near the top, you will see the Tax Classes sub-heading:


4) Within the drop down, you will find three default options:

  • Taxable Goods
  • Shipping
  • Tax Exempt

Select the most appropriate choice for the products you are delivering.

Calculation Settings

Next you need to set up your calculation settings.

1) Head down to the Calculation Settings section:


Next, you will need to complete the following steps:

2) In Tax Calculation Method Based On field, you will need to choose whether the tax is based on the price of each unit, or on the row total which is the total for a line item in the order, and takes into account any discounts.

3) Next, decide whether tax is calculated based on the customer’s delivery address, billing address, or the shipping origin of your products, by selecting the appropriate choice in the Tax Calculation Based On field box.

4) To determine which prices will include tax;

  • Set Catalog Prices to include or exclude tax
  • Set Shipping Prices to include or exclude tax

5) In the Apply Customer Tax field, you can choose whether tax is applied to the original or the discounted price.

6) In the Apply Discount on Prices field, select whether any discounts applied include the tax or exclude it.

7) If you are using custom prices, you can choose whether the tax is applied to custom prices or to original price in the Apply Tax On field.

8) In the Enable Cross Border Trade field, select Yes if you want to use consistent pricing across different tax rates, or select No which will instead vary the price by tax rate.

Default Tax Destination Calculations

The next step involves setting up the Tax Destination parameters, which will differ depending which country you are trading from. For the purposes of this article, our default is the United Kingdom.


2) Select the Default Country to be used for tax calculations. In this case, the UK.

The next two options can be defined by specific regions, or an asterisk can be used as a wildcard to represent all Region and Post Code values.

3) Enter your selection for the Default State to be used for tax calculations.

4) Select the Default Post Code to be used.

Price Display Settings

This area decides what prices are displayed to the customer, so it’s important to pay attention and get the prices right before the customer chooses to buy.

Getting customers through to the checkout and then giving them a different price is a sure-fire way to lose business.

So, first head to the Price Display Settings sub-heading:


1) Set Display Product Prices in Catalog to one of the following:

  • Excluding Tax
  • Including Tax
  • Including and Excluding Tax

If you set the Display Product Prices field to Including Tax, the tax appears only if there is a tax rule that matches the tax origin, or if Magento detects that the customer address matches the tax rule.

This can happen after a customer creates an account, logs in, or uses the Tax and Shipping estimation tool in the cart.

2) Do the same with the Display Shipping Prices field:

  • Excluding Tax
  • Including Tax
  • Including and Excluding Tax

Shopping Cart Display

The next sub-heading should be the Shopping Cart Display:

For each field that is listed, select how you want the taxes and prices to be shown for products in a shopping cart.

Orders, Invoices, Credit Memos Display Settings

Moving on, you will next come across the Orders, Invoices, Credit Memos Display Settings section.


In here, you can select how prices and taxes are displayed in orders, invoices, and credit memos.

Save Your Settings

And finally, once you have all of your tax settings in place, don’t forget to save them using the Save Config button at the top right of the page.


We hope you find this guide to setting up your tax in Magento useful, but if we’ve missed anything out, please let us know in the comments below.