Sales tax is one of the most tricky aspects of eCommerce in the United States, as each state and jurisdiction have the ability to create its own individual laws around who pays sales it. If you are an eCommerce shop owner and Shopify is your platform of choice, we have created this guide on how to file your sales tax.
Does Shopify File or Remit Sales Tax for You?
No, Shopify does not file or remit sales tax on behalf of its users on the platform, as it has no legal responsibility to do so because it is not a ‘marketplace facilitator’, such as Amazon or eBay. It is up to each individual to research whether or not they need to pay or remit sales tax on their sale items, which can be tough to figure out at first. To ensure that businesses are following their legal obligations, they might have to register with their local tax authority to pay sales tax.
Can Shopify Simplify Sales Tax for Me?
Although there are confusing laws around sales tax across the different U.S. states, the good news is that last year, Shopify heard the cries for an improved system to help merchants take accountability and understand where they need to be paying sales tax. This is where ‘Shopify Tax’ comes into the picture, a feature added in 2022 that has the goal of helping retailers know where they are obligated to pay sales tax and then assist with the calculation and collection process.
How Does Shopify Tax Work?
Although Shopify won’t automatically collect or pay sales tax on your behalf, you will be able to adjust the settings in the back-end of your Shopify store under ‘Settings > Taxes and Duties’, where Shopify will help you with the process and give you a figure that should be paid in sales tax. Before assuming that the default sales tax rates that Shopify sets are correct and up to date, you should double-check them against your local government requirements.
Here are the five easy steps to take when registering the relevant regions where you make sales on Shopify. Be sure to first ensure that you have registered your business with local governments and taxation departments before completing this step.
How to Pay Sales Tax on Shopify
As your sales stack up, you will notice Shopify creates a type of invoice that states how much sales tax you owe and in which state or jurisdiction. You will then be responsible for making sure that you are aware of where to pay the correct tax amounts.
Top Tips to File Your Sales Tax on Shopify
There are a few simple steps to follow when filing your sales tax via Shopify, however, the first step is to ensure that you have relevant licensing, such as a sales tax license for each state you have NEXUS with. Here we have followed the lead from Shopify’s suggestions on how to best file your sales tax for businesses registered with their platform. There are three easy steps that will guide you in the right direction:
Review Essential Tax Deadlines
First, you should ensure you are aware of important tax deadlines that apply to you. You can find all relevant information on the IRS website under the Online Tax Calendar. If you have missed any payment deadlines, don’t stress, there is an application process to claim a tax extension – however, be aware that automatic approval will only occur if the application is made before the deadline date.
Organize Your Business Bookkeeping
This step is incredibly detailed as there are lots of factors to consider when organizing your records and booking. There are some great options to help you with this, such as investing in accounting software systems that are designed for small businesses or seeking professional advice from a bookkeeper. Some of the key components that might allow for tax deductions are as followed; phone and internet costs, home office, web hosting, contractors, shipping, and much more.
If you are unsure if your business falls into any of the categories, it is recommended to request professional assistance.
Complete the Relevant Tax Forms
There is an array of different tax forms to choose from, all of which can be found on the IRS website.