Setting up sales tax correctly is one of the most important and often confusing steps when using Square. Whether you are opening a new business or updating your POS settings, understanding how sales tax works inside Square helps ensure you are collecting the right amount from customers.
This guide explains how to add sales tax in Square, including the difference between tax enrollments and creating sales taxes, and what happens after tax is collected. We will also explain how tools like DAVO can help manage filing and payment after collection.
Does Square automatically calculate your sales tax?
Square provides tools to help calculate sales tax, but business owners are responsible for ensuring tax rates and settings are accurate.
Square does not register your business with tax authorities and does not verify whether your tax rates are correct. Businesses must monitor tax laws and update settings when needed.
For detailed setup assistance, refer to Square’s official documentation on creating and managing sales tax settings.
Step 1: Add tax enrollments in Square
Tax enrollment is typically the first step when setting up sales tax in Square. This tells Square where your business has tax obligations, so its automatic tax calculator can determine applicable tax rates during transactions.
When you add a tax enrollment:
- You select the state where you operate or fulfill orders.
- Square retrieves applicable tax rates based on order details.
- Automatic tax calculation can be enabled for supported workflows.
Important notes:
- Tax enrollment does not register your business with a tax authority.
- It does not file or pay taxes.
- It simply enables Square to calculate tax based on your business locations or fulfillment areas.
Think of tax enrollment as telling Square where the tax should be calculated.
How to add tax enrollments
- Sign in to Square Dashboard.
- Go to Settings > Account & Settings > Payments > Sales taxes.
- Under Tax Enrollments, click Manage.
- Select Add tax enrollment.
- Choose the applicable state.
- Click Add state.
- Click Done.
Make your sales tax less taxing with DAVO.
Step 2: Create sales taxes in Square
After adding tax enrollments, the next step is creating sales taxes. This controls how tax is applied during checkout and how it appears in reporting and receipts.
Creating sales taxes allows you to:
- Define how tax is applied to items or locations.
- Control whether tax is additive or included in pricing.
- Set exemptions or specific rules.
Think of this step as telling Square how tax should be applied to transactions.
How to create sales taxes using the Square dashboard
This method is often preferred when managing multiple locations or configuring detailed settings.
Step-by-step:
- Log in to your Square dashboard.
- Go to Settings > Account & Settings > Payments > Sales taxes.
- Click Create tax.
- Enter a tax name and rate.
- Select the locations where the rate applies.
- Choose whether the tax applies to all items or selected items.
- Choose an additive or inclusive tax calculation.
- Configure exemptions if needed.
- Save your settings.
Once saved, the tax will sync across your connected devices.
How to create sales taxes using the Square POS app
If you prefer managing settings directly from your device, you can create taxes within the Square point of sale app.
Step-by-step:
- Open the Square point of sale app and navigate to settings.
- Locate the section for sales taxes or checkout settings.
- Select the option to add or create a new tax.
- Enter a clear tax name for reporting and receipts.
- Input the correct tax percentage based on your jurisdiction.
- Choose how the tax should be applied, such as to all taxable items or specific products.
- Review available options, including whether tax appears separately or is included in pricing.
- Save your changes.
This method is helpful for quick adjustments when you are already working inside the POS.
Important disclaimer: Businesses are responsible for tax accuracy
Square provides tools to calculate and apply tax, but does not verify whether tax rates are correct. Businesses should:
- Confirm rates with state or local tax authorities.
- Review settings regularly.
- Update rates when tax rules change.
Because sales tax rules vary by state, county, and even city, it is important to verify rates using reliable sources before creating or updating tax settings in Square.
Explore our state-specific sales tax resources, which break down requirements, filing rules, and helpful guidance for businesses operating in each state. These guides can help you better understand applicable tax rates and responsibilities before entering them into your POS system.
Does Square collect sales tax?
Square will collect sales tax with every purchase, but you must set the correct sales tax rate.
Your sales tax rate includes the state sales tax rate, as well as any local sales tax rates. You can view our state sales tax guide to see what the sales tax rates are for your location. Keep in mind that if you make sales in multiple locations, you’ll need to calculate the correct sales tax rate for each location.
With Square, you can add tax registrations to have Square automatically calculate sales tax rates for each location. Always double-check and keep apprised of sales tax updates.
Once you’ve entered the correct sales tax rate, Square will add sales tax to every purchase.
But what happens when the sales tax bill is due? Charging sales tax is just the first step in the sales tax process. You must also set sales tax money aside, and then file and pay the correct sales tax amount when your sales tax bill is due. That could be every quarter or every month.
Sales tax is an area where a lot of business owners can get behind on quickly. Understanding your sales tax responsibilities is a good first step in staying ahead of sales tax.
What happens after sales tax is collected?
Collecting sales tax is only one part of the process. After tax is collected, businesses must still:
- Set aside funds for taxes owed
- File sales tax returns
- Submit payments to the state on time
This is where many businesses run into challenges, especially during busy seasons or when managing multiple locations.
Does Square remit sales tax?
No, Square does not file or remit sales tax on your behalf. While Square can help you collect sales tax on each transaction, you are still responsible for tracking what is owed, filing returns, and making payments on time.
For businesses looking to reduce this manual work, integrations like DAVO by Avalara can help automate the process by managing the collection, filing, and payment of sales tax.
How DAVO helps Square users manage sales tax after collection
DAVO integrates with Square to help simplify what happens after tax is collected. Instead of manually tracking tax liabilities, DAVO:
- Connects directly with your Square POS
- Sets aside collected sales tax daily
- Automatically files and pays sales tax on your behalf based on collected data
This helps reduce manual work and lowers the risk of missed deadlines or unexpected tax bills.
DAVO works alongside Square, allowing business owners to focus on running their operations while maintaining consistent sales tax management.
Best practices when setting up sales tax in Square
To avoid common issues, businesses should:
- Verify tax rates using your state or local tax authority website
- Double-check whether certain items are tax-exempt
- Review tax reports regularly
- Update rates immediately when jurisdictions change
Frequently asked questions
Does tax enrollment mean my sales tax is fully set up?
No. Tax enrollment enables automatic tax calculation, but does not always replace creating sales taxes in your POS.
Does Square file or pay sales tax for me?
No. Square helps collect sales tax at checkout, but it does not file sales tax returns or remit payments on your behalf. After tax is collected, businesses must still manage filing deadlines and payments separately. Tools like DAVO integrate with Square to help automate setting aside collected tax, filing returns, and submitting payments based on your POS activity. Businesses interested in simplifying ongoing sales tax management can explore DAVO, which offers a free trial to see how the integration works with their Square account.
Can I change tax rates later?
Yes. Tax rates can be updated through the dashboard or the POS app.
Final thoughts
Adding sales tax in Square is straightforward once you understand the setup options. Whether you create taxes through the dashboard or the POS app, accuracy is key since businesses are responsible for entering the correct rates.
While Square makes collecting tax simple, managing filing and payments can still take time. Integrating tools like DAVO can help streamline the process by organizing, filing, and submitting taxes based on what your Square system collects.
