How to Calculate Tax on Profit Margin Using COGS for WooCommerce

This tutorial will walk you through setting up margin-based tax calculation using the COGS Tax plugin for WooCommerce.

STEP 1 : Enable the COGS Tax Plugin

1. Go to WooCommerce > Settings > COGS Tax
2. Check the box next to “Enable Margin-Based Tax”
3. Click “Save changes”

STEP 2 : Set Up Standard Tax Rates

1. Go to WooCommerce > Settings > Tax
2. Click on the “Standard rates” tab
3. Click “Insert row”
4. Fill in the tax rate details:

• Country code: Enter country code (e.g., US)
• State code: Enter state code (e.g., CA) or leave blank for all states
• Postcode/ZIP: Enter specific ZIP codes or leave blank for all
• City: Enter specific cities or leave blank for all
• Rate %: Enter the tax percentage (e.g., 8.5)
• Tax name: Enter a name (e.g., “Sales Tax”)
• Priority: Leave as 1 (unless you have compound taxes)
• Compound: Leave unchecked (unless this tax should be calculated on top of another)
• Shipping: Check if tax applies to shipping

5. Click “Save tax rates”

STEP 3 : Create a Custom Tax Class for Margin-Based Tax

1. Go to WooCommerce > Settings > Tax
2. Scroll down to “Additional tax classes” section
3. In the “Add tax class” field, type a name (e.g., “cogs-tax”)
4. Click “Add tax class”
5. The new tax class will appear in the list

STEP 4 : Set Up Tax Rate for Your Custom Tax Class

A. Add a Tax Rate for Your Custom Tax Class (Margin-Based Tax)

1. Go to WooCommerce > Settings > Tax
2. Click on the tab for your custom tax class (e.g., “Tax on Profit”)
3. Click “Insert row”
4. Fill in the tax rate details:

• Country code: Enter country code (e.g., US)
• State code: Enter state code or leave blank
• Postcode/ZIP: Enter specific ZIP codes or leave blank
• City: Enter specific cities or leave blank
• Rate %: Enter the tax percentage for profit margin (e.g., 5)
• Tax name: Enter a name (e.g., “5% Tax on Profit”)
• Priority: Leave as 1
• Compound: Leave unchecked
• Shipping: Check if tax applies to shipping

5. Click “Save tax rates”

STEP 5 : Add COGS Value to Products

1. Go to Products > All Products
2. Click on a product to edit it
3. In the product editor, find the “Product Data” section
4. Look for the COGS (Cost of goods ($)) field

• Enter the cost value (e.g., 50 for a $100 product)

5. Click “Update” to save

STEP 6 : Configure Product Tax Settings

A. Set Product Tax Class

1. While editing a product, go to the “General” tab
2. Find the “Tax class” dropdown
3. Select your custom tax class (e.g., “Tax on Profit”)
4. Click “Update” to save

B. Configure Margin-Based Tax Setting for Individual Products

1. While editing a product, go to the “General” tab
2. Find the “Margin-Based Tax” dropdown
3. Choose one of these options:

• “Use global setting” – Uses the setting from Step 1
• “Enable” – Always use margin-based tax for this product
• “Disable” – Never use margin-based tax for this product

4. Click “Update” to save

STEP 7 : Test the Tax Calculation

1. Add the product to your cart
2. Go to the cart page
3. You should see:

• Subtotal: Full product price (e.g., $100)
• Tax: Calculated on margin only (e.g., if margin is $50 and tax rate is 5%, tax = $2.50)
• Total: Subtotal + Tax

Example Calculation:

Product Price: $100
COGS Value: $50
Margin: $100 – $50 = $50
Tax Rate: 5%
Tax Amount: $50 × 5% = $2.50
Total: $100 + $2.50 = $102.50

Without margin-based tax, tax would be calculated on full price:
Tax Amount: $100 × 5% = $5.00
Total: $100 + $5.00 = $105.00

STEP 8 : Bulk Edit Products (Optional)

1. Go to Products > All Products
2. Select multiple products using checkboxes
3. Click “Bulk actions” dropdown
4. Select “Edit”
5. Click “Apply”
6. In the bulk edit panel:

• Find “Margin-Based Tax” dropdown
• Select your desired setting
• Click “Update”

STEP 9 : Quick Edit Products (Optional)

1. Go to Products > All Products
2. Hover over a product and click “Quick Edit”
3. Find the “Margin-Based Tax” dropdown
4. Select your desired setting
5. Click “Update”

TROUBLESHOOTING

• If tax is not calculating correctly, make sure:
• COGS value is set on the product
• Tax class is assigned to the product
• Margin-Based Tax is enabled (globally or per-product)
• Tax rates are properly configured
• WooCommerce tax settings are enabled
• If you see the full product price being taxed instead of margin:
• Check that Margin-Based Tax is enabled in plugin settings
• Verify the product has a COGS value
• Check the product’s Margin-Based Tax setting

SUPPORT

For additional help, contact: plugins@wpsites.net