Prices inclusive of tax or exclusive of tax?

If you’re building out your own e-commerce site, at some point you’re likely to come across how you’ll want to charge for sales tax in your admin settings. This particularly the case on WooCommerce. The question is under the Tax tab in WooCommerce settings.

Tax options
Prices entered with tax:

  • Yes, I will enter prices inclusive of tax
  • No, I will enter prices exclusive of tax

So what’s the difference between “Yes, I will enter prices inclusive of tax” and “No, I will enter prices exclusive of tax“?

Here’s the answer to Tax Options:

  • When you select “Yes, I will enter prices inclusive of tax,” it means the prices you will enter will already include any taxes that are required to be paid. So, when you see the price, that is the final price the customer will have to pay, including all taxes.
  • When you select “No, I will enter prices exclusive of tax,” it means the prices you will enter do not include any taxes that are required to be paid. So, when you see the price, that is not the final price you will have to pay. You will have to add on any taxes that are required to be paid.

Here are examples for both cases:

  • Inclusive of tax: If you enter prices inclusive of tax, then the final price the customer pays is already included in the price. So, for a $10 order with 7.75% tax, the price the customer pays would be $10.78. This is because $10 x 0.0775 (7.75% as a decimal) = $0.78, and $10 + $0.78 = $10.78.
  • Exclusive of tax: If you enter prices exclusive of tax, then the final price the customer pays will have to include the tax added on. So, for a $10 order with 7.75% tax, the price you would enter would be $10. When the customer goes to pay, you would add on the tax amount of $0.78 (which is calculated by multiplying $10 x 0.0775), making the final price the customer pays $10.78.

Ultimately, it’s your choice on how you want to show you want to charge for tax so hopefully this clarifies the tax question for you, otherwise if you get it wrong the tax man might just come knocking on your door.

Please note that the information provided is intended for general informational purposes only, and is not intended to provide, and should not be relied upon for, legal or tax advice. For specific advice regarding your legal or tax situation, please consult with a licensed professional in your jurisdiction. Use of this information is at your own risk.

Happy selling!