Magneto 2 Tax Configuration & Common Mistakes During Tax Configuration

Setup Taxes correctly is a very useful thing in eCommerce sites as if tax setting gets wrong, then it will directly affect the profit margin of the website.
So here we will discuss Magento 2 tax configuration. In Magento 2, you can configure taxes by creating tax rules, tax rates, customer tax class, product tax class and assign it to products and customers.
On the basis of customer and product classes, and the region (based on the customer’s shipping address, billing address or shipping origin), Magento 2 analyzed the shopping cart of each customer and calculates the appropriate tax.
So let’s discuss in details about Tax configuration in Magento 2:

A. General Tax Settings

First, go through the general tax setting for tax calculation or tax display for your eCommerce store.
Go to Stores > Settings > Configurations then select Tax under Sales tab choose Tax. You will see the setting for Tax configuration:

1. Tax Classes:

From here you can assign tax classes for Shipping, Products and Customers. This setting will help to calculate the appropriate tax when customers add products in the cart. During tax calculation Magento also considers the region as determined by the customer’s shipping address, billing address or shipping origin.

2. Calculation Settings:

This setting helps you to set the tax calculation method, whether it is based on the

  • Unit price.
  • Row Total.
  • Total.

Also determine if the tax is based on the:

  • Shipping address.
  • Billing address.
  • The Shipping origin.
You can also setup Catalog prices, shipping prices, Applying Discount on Prices to be included or excluded tax.

3. Default Tax Destination Calculation:

This setting is useful for tax calculation based on selected Country, State, Postal code.

4.Price Display Settings

Using this setting you can determine whether you want to display Catalog and Shipping Prices with including tax or excluding tax , or show both.

5. Shopping Cart Display Settings

Using this setting you can determine whether you want to display shopping cart display prices, display subtotal, display shipping amount with including tax or excluding tax , or show both.

6. Orders, Invoices, Credit Memos Display Settings

Display Prices determines if the prices on Order, Invoices, Credit Memos to be displayed with Excluding Tax, Including tax or Both (Including Tax & Excluding tax )
Display Subtotal on order, Invoices, Credit Memos with Excluding Tax, Including tax or Both (Including Tax & Excluding tax )
Display Shipping amount on order, Invoices, Credit Memos with Excluding Tax, Including tax or Both (Including Tax & Excluding tax)

7. Fixed Product Taxes

Using this setting you can set up a fixed product tax rather than a percentage of the product price.

B. Tax Rules

Tax rules are a combination of product tax class, customer tax class and tax rate. Each customer is assigned to a customer tax class, and each product is assigned a product tax class. Based on these settings, Magento will calculate the appropriate tax for the particular customer when customers added product in the cart.

Step 1: Complete the Tax Rule Information

  • Click on Add New Tax Rule Button.
  • Fill the required fields: Name, Tax Rate.
You can also import Tax rates if you have many tax rates you need to set up.
Complete the Additional Settings

Step 2. Customer Tax Class

With this setting you can assign customer tax class to the tax rule.
Add New Customer Tax Class: To create a new tax class, click on ‘Add New Tax Class’. Add tax class name and Save.
Edit Customer Tax Class: To edit an existing customer tax class, tap the Edit icon and make changes to the necessary information. Click on the Save button when done.

Step 3. Product Tax Class

With this setting you can assign product tax class to the tax rule.
Add New Product Tax Class: To create a new tax class, click on Add New Tax Class. Add product tax class name and Save.
Edit Product Tax Class: To edit an existing product tax class, tap the Edit icon and make changes to the necessary information. Hit the Save button when done.
In the Priority field, enter a number to indicate the priority of each tax rule if more than one tax is activated.

C. Tax Zones and Rates

You can define the tax rate for each state from which you collect taxes. Tax rates have a unique tax identifier.
To add new tax rate:
  • Click on the ‘Add New Tax Rate’ button.
  • Enter the Tax Identifier, Zip/Post Code fields.
  • Choose the State and Country where you want to apply this tax rate.
  • Enter the Rate Percent that is used for the tax rate calculation.
  • Save Tax Rate.

D. Common Mistakes during Tax Configuration in Magento 2

1. Tax not showing in shopping cart in Magento 2

On shopping cart and checkout the tax is not calculated in the grand total.We have setup Catalog Prices and display prices Including Tax ?
Solution : Below setting will sort out this issue.
From Magento backend, go to the Stores–>Configuration–>Sales–>Tax:
In Shopping Cart Display Setting, Set Display Subtotal to ‘Excluding Tax’
In Orders, Invoices, Credit Memos Display Settings, Set Display Subtotal to ‘Excluding Tax’
By doing this setting tax will get added into order subtotal and will display on cart page as well as on Checkout.

2. Shipping Tax calculation wrong?

On shopping cart and checkout the tax is not calculated in the grand total.We have setup Catalog Prices and display prices Including Tax ?
Solution: Below setting will sort out this issue.
From Magento backend, go to the Stores–>Configuration–>Sales–>Tax–>Tax Classes
Tax Class for Shipping: Taxable Goods
By Default it’s selected to None.
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