Tax in the Cart and in the Order

The tax of a cart depends on an address. Before the customer enters an address, the store does not know where the order goes, so it uses a replacement address. When the customer enters the real address at checkout, the store calculates the tax again. This is the most common reason why the order shows a different tax than the cart.

The order keeps the tax that the store calculated at the moment the customer placed it.

Where the tax rates come from

Menu	What you set
Sales > Tax > Manage Tax Zones & Rates	The rates, for a country, a state and a post code
Sales > Tax > Manage Tax Rules	Which rates apply to which customer tax class and product tax class
Sales > Tax > Customer Tax Classes	The tax classes of customers. Each customer group has one, in its Tax Class field
Sales > Tax > Product Tax Classes	The tax classes of products. Each product has one, in its Tax Class field

A rate applies when the address, the customer tax class and the product tax class all match a tax rule.

Which address the store uses

Go to System > Configuration > Sales > Tax > Calculation Settings and look at Tax Calculation Based On:

Value	Address
Shipping Address	The shipping address of the cart. This is the default
Billing Address	The billing address of the cart
Shipping Origin	The address of the store, from System > Configuration > Sales > Shipping Settings > Origin

With Shipping Address or Billing Address, the store looks for the address in this order:

The address of that type in the cart, if it has a country.
If the customer is logged in: the default address of that type in the customer account (default shipping address or default billing address), if it has a country.
The Default Tax Destination Calculation address: Default Country, Default State and Default Post Code, in System > Configuration > Sales > Tax.

A cart that contains only virtual or downloadable products has no shipping address. The store then calculates the tax on the billing address of the cart, with the same steps.

The customer tax class comes from the customer group of the customer. A guest uses the tax class of the NOT LOGGED IN customer group.

Why the cart can differ from the order

Moment	Address that the store uses for a guest	Address that the store uses for a logged-in customer
Product page and category page	Default Tax Destination	Default address of the customer account, else Default Tax Destination
Cart, before an address	Default Tax Destination	Default address of the customer account, else Default Tax Destination
Cart, after Estimate Shipping and Tax	The country, state and post code of the estimate	The same
Checkout, after the address step	The address that the customer entered	The address that the customer selected or entered
Order	The address of the checkout	The address of the checkout

So when the Default Tax Destination is in one country or state, and the customer enters an address in another, the tax changes at checkout. The Default Country is United States out of the box. Set it to the country where most of your customers live.

The tax can also change at checkout when Enable Automatic Assignment to Customer Group is on in System > Configuration > Customers > Customer Configuration > Create New Account Options. The store then checks the VAT number of the address and can move the customer to another customer group. The new group can have another tax class.

Prices including or excluding tax

In Calculation Settings:

Setting	What it does
Catalog Prices	Excluding Tax: the prices that you enter are net prices. Including Tax: the prices that you enter contain the tax
Shipping Prices	The same choice for the shipping amounts
Enable Cross Border Trade	With prices including tax: when Yes, every customer pays the same gross price, whatever their tax rate

When Catalog Prices is Including Tax and Enable Cross Border Trade is No, the store reads the price that you entered as a price with the tax rate of the Shipping Origin. For a customer with another tax rate, the store takes that tax out and adds the tax rate of the customer. So the gross price changes with the address of the customer, and it can change at checkout.

With Enable Cross Border Trade set to Yes, the gross price stays the same, and only the share of tax in it changes.

What the customer sees is a separate choice, in Price Display Settings (Display Product Prices In Catalog, Display Shipping Prices), Shopping Cart Display Settings and Orders, Invoices, Credit Memos Display Settings. These settings change how prices show, not the tax amount.

Calculation settings

Setting	Options	What it does
Tax Class for Shipping	A product tax class	The tax class of the shipping amount. Without a class, shipping has no tax. This setting is in the Tax Classes group
Tax Calculation Method Based On	Unit Price, Row Total, Total (default)	When the store rounds the tax: for each unit, for each cart line, or on the total. The results can differ by a cent
Tax Calculation Based On	Shipping Address, Billing Address, Shipping Origin	The address of the tax (see above)
Apply Customer Tax	Before Discount, After Discount (default)	If the store calculates the tax on the price before or after the discount
Apply Discount On Prices	Excluding Tax, Including Tax	If the discount applies to the net price or to the gross price
Apply Tax On	Custom price if available, Original price only	For an order that an admin user creates with a custom price, which price the tax uses

Troubleshooting

What you see	Why	What to do
The order has a different tax than the cart	The cart used the Default Tax Destination or the default address of the customer. The order used the address of the checkout	This is expected. Set the Default Country, Default State and Default Post Code to the place of most of your customers
The cart shows no tax at all	No tax rule matches the Default Tax Destination	Check the Default Country and the tax rules, or ask customers to use Estimate Shipping and Tax
A logged-in customer sees a different tax than a guest	The store uses the default address of the customer account, and the tax class of the customer group	Check the default address and the customer group of the customer
The gross price changes at checkout, with prices including tax	Enable Cross Border Trade is No, so the store applies the rate of the customer	Set Enable Cross Border Trade to Yes if every customer must pay the same gross price
The tax changed after the customer entered a VAT number	Enable Automatic Assignment to Customer Group moved the customer to another group	Check the groups in Create New Account Options and their tax classes
Shipping has no tax	Tax Class for Shipping is empty	Select a product tax class for shipping, and add a tax rule for it
The order tax and the sum of the line taxes differ by a cent	The rounding of Tax Calculation Method Based On	Use the same method for all your stores. Total rounds once on the total
A downloadable product has the tax of the wrong country	The cart has no shipping address, so the store uses the billing address	Check the billing address of the order

Scope for tax settings per website and store view.