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Tax On Shipping

Tax on Shipping makes it easy to meet complex regional tax requirements, and can be used with any shipping method, existing tax classes, and rules. Tax on Shipping supports both inclusive and exclusive pricing, and includes a variety of tax calculations.

Tax on Shipping makes it easy to meet the most complex regional tax requirements, and can be used with any shipping method, existing tax classes, and rules. Rather than apply a flat tax rate to shipping charges, Tax on Shipping calculates the tax during checkout, using a variety of tax calculation methods. Tax on Shipping supports both inclusive and exclusive pricing, and includes the following options:

  • Highest tax rate in the cart
    Examines each item in the cart, and uses the highest tax rate for the shipping tax.
  • Lowest tax rate in the cart
    Examines each item in the cart, and uses the lowest tax rate for the shipping tax.
  • Flat tax rate on taxable cart
    If there are taxable items in the cart, applies a flat tax on shipping, based on your tax class configuration. If there aren’t any taxable items in the cart, no shipping tax is added to the order.
  • Highest value in the cart
    Determines the item of highest value in the cart, and uses the tax rate that applies to the item of highest value.
  • Weight proportion in the cart
    Use the proportional weight of each line item to determine shipping tax.

Note: The Tax Class on Shipping settings apply only when the “Flat Tax Rate on Taxable Cart” option is selected.

To set up Tax on Shipping:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax.
  3. Click to expand the Tax on Shipping section, and do the following:
    1. If necessary, set Enabled to “Yes.” Tax on Shipping is enabled by default.
    2. Set Totaling Algorithm to one of the following:
      • Highest tax rate in the cart
      • Lowest tax rate in the cart
      • Flat tax rate on taxable cart
      • Highest value in the cart
      • Weight proportion in cart
  4. Click the Save Config button to save your changes.
Configuring Tax on Shipping
Configuring Tax on Shipping

Tax Rate Scenarios

The following sample tax rates, rules, and products are used to illustrate each Tax on Shipping algorithm.

Tax Rate 15%
Tax Rate 210%
Tax Rule 1Applies to Product A
Tax Rule 2Applies to Product B
Product AKeyboard
Weight: 1 lb
Price: $99.99
Product BMobile Phone
Weight: 0.3 lb
Price: $750

Highest Tax Rate in the Cart

To configure the tax rate:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax.
  3. Click to expand the Tax on Shipping section. Then, do the following:
    1. Set Enabled to “Yes.”
    2. Set Totaling algorithm to “Highest tax rate in cart.”
  4. Click the Save Config button.

To see the results:

  1. From the store, log in to your customer account.
  2. Add the products to the shopping cart, and go to checkout.
  3. In the Estimate Delivery and VAT section, set Country to “United Kingdom.”
  4. Enter the Postal Code, and click the Get a Quote button.
  5. Select the Delivery Method, and click the Update Total link.
    Delivery and Tax Calculations
    Highest product tax rate in the cart:10% (Tax Rate 2 applied to Product B)
    Price of the selected delivery method:$15.48
    Tax rate applied to the delivery method:10%
    Tax on delivery:$1.55 (For example: 15.48 * 10% = $1.548)
    Cost of delivery, including tax:$17.03 (For example: 15.48 + 1.55 = $17.03)

Lowest Tax Rate in the Cart

To configure the tax rate:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax (VAT).
  3. Click to expand the Tax on Shipping section. Then, do the following:
    1. Set Enabled to “Yes.”
    2. Set Totaling algorithm to “Lowest tax rate in cart.”
  4. Click the Save Config button.

To see the results:

  1. From the store, log in to your customer account.
  2. Add Product A and Product B to the shopping basket, and go to checkout.
  3. In the Estimate Delivery and VAT section, set Country to “United Kingdom.”
  4. Enter the Postal Code, and click the Get a Quote button.
  5. Select the Delivery Method, and click the Update Total link.

    Delivery and Tax Calculations
    Lowest product tax rate in the basket: 5% (Tax Rate 1 applied to Product A)
    Price of the selected delivery method:$15.48
    Tax rate applied to the delivery method:5%
    Tax on delivery:$0.77 (For example: 15.48*5% = $0.774)
    Cost of delivery, including tax:$16.25 (For example: 15.48 + 0.77 = $16.25)

Flat Tax Rate on Taxable Cart

To configure the tax rate:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax (VAT).
  3. Click to expand the Tax on Shipping section. Then, do the following:
    1. Set Enabled to “Yes.”
    2. Set Totaling algorithm to “Flat tax rate on taxable cart.”
  4. Click the Save Config button.

To configure the tax class for delivery:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax (VAT).
  3. Click to expand the Tax Classes section.
  4. Then, set Tax Class for Delivery to the appropriate rate. (For example: Tax Rate 1)
  5. Click the Save Config button.

To see the results:

  1. From the store, log in to your customer account.
  2. Add Product A and Product B to the shopping basket, and go to checkout.
  3. In the Estimate Delivery and VAT section, set Country to “United Kingdom.”
  4. Enter the Postal Code, and click the Get a Quote button.
  5. Select the Delivery Method, and click the Update Total link.

    Delivery and Tax Calculations
    Price of the selected delivery method:$15.48
    Tax rate applied to the delivery method:5% (Tax Rate 1)
    Tax on delivery:$0.77 (For example: 15.48 * 5% = $0.774)
    Cost of delivery, including tax:$16.25 (for example: 15.48 + 0.77 = $16.25)

Highest Value in the Cart

    To configure the tax rate:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax (VAT).
  3. Click to expand the Tax on Shipping section. Then, do the following:
  4. Set Enabled to “Yes.”
  5. Set Totaling algorithm to “Highest value in the cart.”
  6. Click the Save Config button.

To see the results:

  1. From the store, log in to your customer account.
  2. Add Product A and Product B to the shopping basket, and go to checkout.
  3. Set the Quantity of Product A to “10,” to make the subtotal greater than the price of Product B.
  4. In the Estimate Delivery and VAT section, set Country to “United Kingdom.”
  5. Enter the Postal Code, and click the Get a Quote button.
  6. Select the Delivery Method, and click the Update Total link.  (If you choose the most expensive delivery method, the result will be easier to see.)

    Delivery and Tax Calculations
    Highest subtotal price in the basket:$999.90 (Product A)
    Tax applied to Product A (Tax Rate 1):5%
    Price of the selected delivery method: $17.34
    Tax rate applied to the delivery method:5%
    Tax on delivery:$0.87 (For example: 17.34 * 5% = $0.867)
    Cost of delivery, including tax:$18.21 (For example: 17.34 + 0.87 = $18.21)

Weight Proportion in Cart

To configure the tax rate:

  1. From the Admin panel, select System > Configuration.
  2. In the Configuration panel on the left, under Sales, select Tax (VAT).
  3. Click to expand the Tax on Shipping section. Then, do the following:
    1. Set Enabled to “Yes.”
    2. Set Totaling algorithm to “Highest value in the cart.”
  4. Click the Save Config button.

To see the results:

  1. From the store, log in to your customer account.
  2. Add Product A and Product B to the shopping basket, and go to checkout.
  3. Set the Quantity of Product A to “10,” to make the subtotal greater than the price of Product B.
  4. In the Estimate Delivery and VAT section, set Country to “United Kingdom.”
  5. Enter the Postal Code, and click the Get a Quote button.
  6. Select the Delivery Method, and click the Update Total link.  (If you choose the most expensive delivery method, the result will be easier to see.)
    Delivery and Tax Calculations
    Total weight of the products in the shopping basket: 1.3 lb
    Product A: 77% of the total weight (1 lb / 1.3 lb * 100% = 76.9%)
    Product B: 23% of the total weight (0.3 lb / 1.3 lb * 100% = 23.1%)
    Tax rate applied to the delivery method: 6.1% (76.9% * 5% + 23.1% * 10% = 3.8% + 2.3% = 6.1%)
    Price of the selected delivery method:$10.00
    Tax on delivery sum:$0.61 (For example: 10 * 6.1% =$0.61 )
    Cost of delivery, including tax:$10.61 (For example: 10 + 0.61 = $10.61)