Bag DocsPricing With & Without Tax
Tax-inclusive and tax-exclusive pricing options for your products.
Pricing With & Without Tax
Display product prices without tax, then add applicable taxes at checkout based on the customer's location.
How It Works
With tax-exclusive pricing, the price you set is the net price before tax. Bag calculates and adds the appropriate tax amount at checkout based on the customer's jurisdiction.
Example:
You set a product price of $100.00 with tax-exclusive pricing (default).
- Customer in US (no state sales tax): Pays $100.00 (Tax: $0)
- Customer in EU (20% VAT): Pays $120.00 (Price: $100.00 + VAT: $20.00)
- Customer in India (18% GST): Pays $118.00 (Price: $100.00 + GST: $18.00)
Different customers pay different total amounts based on their tax jurisdiction.
Configuration
Tax-exclusive pricing is the default setting for all products. No configuration required unless you've enabled tax-inclusive pricing and want to switch back.
Product Settings
- Navigate to Products in dashboard
- Select product
- Under Pricing, ensure Tax Inclusive Pricing toggle is off
- Set net price (before tax)
Customer Experience
At Checkout:
- Customer sees base price: "$100.00"
- Tax is added during checkout: "+ $20.00 VAT"
- Total shown before payment: "$120.00"
Invoice:
- Subtotal: $100.00
- VAT (20%): $20.00
- Total: $120.00
Merchant Impact
Consistent Net Revenue:
You receive the same net amount regardless of customer location:
- US customer pays $100.00 → you receive ~$100.00 (minus fees)
- EU customer pays $120.00 → you receive ~$100.00 (minus fees, tax remitted by Bag)
Predictable Margins:
Since your net revenue per sale is constant, profit margins are easier to forecast and maintain.
When to Use Tax-Exclusive Pricing
Recommended for:
- B2B SaaS - Business customers expect tax-exclusive pricing
- US-focused products - Standard practice in the US is tax added at checkout
- Consistent margins - You want the same revenue per sale globally
- Enterprise products - Large customers often require tax-exclusive quotes
Not recommended for:
- European B2C - EU consumers expect final prices including VAT
- Premium consumer products - Psychological pricing ($99 vs $118.80) matters
Display at Checkout
Depending on merchant preference, tax can be displayed:
Option 1: Lazy Loading (Common)
- Base price shown on product page
- Tax calculated and displayed when customer enters location or begins checkout
Option 2: Upfront (Transparent)
- Tax calculated immediately based on IP geolocation
- Total with tax shown from the start
Bag defaults to upfront display for better transparency.
B2B Tax Handling
For business-to-business transactions:
VAT Reverse Charge (EU)
If customer provides a valid VAT ID:
- Base price: $100.00
- VAT: $0.00 (reverse charge applies)
- Total: $100.00
Customer is responsible for self-assessing and remitting VAT in their jurisdiction.
Tax Exemption Certificates
Some business customers (nonprofits, government, resellers) may be tax-exempt:
- Customer provides exemption certificate
- Tax: $0.00 (exempt)
- Total: $100.00
Bag validates and stores exemption certificates for compliance.
Tax Calculation
Tax is calculated based on:
- Customer billing address - Primary method
- IP geolocation - Fallback if billing address not provided
- Product category - Digital goods, SaaS, or physical goods
- Local tax rules - VAT, GST, sales tax rates
Tax rates are updated automatically as regulations change.
Choosing Between Tax-Inclusive and Tax-Exclusive
| Factor | Tax-Inclusive | Tax-Exclusive |
|---|---|---|
| Revenue per sale | Varies by location | Consistent globally |
| Customer perception | Simple, one price | May seem more expensive at checkout |
| Best for | B2C, global consumer products | B2B, US markets, enterprise |
| Margin consistency | Harder to predict | Easier to forecast |
| EU preference | Standard practice | Less common |
| US preference | Uncommon | Standard practice |
Recommendation:
If you're unsure, start with tax-exclusive pricing (default). It provides consistent revenue and is familiar to most markets. Switch to tax-inclusive if you notice high cart abandonment from international customers or if you're targeting European consumers.