There are three elements that influence the tax calculation process in M2E Pro:

• Magento Tax Settings

• eBay Tax Settings

• M2E Pro Tax Settings

To understand how the tax is calculated, see a detailed description of each of these elements below.

Magento Tax Settings

They include the setup of Tax Classes, Tax Rules, as well as Magento system tax configurations.

Tax Classes

Magento has three Tax Classes based on which tax will be calculated:

• Product Tax Class

• Customer Tax Class

• Tax Zones/Rates

Product Tax Class

Product Tax Class defines the tax applicable to a particular Magento Product. You will find these classes under Sales > Tax > Product Tax Classes:

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A Product Tax Class should be assigned to each Magento Product. You can do that using the Tax Class option in Magento Product settings under the Prices section:

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Customer Tax Class

Customer Tax Class defines the tax applicable to a particular customer. You will find these classes under Sales > Tax > Customer Tax Classes:

A Customer Tax Class should be assigned to a Customer Group under Customers > Customer Groups > Tax Class:

Tax Zones & Rates

Tax Zones & Rates define the tax applicable depending on the customer’s location (determined by the customer’s shipping or billing address). You will find them under Sales > Tax > Manage Tax Zones & Rates:

By clicking on the Tax Rate, you can edit its Country, State, ZIP/Post Range/Code, Rate Percent at any time:

Tax Rules

Tax Rules combine Product Tax Class, Customer Tax Class, and Tax Zone & Rate. These rules define the final tax amount applicable to a particular Magento Product that was bought by a particular Customer from a particular Location.

To add a Tax Rule, navigate to Sales > Tax > Manage Tax Rules:

Let’s see how a tax rate is calculated for Magento order based on the configured Tax Rule.

Tax Rules Example

Your Magento Product is set up to use the Tax Class Taxable Goods.

A customer, who placed an order, is related to the Customer Group General.

The ordered item should be shipped to California.

You have set up a Tax Rule that adds a tax percent of 15% to a Magento Product belonging to Taxable Goods, purchased by a buyer from the General Customer Group who lives in California.

Thus, the tax rate specified in your Magento Order will be 15%.

Magento System Tax configurations

Apart from Tax Rules, there are general Magento tax settings that determine the final tax amount in the order. These settings are located under System > Configuration > Sales > Tax:

Tax Class for Shipping

If your store charges a shipping rate, you can specify a separate Product Tax Class that will be used for shipping by default:

Calculation Settings

Catalog Prices

Determines whether the final Product Price should include tax or not.

For example, the Magento Product Price is $100, the tax percent is 5.25%. The final product price will be $105.25.

For example, the Product Price in Magento Catalog is $100, which already includes the tax amount of 5.25% ($4.99).

The Product Price displayed to customers will be $95.01:

Shipping Prices

Determines whether the Shipping Price should include tax or not.

For example, the Shipping Price is $10, the tax percent is 5%. The final Shipping Price will be $10.50.

For example, the Shipping Price is $10, which already includes the tax percent of 5%.

Orders, Invoices, Credit Memos Display Settings

Determines whether the Product Prices, Shipping Amount, Subtotal, and Grand Total, which are displayed in Magento Orders, should include or exclude tax.

eBay Tax Settings

There are two ways to charge sales tax on eBay – indicate a tax rate separately per listing or set up a tax table in your Seller Center. To do the latter, navigate to your eBay account > Selling > Selling Preferences > Sales tax table and click Edit.

Then you can apply the configured tax tables to your M2E Pro Listings.

For each US state, there is a separate field where you can enter the sales tax rate that you want to charge. Leave the field blank if you do not need to collect tax in this specific state. 

Also, there is an option that you can enable to apply sales tax on shipping and handling per state.

The tax rates provided in this table will be used to calculate sales tax charged on the item’s final price (including shipping and handling costs if enabled).

M2E Pro Tax Settings

They include the setup of Taxation settings in the Selling Policy, as well as Order Tax settings in eBay account configurations.

Taxation Settings in Selling Policy

Under the Taxation section in your Selling Policy, you can set your tax preferences depending on the eBay site and the products you sell.

With the help of the Use VAT option, you can apply the VAT rate to your items listed on eBay.co.uk and any European, Asian/Pacific eBay site. You can choose a tax rate to be added on top of the Item Price or included in it.

In a separate field, you can enter the relevant VAT amount (%) that will be submitted to eBay.

When listing items on the US, CA, or eBay Motors sites, you can use eBay Tax Tables previously configured in your Seller Center.

Order Tax Settings

Tax Source

Under the Order Tax Settings section in your eBay account configurations, you can select which tax source should be applied during Magento order creation:

• None – neither eBay nor Magento tax settings will be used. Magento Order will not contain any tax values.

• eBay – the tax in Magento Order will be calculated based on eBay tax settings.

• Magento – the tax in Magento Order will be calculated based on Magento tax settings.

• eBay & Magento – the tax in Magento Order will be calculated based on the tax amount in the imported eBay order. If the tax amount is not specified, Magento Tax settings will be applied.

M2E Pro Tax Rate and M2E Pro Shipping Rate

If you choose eBay or eBay&Magento option as a Tax Source, you will find two additional options on your Manage Tax Rates page in Magento:

M2E Pro uses them to transfer tax value that is returned from eBay order to Magento order. In other words, M2E Pro Tax Rate and M2E Pro Shipping Tax Rate are used to adjust the eBay tax into the Tax Rule. This way, Magento can recognize and display tax in Magento order properly.