The Definitive Guide to Squarespace Sales Tax

Updated: November 2022

Squarespace sales tax — I agree, not the most fun topic! Taxes are fun for no one. Unless you’re my husband. But he’s a CPA so that’s different. For most people, the fact that they have to manage and collect sales tax when selling online is usually seen as a hassle or (worse) an afterthought. But, it’s a necessary evil and the last thing you want to do as a small business owner is screw around with not paying taxes. So, time to buckle down and just get this done - it’s an important step if you’re just getting started on setting up your first eCommerce shop. First, a quick primer on sales tax in general, then how Squarespace’s integration with TaxJar makes the whole process as easy and painless as possible.

*** Disclaimer: I am not a tax specialist. I am not familiar with all the laws and particulars in every state or country or every industry or business type. So consider this my best advice based on owning/running my own small businesses and working in eCommerce for eons. You should absolutely, 100%, no-doubts-about-it get yourself in touch with your very own tax professional who is familiar with 1) your business, 2) the laws in your state, and 3) your industry. It’s on you to make sure you get the best accounting + legal team in place to protect yourself and your business. ***

Figuring Out Sales Tax in 3 Easy Steps

Even though it seems like we’ve all been online shopping for forever now, sales tax laws have been somewhat slow to catch up and the whole thing is still a little bit of a wild west. There are several factors that determine how tax should be calculated, if at all. One of the biggest factors is where your business is located since the majority of US states require you to collect sales tax from online sales but here’s the thing — they all have completely different rules to comply with. As a small business owner, it’s kind of unreasonable to think that you’re going to be able to keep up with all of them but as an online seller, you’re still responsible for charging your customers the right amount of sales tax and remitting the amounts collected back to the various states you sell in 🤡 Don’t worry, we’re going to break it all down here.

• STEP 1: Is what you’re selling taxable? 

This is the first thing to consider is whether whatever it is you’re selling is taxable where you are selling it. States all have different rules and criteria to consider so this requires a bit of research. For example, some states tax food, and others don’t. Some have different rates for certain products versus others. Each state decides which items are taxable and which aren’t so you need to check by state-by-state on this. (In some instances, what product type you’re selling also matters but I’ll get into those specific use cases down below!)

• STEP 2: Where do you have nexus? (And also, what is nexus?)

All of the sales tax articles you’re going to read online are going to refer to “Nexus” which can seem like a kind of overwhelming concept. The bottom line is that “nexus” is just a legal way of describing how connected you are to a particular state. For example, if your business is based in California, you automatically have nexus in California because you’re pretty significantly connected to it! Think of it as if you had a brick-and-mortar business - you would be physically connected to wherever your shop is located.

Now, add in online sales. Instead of just selling to local people from your shop, you’re selling to people from many different states all across the country. Well, all of these places have different sales tax rules and they want their cut! This is where nexus comes in and it basically means that if you sell enough in a particular state that you are required to collect and remit sales tax to that state. The thresholds for what constitutes nexus in each state are - you guessed it - completely different. For example, you’ll need to sell over $500k to Texas residents before you are considered to have a significant presence there. By comparison, if you’re selling to residents in Florida you’ll only need to have sold $100,000 to reach nexus.

There are other reasons some states may consider you to have a physical presence in their state even if your main office is located elsewhere and you don’t sell to any of their residents. This can be anything from having a contract salesperson who lives in that state to using a third-party distributor based there or even if you’re just storing inventory in a warehouse. Long story short, there are lots of varying factors that go in to determining nexus!

• STEP 3: Are you in a destination- or origin-based sales tax state?

Most (but not all!) US states have what is called destination-based sales tax. This means that tax is charged based on the buyer’s shipping address regardless of where the product originates or ships from. This means that where you are located as the online seller really doesn’t have much to do with the amount of sales tax you collect. But here’s where things get wild… 

In most states, like where I live in Washington, there’s not just a state tax to contend with but lots of different local, city, and county taxes that are factored in based on zip code. So even though the base sales tax in Washington state is 6.5%, the amount of tax I need to collect on a sale to a customer downtown Seattle ends up being 10.1% but only 9.2% to a customer on neighboring Bainbridge Island. Things were set up this way because it assures that every local area receives the sales tax income based on the purchases their residents make. 

On the other hand, origin-based sales tax states charge tax based on the seller’s location regardless of the buyer’s shipping address — so the complete opposite of a destination state. This means that if your business is located in Salt Lake City and you ship to a customer in Park City that you will charge every customer 7.75% (the SLC tax rate) and not 9.05% (the Park City rate). While this is somewhat easier for small businesses to administer, it only applies to in state purchases and most eCommerce shops have a wider reach than that! This is why even if you live in an origin-based state, it’s still important to understand tax implications of selling to those outside your area.

The Quick Version of All The Above

1. Some things sold online are taxable and others aren’t.

2. The amount of tax that needs to be collected can vary down to a zip-code level basis so that local sales taxes can be collected from online sales regardless of where they ship from.

3. Some states will require you to collect and remit sales tax even if you’ve never stepped foot there.

4. Some states factor in where an order is being shipped to and others factor in where an order is being shipped from.

5. All of this varies state by state.

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How to Automatically Calculate US Sales Tax on Squarespace

Back in ye olden days of the internet, sales tax complications were a huge obstacle for most small businesses. Why? Because previously you had to enter in sales tax rates manually by zip code for everywhere you were required to collect and remit taxes. 😱 And every time those rates updated, you had to update your website. This was a painstaking process that involved downloading spreadsheets provided by states and coding in lookup functions to your cart. TL;DR not the best of times.

Now, we can take all of the above that we just learned about sales tax and effectively shelve it, or at least most people can. It’s good to know how it all works but it’s also nice to not have to manage it all yourself by simply taking care of all the intricacies of calculating Squarespace sales tax automatically using the built-in Squarespace TaxJar extension. The Squarespace extension uses TaxJar’s real-time sales tax data to calculate the correct sales tax at checkout based on all the criteria we discussed above. (Note that there are a few exceptions - see the FAQs below for notes on these!)

Step-By-Step Guide on How to Enable Automatic Rates on Squarespace

To be able to set up automatic tax rates, you’ll first connect the TaxJar extension in your Squarespace account and then flip over to TaxJar to finish setting up your business profile there.

1. In Squarespace: from the home menu > Commerce > Taxes > in the TaxJar box click Connect and follow the prompts to select your site and create your TaxJar account login info.

2. In your new TaxJar account: click on your email address in the top right and select Business Profile. Just fill out the missing fields and click Save.

3. Still in TaxJar: click Add State Regulations. Under “Nexus States" select your state from the dropdown and fill out the fields that come up (they may vary by state). Check the box that says “Enable TaxJar's API to calculate sales tax for this state” and click Save. Repeat this step for any other states where you have nexus.

You’re all set! The correct sales tax will now be calculated for orders in all the states you added in TaxJar.

Squarespace Sales Tax FAQs & Exceptions

• What if I sell products that are taxed at different rates?

  Solution: set up tax categories! This will allow you to assign different products to different tax categories so that they are taxed at different rates at checkout. For more on tax categories in TaxJar, click here. Once you have these set up you can assign products to a category in the product editor within Squarespace.

• Which Squarespace plan do I need to be on to use automatic tax rates?

  In this post, I recommend that pretty much everyone selling on Squarespace should be on a Commerce level plan (either Basic or Advanced) which includes a free TaxJar account for calculating automatic sales tax rates.

  Even though technically you can set up automatic tax rates if you’re on the Business plan, you won’t qualify for a free TaxJar account and the cost of upgrading to even the most expensive Squarespace Commerce plan is cheaper than a paid TaxJar account.

• Do I need to be on a paid TaxJar plan?

  • If you’re only interested in automatic tax rate calculations and you’re on a Squarespace Commerce plan (see above), you do not need to subscribe to a paid TaxJar plan. Your TaxJar account is included as part of your Squarespace subscription.

  • If you’d also like to take advantage of TaxJar’s sales tax filing, economic nexus monitoring and reporting features, that does require an additional subscription. TaxJar’s professional plan starts at $99/month for up to 200 monthly orders and has a tiered pricing plan for larger order volumes.

  • If you’re already working with a sales tax professional or accountant (as you should be!) I would say that you likely don’t need to also pay for TaxJar since they will be taking care of tax reporting and filing for you. Ask your accountant if they will be doing this to be sure!

• How is tax calculated for local pickup orders?

  If you offer local pickup or curbside delivery in your online store, you’ll want to add a manual tax rate that reflects the current sales tax percentage at your location. Then, when you’re setting up your local pickup option people will be charged tax based on your address instead of theirs.

• How can I know for sure that I set things up correctly?

  Just go to Commerce > Taxes and make sure that there is a green “Connected” message in the TaxJar area.

  If you’d don’t see a green “Connected” message you probably just need to complete the set up process on TaxJar. Follow the steps above to finish setting up your TaxJar business profile and adding in any states where you have nexus then recheck.

  If things still don’t seem to be working or calculating correctly, be sure to read the FAQ below about exceptional use cases!

• Why did an order come through without being charged sales tax?

  There are a few reasons why this may have happened:

  • The most common reason is that the order was placed for a state that you do not have nexus in and/or did not set up by adding it in TaxJar. If this was in error, go back to TaxJar and add the state to prevent this from happening again.

  • If you’ve set up tax categories in TaxJar make sure they are assigned correctly to each product in Squarespace.

  • If the order was for an international address, you’ll need to set up those rates separately. TaxJar only automatically calculates rates for US addresses.

• What if I already have a TaxJar account?

  • If you’re already on a pro plan with TaxJar and want to keep it for reporting and filing, you can still connect it Squarespace to automatically calculate sales tax. When you’re connecting TaxJar to Squarespace just sign in using your existing TaxJar account info and follow the rest of the steps/prompts the same way as detailed above.

  • If you’re on a Squarespace Commerce plan, you do qualify for a free TaxJar account for tax rate calculations only. If that’s all you need, reach out to TaxJar here to get help moving it to the free version.

• What if I previously set up manual tax rates?

  If you connect the TaxJar extension to Squarespace you can delete any manual tax rates for everything except:

  • Your location’s tax rate, if you offer local pickup.

  • International tax rates for any countries that you also have shipping zones set up for.

• What about international shipments or businesses based in Canada or other countries?

  For US-based sellers who ship internationally OR sellers based outside of the US, you’ll need to set up rates manually. Check out this Squarespace help article for more on manual tax rates for Canadian provinces and this one about collecting VAT or GST for those details.

• Do I need to charge sales tax to out of state orders?

  Yes but ONLY if you have nexus there. So don’t freak out if you only sell sporadically to some states and those orders come through without tax! It most cases, it’s actually illegal to charge and collect sales tax in a place you do not have nexus.

• EXCEPTIONS TO THE RULES ⚠️

  • If you sell digital products or services and are located in an origin-based state, Squarespace does not ask for a shipping address. Because of this, TaxJar uses your client’s shipping address to lookup what tax rate should be charged. This is incorrect UNLESS you have nexus in other states aside from your own.

  • What do do? If the specific use case outlined above describes you, TaxJar’s product will currently NOT WORK for you. Disconnect TaxJar, turn off automatic rates and set up rates manually on a state-by-state basis instead.

  • If you only have nexus in your home state, add your tax rate to all locations you ship to manually.

  • If you have nexus in any other states as well, add those states tax rates manually and then use your home state rate for all remaining states.

• Is my state an origin-based or destination-based sales tax state?

  List of origin-based sales tax states:

  • Arizona

  • California - Hybrid origin / destination

  • Illinois

  • Mississippi

  • Missouri

  • Ohio

  • Pennsylvania

  • Tennessee

  • Texas

  • Utah

  • Virginia

  States without sales tax:

  • Alaska (No state tax but some locations charge local tax)

  • Delaware

  • Montana

  • New Hampshire

  • Oregon

  Any state not listed above is a destination-based sales tax state.