Sales tax is wrong for online store

[Tom_H]

We do not have a physical store and sell non-physical subscriptions through an online store. The company is based in NY; our sales are in any state. Every order has NY sales tax applied. I have read all the other posts about incorrect sales tax and reviewed my setup with the guidance provided in the posts (e.g., all items are taxable, the sales tax is additive, tax enrollment in every state, Square automatically applies tax), and every order tax is using NY. Is there anyone who has had success getting a Square online store to apply the correct tax based on the customer's location, not mine? Any insight is appreciated! I really don't want to change web platforms, and it is looking like that is the only option.

[Katie_SQ]

Thanks for your question, @Tom_H!

I've reached out to our Advanced Support team to get more clarification behind how the automatic online tax calculation works specifically for digital items, and whether additional configuration might be needed beyond what you've already set up. I'll reach back out once I have more information to share on this.

In the meantime, hopefully some other Sellers can jump in here and share their experience with configuring destination-based tax for online non-physical items.

Thanks and talk soon!

[Katie_SQ]

Thanks for your patience, @Tom_H. 

I've heard back from the team, and they've provided some clarification on how to set up destination-based tax for your online store:

1. Current Configuration Issue: When you have "Apply automatically generated tax rates" selected under 'Delivery and non-physical tax overrides', the system is applying tax based on your tax enrollments rather than the customer's location. Since your business is based in NY, it's defaulting to your NY tax rate for all transactions.

2. Solution - Switch to Manual Mode: To charge tax based on the customer's location, you'll need to switch to "Manually apply VAT based on destination" instead of using the automatic option. With this setting enabled, at checkout, the system will charge tax based on the zip code the customer enters.

3. Important Tax Consideration: Our Advanced Support team also noted that for digital items specifically, there may be different tax requirements compared to physical products. The tax obligations for digital products sold from NY to customers in other states can be complex and vary by jurisdiction, so they recommend consulting with a tax professional to confirm your specific tax collection requirements for digital subscriptions across different states.

This change to manual destination-based tax should address your immediate need to apply different tax rates based on customer location rather than your NY business location.

If you make this change and continue to experience issues, or if you have any other questions, please let me know!

[Tom_H]

Thanks, I will give this a try. I understand the complexity of sales tax, and as soon as we gain traction, we will engage with a sales tax service. I will let you know if this approach works.

[Tom_H]

I made the updates to manual mode as suggested above. No sales tax is now being applied. This issue is preventing us from launching our offering. I have to believe there are Square clients who have successfully created an online store that provides service to non-local clients. I really thought this would be straightforward. Is there anyone at Square who can definitely tell me how to do this or that Square does not have this functionality?

[Katie_SQ]

Thanks for following up here, @Tom_H.

I've just tested this on your website by adding a subscription item to the cart and proceeding to checkout. When entering different addresses in New York, Arizona, and Alabama, a different amount of sales tax was applied based on each location I entered.

Could you confirm whether you're seeing the same results on your end?

If you're not seeing any sales tax applied, this could be because you've entered an address in a state where digital products are not taxable. Tax requirements for digital products vary by state, with some states exempting them from sales tax entirely.

[Tom_H]

Thanks! I was using a test subscription link and not the website. It looks like the problem is solved. THANK YOU for the assistance!

[Katie_SQ]

Glad to hear it, @Tom_H!

If anything else comes up, please don't hesitate to reach back out to us here on the Community! 🙂