Tax is evaluated against the customer’s billing address at the moment an invoice is generated. Get the shape right before you create rules, because changing it later re-frames every price on your site.

Settle inclusive versus exclusive first.

Exclusive adds tax to your prices at checkout. Inclusive treats the price you entered as already containing tax. Switching afterwards changes what every customer pays, or what you keep, on every product.

General settings

  1. Open Settings → Tax Configuration. The page has four tabs: General Settings, VAT Settings, Tax Rules and Advanced Settings.
  2. Turn on Tax Support.
  3. Enter Your Tax ID/VAT Number. It appears on invoices and is usually a legal requirement.
  4. Turn on Customer Tax IDs/VAT Numbers if you sell to businesses that must supply one.
  5. Choose the Taxation Type: exclusive or inclusive.
  6. Save.

Build the rules

Rules live on the Tax Rules tab and are split into Level 1 and Level 2. Level 1 is your main tax. Level 2 is a second tax applied alongside it, for jurisdictions that have one.

  1. Press Add New Tax Rule.
  2. Choose the country the rule applies to.
  3. Enter the state if the rule is regional, or leave it empty to cover the whole country.
  4. Give the tax a name — it is printed on the invoice, so use the name your customers and your accountant expect.
  5. Enter the rate as a percentage.
  6. Repeat for each jurisdiction, from the most specific to the least.
A country-wide rule shadows nothing, but order still matters to you.

WBAMS picks the most specific match. The risk is the rule you forgot: a customer in a jurisdiction with no rule is charged no tax, silently.

Compound tax

Compound Tax applies level 2 to the total after level 1 rather than to the net amount. Only enable it where the jurisdiction actually works that way; it changes the figure.

VAT

  1. On the VAT Settings tab, set Your Home Country — where your business is established.
  2. Decide Home Country Exclusion: always charge VAT when the billing address is in your home country.
  3. Turn on VAT number validation if you zero-rate business customers in other member states.
  4. Use Auto Configure VAT Tax Rules to create the standard rate set, then check each rate against the current published rate rather than trusting the generated table.
Automatic rate updates depend on the scheduler.

If the automation is not running, rates freeze at whatever they were. See Set up the scheduler.

Tax on products

A rule only applies to a product with Charge tax for this product enabled. A new product does not inherit this decision, so a product added later is untaxed until somebody sets it.

Verify against a real invoice

  1. Create a test customer with an address in each jurisdiction you have a rule for.
  2. Generate an invoice for each and read the tax line.
  3. Check the tax name on the invoice, not only the amount.
  4. Test one customer in a jurisdiction with no rule and confirm the result is what you intend.
  5. If you zero-rate business customers, test with and without a valid tax ID.
Rule tables read correctly far more often than they calculate correctly.

The only test that counts is a generated invoice.