Setting Up Tax Rules in PayPal Profile

Posted in Tutorials

As an online merchant, you should consult with your tax adviser as to how to charge tax to customers. Author and website are not tax advisers and are not be liable for correctness of content. The rates and rules used in this tutorial are used only in an illustrative fashion to teach you how to set up tax rules in your PayPal profile. The rates and rules are NOT necessarily correct. By the time you are reading this, the rates and rules may have already changed.

There are two examples here. The second example is more likely scenario that you should implement. But let’s start out with a simple example first.

In the first example, suppose you as merchant is based in Indiana and would like to charge a 7% tax on all goods sold on your website that is shipped into Indiana. If the customer’s shipping address is any other state, then you do not want to charge tax for that customer. To set up such a tax rule in PayPal you would …

1. Log into PayPal account. Click “Profile”. And click “Sales Tax” under “Selling Preferences”.

2. Under the “Set Up Domestic Sales Tax Rates” section of the “Sales Tax” page, click “Add New sales tax”.

3. Select the state Indiana and enter 7%.

4. Click the “Continue” button. The rule has been created…

5. Test the rule by going through the checkout process. Use a credit card that is not associated with your PayPal account. Because PayPal does not allow you to “pay yourself”. This is also why you can not test with your own PayPal account. See that if you change the shipping address to Indiana, then PayPal will add a 7% tax to the total.

6. In the second example, suppose you are a merchant in Texas. In many states, each county or city will have a different tax rate. For example, linked here are the different sales tax rates for Texas. You see that city of Alpine in Brewster Counter has a tax rate of 8.25%.

Your tax adviser may advise you to charge a different tax rate depending on which city or county that the shipping address is in. In that case, you have to map the city or country to their appropriate zip code or zip code range. In 411.com, we see that the city of Alpine has zipcodes of 79830, 79831, and 79832.

You create a tax rule in the PayPal profile based on a zip code. For example …

7. After saving the tax rule, we see that tax rule for zipcodes 79830 to 79832 have been created …

Repeat this by creating a tax rule for each and every zip code in the state of Texas.

8. Test to see that if a customer enters a shipping address with zipcode that is either 79830, 79831, or 79832 (in other words, shipping to Alpine Texas), then a 8.25% tax is charge to that customer …

9. Remember to send back to your state whatever tax you collect from you customers. As a merchant, you had just become a part-time tax collector for your state.

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