Magento Tax Setup, Step 1: Set Up and Apply Customer and Product Tax Classes (CE 1.8/EE 1.13)

Table of Contents

Note: This article provides information about how to set up tax calculations in Magento Community Edition (CE) and Enterprise Edition (EE). The information is based on CE 1.8 and EE 1.13; some options here might not apply to earlier versions.

Important: No guarantee is offered with respect to any of the information given here. Please contact an expert before you make any decisions about tax matters.

Overview

Magento uses both customer tax classes and product tax classes to determine the rules which are used as the basis of tax calculations.

Tax rules are a combination of customer tax class, product tax class, and tax rates. Each customer is assigned to a customer group, which in turn is associated with a specific tax class. Products are also assigned a tax class when each record is created. Magento determines the tax by analyzing the tax class of the products in the shopping cart, the tax class of the customer, and the region where the transaction takes place. The region can be determined by the customer’s shipping address, billing address or shipping origin.

Add a New Customer Tax Class and Apply It to Customers

Customer tax classes define which types of taxes are applied orders placed by customers that you have assigned to customer groups. You create customer tax classes and assign customers to them depending on the type of customer. For example, in some jurisdictions, wholesale transactions are not taxed but retail transactions are.

To add a new customer tax class:

  1. From the Admin panel, select Sales > Tax > Customer Tax Classes.

    You see the list of existing customer tax class names, as shown in the following figure.

  2. To add a new customer tax class, click the Add New button in the upper right.
  3. In the Class Name box, type the name for your new customer tax class. For this example, use "Retail Customer" for the class name.
  4. Click Save Class.
  5. You can now see the Retail Customer class displayed. Apply the Retail Customer class to a customer group from your store by going to Customers > Customer Groups. Select the newly created tax class called Retail Customer and click Save.
  6. Apply the Customer Group to a customer in your store by going to Customers > Manage Customers. Select a customer from your store and in the Group column, click the dropdown to select the customer group that is associated with the appropriate customer tax class for this customer.
  7. Click Save.

Tip: To add more than one customer to the same customer group, click the checkbox to the left of every customer you want to add to the group. Then, in the upper right, click the Actions button. Select Assign a Customer Group, then select the customer group in the Group dropdown and click Submit.

Add a New Product Tax Class and Apply It to Products

Product tax classes define which types of taxes are applied to orders containing products that you have assigned to product groups. You create tax classes and assign products to them depending on the type of product. For example, food might not be taxed, or might be taxed at a different rate.

To add a new product tax class:

  1. From the Admin panel, select Sales > Tax > Product Tax Classes.

    You see the list of existing product tax class names, as shown in the following figure.

  2. To add a new product tax class, click the Add New button in the upper right.
  3. In the Class Name box, type the name for your new product tax class. For this example, use "Taxable Goods" for the class name.
  4. Click Save Class.
  5. Apply the Taxable Goods class to an actual product from your catalog by going to Catalog > Manage Products. Select a product from your catalog to see options like the ones shown in the following example, on the General tab.
  6. Select the tax class called Taxable Goods and click Save.

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