This feature is not available by default and requires that your account be flagged for using this deprecated feature. New customers are not being accepted as this feature has been deprecated in favor of Stripe Tax.
Connecting to Your Stripe Account
Once you have a Stripe account and TaxJar account, log into your TaxJar account. Navigate to Account → Linked Accounts. You will see a button to initiate an integration between your TaxJar account and your Stripe account. Click the Stripe button.
After linking your Stripe account and receiving confirmation from our Support team, TaxJar will prompt you if you want to activate sales tax calculations on your invoices.
Why does TaxJar need write-access to my Stripe account?
TaxJar can calculate taxes for your invoices on your behalf. For us to do that, we must be able to create new Tax Rates in your Stripe account, and update your invoices and invoice line items with those tax rates.
We do not alter your invoices in any other way, and you can always deactivate TaxJar's tax calculation integration. Read on for more details on how TaxJar manages taxes for you in Stripe's system.
After you link your Stripe account to TaxJar, you will be asked if you want TaxJar to automatically calculate taxes for invoices.
Once you check this box and click “Save & Continue”, TaxJar will start listening to Stripe webhooks for certain events. Stripe will send data to TaxJar after invoices are are created and updated. TaxJar will react to these events and update the invoice with taxes immediately.
If you want to deactivate TaxJar’s integration for sales tax calculation, then you may edit the connection and uncheck this box. Imports will continue to happen normally. If you wish to completely disconnect the TaxJar integration, then “unlink” the account; unlinking will stop tax calculations and imports for Stripe.
Important: Please be sure to enable API calculations for your nexus states in your TaxJar account’s State Nexus Settings by checking the box under “Calculate Sales Tax in This State”. If you no longer have nexus in a state, you can disable your calculations for a specific state by clicking “Remove Nexus” in your State Nexus Settings.
Limitations
TaxJar provides the best experience possible for Stripe users, but there are some areas that are limited due to the available Stripe APIs.
Automatic tax calculations on first invoice of subscriptions
Stripe automatically moves a subscription’s first invoice toward collection without waiting for any automated updates. Unfortunately this means we can not automatically add tax rates to this invoice.
To collect sales tax on the first invoice of a subscription you’ll need to use our taxes API endpoint and then programmatically add the tax rates to your invoice. This has the benefit of showing your customers the full cost of the subscription upfront including all taxes owed.
All future tax rates for the subscription can now be automatically managed by TaxJar.
Inclusive Tax Rates
TaxJar creates Tax Rates as tax exclusive, meaning that TaxJar will attach tax-exclusive rates to your invoice line items, which will increase the amount of money to be collected from the buyer to account for those taxes.
Read more about exclusive Tax Rates at Stripe
Standalone payments
Imports support standalone payments; the limitation is only with sales tax calculations.
For sales tax calculations, standalone payments are not attached to invoices, and therefore lack context required to accurately calculate taxes for that payment. Also, Stripe does not allow attaching tax rates to standalone payments.
Custom Line Items on Credit Notes.
Custom line items on credits notes have some limitations. Imports of credit notes and their line items are not affected; this limitation is only about sales tax calculations.
When an invoice is paid, you may issue credits back to the customer for a variety of reasons. Usually, credits are interpreted as partial or full refunds on the original invoice.
For example, if you sell 2 Breakable Pots and the customer receives 1 as broken during shipment, you may choose to refund the one Breakable Pot. This may be issued as a credit note in Stripe’s system where you specify that a quantity of 1 Breakable Pot as credited. Stripe will do the right thing automatically and also refund the tax collected for that 1 Breakable Pot. This is a supported scenario; you do not need to do anything to account for refunded taxes in this scenario.
Another example, if you sell 2 Breakable Pots but the customer is not satisfied with the product, you might decide to refund $5 of the total sale (which does not correlate to any item prices). You can create a custom line item in the credit note, specify the amount as $5, and issue the credit. In this scenario, you must manually attach the appropriate taxes to the new custom line item. Remember, TaxJar attaches taxes to each line item and since you’re creating a new line item, now you must associate the appropriate taxes to that new line item.
Let’s walk through this together.
First we will create a new credit note. Notice that the taxes are applied to the line items.
In this scenario, we have 3 taxes applied: A state tax, a county tax, and a special district tax. Let’s remember these.
Uncheck the existing line items since we’re not crediting those in their entirety. Now we will create a custom line item.
With the new custom line item, click “Set item tax” next to it, and attach the same tax rates attached to the other line items.
Verify that the tax rates are applied. You can see the total tax rate.
Now you’re ready to issue a credit for the custom line item, which represents a partial refund. This will credit the appropriate amount of tax that was originally collected.