Shipping Taxes Setup in Magento 2

As obvious as it sounds, taxable shipping isn’t mandatory. It all depends on your market. It’s completely possible in certain conditions that shipping won’t be taxed at all. But if you have to set up taxes for shipping then you would definitely want to know how to do it right the first time. Since Magento 2 doesn’t particularly cater to Shipping Tax Classes, we give you this concise How-To. We will discuss here how you can easily, and accurately, assign Product Tax Classes to serve the purpose.  

If you’re visiting this page after reading our article Your Guide to Taxes and Magento 2, you’re already in the game. However, if not then we recommend you read this article first just so that you’re familiar with the basics of tax settings in Magento 2.

To start let’s go to Stores > Configuration > Sales > Tax > Tax Classes > Tax Class for Shipping. Click on the drop down arrow. For this particular step of setup we will be exploring the Tax Class for Shipping option.

Previously, in Your Guide to Taxes and Magento 2, we discussed Tax Zones and Rates. We added a New Tax Rate and defined a rule against it.

Let’s take a moment to refresh our memory.

  • We defined a Tax Rate for New York, USA
  • The Customer Tax Class was set for Retail Customers
  • Our Product Tax Class was Taxable Goods
  • It was configured to charge 8.3750% tax
  • But we didn’t set Tax Class for Shipping, as in the image above, it is still set to None

Now, if we add a product to the to the Taxable Goods Product Tax Class and we add another with a Product Tax Class set to None. If both products cost $100, the Product Tax Class settings will cause the first product to be charged with an additional 8.3750% tax rate whereas the second product won’t face any tax rate. You will also find that the first product is charged shipping whereas the second product wasn’t.

Now, imagine you always have taxable shipping even when your product isn’t, for this you would need to execute the following steps.

New Product Tax Class

Create and name a new Product Tax Class by creating a new Tax Zone and Rate or editing an existing one. You could name this new class anything you’d like, for example Shipping. Then in Additional Settings under Product Tax Class you will find an Add New Tax Class option.

Set Product Tax Class

Go to Stores > Configuration > Sales > Tax > Tax Classes > Tax Class for Shipping and select your newly created Tax Class for Shipping. Select Shipping from the drop down and save to apply.

Edit Rules

To include rule(s) in your Shipping Product Tax Class, you would go to Stores > Taxes > Tax Rules and select the rule you have created.

We will use our rule from Your Guide to Taxes and Magento 2 , US-NY-*-Rate 1. Before selecting US-NY-*-Rate 1, you will notice that we only have this rule that would require editing. So once it has been selected, we proceed to the Advanced Settings. Now the Product Tax Class field allows multiple selections. So we will keep the already selected Taxable Goods selection and will add Shipping.

The important thing in all of this is that you don’t ever add any products to the Shipping Product Tax Class, this way you are aware of it only being charged for Shipping and nothing else.

Tax rates will be applied to products with a Taxable Goods Product Tax Class. So according to our example, a 8.3750% tax rate would apply to each Taxable Good added to the cart.

Keep things short and simple – it’s an intangible product in the cart that has a special Product Tax Class that will indefinitely be charged at the rate you choose. That was the simplest way to convey the essentials of Shipping Tax and how to set it up while using Magento 2.

We hope that it was useful and helped get one step closer to flawless Tax setup.

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