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Shipping tax

Shipping tax is tax that's charged on the cost of transporting products, rather than the cost of the products themselves. Whether tax should be charged on shipping varies between different countries and tax jurisdictions.

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Charge tax on shipping rates

If you need to charge taxes on your shipping rates, then you can change this setting in your Shopify admin.

The Charge tax on shipping rates setting affects only those countries and regions where tax is not automatically calculated. In the following countries and regions, shipping is taxed where applicable regardless of this setting:

  • Australia
  • Canada
  • the European Union
  • New Zealand
  • Norway
  • Switzerland
  • the United Kingdom
  • the United States

Steps:

  1. From your Shopify admin, go to Settings > Taxes and duties.

  2. In the Global settings section, select Charge tax on shipping rates.

  3. Click Save.

Proportional shipping tax

Proportional shipping tax is a calculation that affects the amount of tax charged on shipping when some items in the order are non-taxable. There are a few different ways that proportional shipping tax can be calculated. Which rules apply to you depends on the tax legislation for the country or region in which your store is located and the tax legislation of the country or region that you ship to. If you're not sure how proportional shipping tax should be calculated for orders that you ship, then refer to a tax professional.

Free items aren't automatically non-taxable. If you ship a free item that should be tax-exempt, then you need to change its tax settings on the product variant page.

If you set a product override, then Shopify Tax won't apply proportional shipping tax to those products. To use proportional shipping tax, remove any product overrides that might conflict with this feature.

  • Proportional tax by quantity: This method of calculating proportional shipping tax is based on the number of items in the order that are non-taxable. For example, you ship an order containing 10 items. Of those items, four are non-taxable. Tax is calculated at 60% of the tax that would ordinarily be charged for shipping.
  • Proportional tax by price: This method of calculating proportional shipping tax is based on the proportion of the total price that's taxable. For example, you ship an order containing two items. One product has a price of 5 USD and the other has a price of 10 USD. The 10 USD product is non-taxable, so tax is calculated at 33% of the tax that would ordinarily be charged for shipping.
  • Shipping exempt based on order: In countries and regions that use this method, tax on shipping is not charged when all items in the order are tax-exempt.

Proportional shipping tax in Canada

In Canada, shipping tax is calculated proportionally for orders containing exempt products. This applies to both GST and HST in HST-collecting provinces. Refer to Manage your Canadian taxes to learn more.

Proportional shipping tax in the EU and UK

If you sell products with different VAT rates in the European Union or the United Kingdom, then shipping tax is calculated based on the proportion of each VAT rate in the order. This can result in shipping tax appearing at a rate that seems different from your standard VAT rate.

For example, if an order contains one item at 19% VAT and another at 7% VAT, then the shipping tax rate reflects a weighted average based on the item prices. This is expected behavior and ensures that shipping tax accurately reflects the mixed VAT rates in the order.

Shipping and handling taxability

In some regions, shipping charges alone aren't taxable, but if you add a handling fee to your shipping rates, then the combined shipping and handling charge becomes taxable. Shopify Tax automatically recognizes when you've added a handling fee to carrier-calculated rates and applies the appropriate shipping tax.

To use this feature, you need to set up carrier-calculated shipping rates with handling fees activated. If you use flat shipping rates or don't include a handling fee, then the shipping tax rules in your region determine whether tax is charged on shipping.

Troubleshooting shipping tax

Troubleshoot shipping tax appears at an unexpected rate

If the shipping tax rate on an order appears different from your standard tax rate, then review the following possible causes:

  • Mixed tax rates in order: If your order contains items with different tax rates, then proportional shipping tax adjusts the shipping tax rate accordingly. This is expected behavior.
  • Non-taxable items in order: If some items in your order are non-taxable, then shipping tax might be reduced proportionally based on your region's tax rules.
  • Product tax overrides: If you've applied product overrides to items in the order, then shipping tax calculations might not include those overridden rates.
Troubleshoot shipping tax override isn't working

If you've created a shipping tax override but it doesn't appear to be applying, then check the following possible causes:

  • Carrier-calculated rates with Canada Post: If you use Canada Post carrier-calculated rates, then your shipping tax override might not apply. Canada Post rates include their own tax handling.
  • Product override confusion: Shipping overrides and product overrides work independently. A product override doesn't affect shipping tax, and a shipping override doesn't affect product tax.