Why should I categorize my products in TaxJar?
The product categorization & exemptions feature allows you to tell TaxJar more specific information about your sales that were not taxed.
Completing this step will allow you to enroll in AutoFile and ensure that your exempt sales are excluded from the return so you won't have to pay tax on those items. It will also ensure that your TaxJar "Expected Sales Tax Due" tab is accurate so you can more easily use that tab to troubleshoot sales tax issues.
How to Categorize your Products in TaxJar
1. Click the "Exemptions" tab on your TaxJar dashboard
You'll then see a screen showing all of your products. Product are marked as "uncategorized" when TaxJar shows that you either:
a) did not collect sales tax
b) collected a different amount of sales tax than our tax engine expected
Important to note: Most products in your "Exemptions" tab will be products like groceries, clothing items, medicine, etc. that are not taxed in some states. By telling TaxJar why you didn't collect sales tax on them, your TaxJar Reports will be more accurate, and you'll be able to AutoFile your sales tax returns more accurately.
Alternatively, you'll be guided to the "Exemptions" tab if you attempt to sign up for AutoFile and we see that you have untaxed transactions.
2. From here, just select a product (or multiple products) and choose the right category:
You can also use the search bar to search for a certain product or product type.
Once you have categorized your untaxed or differently-taxed products, your TaxJar state reports will appear more accurate and you can enroll in AutoFile.
This video will walk you through categorizing your products:
Frequently Asked Questions about Product Categorization
1. Who can use Product Categorization?
TaxJar users who sell on these supported platforms, or who use TaxJar SmartCalcs (or a combination of supported carts and SmartCalcs) can take full advantage of this feature at this time. We plan to roll out this feature for other online shopping carts and marketplaces soon.
2. How do I know which category to choose for each of my products?
If you are an Amazon seller, you should choose the same category in TaxJar that you chose for your product when setting up your Product Tax Codes on Amazon. If you don't remember which product tax codes you chose, you can see them in your "Inventory Report" in Seller Central.
To pull that report in Seller Central, go to "Inventory" -> "Inventory Report" and then click "Customize the columns for this report."
When customizing your report, make sure to include identifying info such as the SKU or ASIN, and the "product tax codes" field. This will allow you to download a report and see your products and their associated product tax codes.
- Thanks to Karen Holmes and the Karen Brit blog for providing this information. Read more about finding a product tax code report in Amazon here.
- Another CPA, Georgene S. Harkness shares: How to Code Your SKUs for Sales Tax in Amazon and also, How to Change Product Tax Codes.
If you are a Shopify Seller: You should choose the same category in TaxJar that you chose for your product when setting up your Tax Overrides on Shopify. If you don’t remember what overrides you used, you can find out more in the Tax Overrides and Exemptions section of the Shopify Sales Tax Manual.
If you are a TaxJar SmartCalcs user, we will pull this information in automatically if you assigned your products SmartCalcs product categories. (You can see a full list of product categories SmartCalcs supports here.)
3. Will I have to categorize my tax exempt products every time I make a sale?
No. If you have previously categorized a product in TaxJar, we will automatically recognize that product every time you sell it again and apply the appropriate category.
If you commonly sell new tax exempt or differently taxed products, you will need to go into your TaxJar account and categorize them before we AutoFile your sales tax returns. We’ll send you a reminder about this along with your AutoFile confirmation email every filing period.
4. Does this feature also handle tax exempt customers?
This beta feature currently only categorizes tax exempt products. In the near future, we will have a way for you to designate an exempt customer (such as a non-profit or government entity) as tax exempt.
5. I already entered my product tax codes into Amazon. Why doesn’t TaxJar already know how my products are categorized?
TaxJar connects with your Amazon account and pulls in your transaction data. But Amazon currently doesn’t share your product tax code information. That’s why you’ll need to categorize your products in TaxJar. We are working on a way to get around this data limitation.