Magento Tax Setup, Step 4: Set Up Tax Rules (CE 1.8/EE 1.13)
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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.
Tax rules put all the Magento tax elements together: customer tax classes, product tax classes, and tax rates. The way you define your tax rules determines how all of the other tax elements are put together to arrive at a tax amount for each order in your store.
Set Up Tax Rules
Tax rules are defined as a combination of a customer tax class and a product tax class with a tax rate. In other words, based on the class of the customer (customer tax class), the class of the products (product tax class) in the shopping cart, and the region (tax rate depending on the shipping address, billing address, or shipping origin), Magento calculates the appropriate tax for each order.
Note: When you set up tax options, be sure to set your store scope so that the options are applied across stores and websites appropriately.
To add a new tax rule:
- From the Admin panel, Select Sales > Tax > Manage Tax Rules.
- In the Manage Tax Rules are, click the Add New button to add a new tax rule. The Edit Rule page is displayed, as shown in the following figure.
- In the Tax Rule Information area, select the options as shown in the following table.
Option Description Name Specify a name for this tax rule that will make it easy to identify. Customer Tax Class Select the customer tax class to which you will apply this tax rule. Product Tax Class Select the product tax class to which you will apply this tax rule. Tax Rate Select the tax rate to apply for this tax rule. Priority Specify the priority of this tax, when more than one tax applies. Lower numbers have higher priority. If two tax rules with the same priority apply then the taxes are added together. If two taxes with a different priority apply then the taxes are compounded. When taxes are compounded, the first priority tax is calculated on the subtotal amount, and then the second priority tax is calculated on the subtotal plus the first priority tax amount. Calculate off subtotal only Important Check this checkbox to override priority order for compounding taxes. In other words, for this tax rule, tax will be calculated only on the subtotal. If you clear this checkbox, the regular compounding tax calculation is used. Sort Order Specify the order in which tax rules are displayed on the Manage Tax Rules page. Lower numbers have higher sort order in the list.
- Click the Save Rule button to save your changes.
Important: If two tax rules with the same priority apply then the taxes are added together. If two taxes with a different priority apply then the taxes are compounded. When taxes are compounded, the first priority tax is calculated on the subtotal amount, and then the second priority tax is calculated on the subtotal plus the first priority tax amount. Lower numbers have higher priority.
In order for compound taxes to work correctly do not check the "Calculate off subtotal only" checkbox when you set up your tax rules that apply to compound taxes. This checkbox overrides the compounding calculation and cannot be used in conjunction with compound taxes.
For more information about compound (also called stacked) taxes in any of your tax jurisdictions, see Setting Up Compound (Stacked) Tax Rules in Magento CE 1.8 and EE 1.13.
For More Information
- Next optional steps:
- This article describes one of the basic steps for setting up taxes in Magento. For an overview of the tax setup process, and links to articles that detail all the steps in the process, see Understanding How to Set Up Taxes in Magento CE 1.8 and EE 1.13 (Four-Part Series).
- For more information about tax updates for the Magento CE 1.8 and EE 1.13 release, see Magento CE 1.8 and EE 1.13: Recommended Tax Configurations and Best Practices.