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GLOSSARY

Tax calculator

A useful tool dedicated to the automatic calculation of VAT and sales taxes


One thing’s for sure if you’re running an online business: there are plenty of legal technicalities you have to deal with. Financial regulations that must be adhered to. From whichever country your business is based in and to wherever it intends to trade. Taxes are one of the largest and potentially trickiest. That’s because the rules about taxation worldwide are different, quite complex and changing. And yes: in case you’re wondering, they do affect you.

To make your tax calculation experience easier, Commerce Layer lets you configure tax calculators. They are external services that help to perform this kind of operations in an automatic way.

The tax calculator you create while setting up your Commerce Layer’s Organization is an element you may add to your Market. It is defined by two simple pieces of data:

  • a name (the internal identifier for this resource within your Organization)
  • the external service-specific credentials (i.e. the API Key provided by the selected calculator type or whatever else).

Once selected and set up, a Commerce Layer’s tax calculator does its job automatically. It calculates the related taxes on the basis of the information associated with that specific order, saving you a lot of hassle.

Now, Commerce Layer uses only one tax calculation service: TaxJar.

Its SmartCalcs API currently supports sales tax calculations for the US, Canada and Europe (VAT).

Some countries provide for different rates of taxation based on the particular kind of good you’re selling. You can define some Tax Categories to make your tax calculation more accurate. If no tax category is defined, the maximum tax rate applies to the final calculation.

Examples

As mentioned above, a market can be created even without configuring a tax calculator: in this case, taxes won’t be calculated. Anyway, there are many cases where configuring a tax calculator is highly recommended. Let’s see why and when.

Price Lists

Price Lists and tax calculators are somehow connected. When you create a new price list within Commerce Layer, you have to specify if it includes taxes or not. If you check this option, the taxes calculated with the tax calculator at the time of the order placement are included in the final price of the order. It’s up to you to decide whether to show them or not. Otherwise, if you decide not to include the taxes in your prices, the result of the calculation is added later in the process. In particular, after the definition of the shipping address, which affects the final price the customer has to pay.

US Sales Taxes

45 states in the US (plus the District of Columbia) levy a sales tax. Merchants in these states must charge sales tax to buyers.

Sales tax is considered a pass-through tax, because the merchant is only holding the taxes collected before remitting them to state and local taxing authorities at a set time. Basically, it “passes through” from the customer to whatever government agency wants it, and you are the conduit for this tax to reach its final destination).

In the US, all the states that levy a sales tax have different rules and laws when it comes to this topic. Sales tax rates can vary by state and locality, too. For example, some states require you to charge sales tax on shipping charges, while others do not. Even more confusing - some local areas may levy sales tax even in states with no statewide sales tax. Without going into the subject in depth, it’s easy to understand why you’re required not to include taxes in your price list, but to calculate. This is the case where a tax calculator really comes in handy.

VAT

Sales tax in the EU is referred to as VAT which stands for Value Added Tax. Each member country determines its own sales tax rate.

The good news is that - unlike the US - in the EU, each individual country generally tends to have the same nationwide sales tax rate. This makes it a lot easier for you to calculate VAT liabilities or receivables.

European VAT provides for both the possibility to include and not to include the taxes in your prices. Usually, B2C trades includes taxes, while B2B doesn’t. That’s why, if your online business stays in the EU, it may be that you don’t need to configure a tax calculator.