Automated Shopify Sales Tax Compliance

eCommerce Sales Tax Compliance for Your Shopify Store

Registration, tax return filing and support for your Shopify web sales across the United States.

Speak to us for all your sales tax requirements.

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What is Shopify Tax?

Shopify Tax is part of Shopify’s settings and allows you to “turn on” sales tax in relevant states. If you are registered in a state, you activate the state and Shopify will automatically add sales tax to your sales price at checkout.

However, there are two problems with Shopify Tax:

Luckily, Yonda can help resolve these problems.

Sales Tax on Shopify

Shopify likes to ensure their merchants are compliant with tax laws, so they analyse your sales to see if you should be collecting sales tax anywhere. If you’ve received the Shopify nexus alert, there are 3 things you should do:

1. Find out where you need to collect tax

Shopify’s analysis isn’t always accurate – the nexus rules are complicated, so feel free to contact us for a free assessment.

2. Register in states where you have nexus.

If you have nexus, you need to apply for a sales tax permit or register for a sales tax ID with those states. We can help you get set up in all states, including if you should have been collecting tax for a while already and need to register “retroactively.”

3. File your returns

Once you’re registered, you’ll have to file returns and pay over the tax you collect. This might include “back-dated” filings for previous periods you missed. The returns are complicated, but we can file these automatically on your behalf.

We Can Help Collect, Pay, Remit & File Your Shopify Sales Tax

Evidently, Shopify sales tax is complicated. Doing the process alone can be tricky, especially with no prior knowledge of US sales tax. Fortunately, we take the hassle out of Shopify sales tax. 

We can specifically help you with:


Steps to Make Your Shopify Store Compliant for US Sales Tax

1. Understand How It Impacts Your Business

Shopify Tax offers no support, advice or practical guidance. It does show your “current sales tax liabilities” and where you might be “approaching thresholds” – but what does that even mean?

Registering for sales tax and charging your US customers tax will have a significant impact on your business. It is important to know your legal obligations and the commercial implications of tax compliance. The software can help automate the process, but there are various practical issues to understand:

  • What are my legal obligations and risks if I don’t get it right?
  • Could I structure my business more efficiently to minimise tax exposure?
  • How will charging sales tax impact my business commercially?
  • How do I manage product categories in Shopify Tax?
  • What if state tax offices ask questions or audit me?
  • What does it mean if I sell via other channels, not just Shopify?
2. Register for a Sales Tax Permit

If customers in multiple US states buy from your Shopify store, you might be legally obligated to get a sales tax permit in those states. You will need to understand your Nexus obligations to determine where you have to register for tax.

You then need to apply with the relevant state for a sales tax permit. Each state has their own registration process, but it will generally involve completing a detailed registration form and providing supporting documentation about your business, supply chain and products.

3. Set Up Sales Tax Collection On Your Shopping Cart & Start Collecting

Shopify Tax is not free, and your prices will vary depending on your products and where your customers are based. It’s important you understand how this impacts your business commercially.

Once registered for sales tax in a state, you must start charging sales tax on eligible sales made to that state. Shopify Tax simplifies this process because merchants can now activate tax collection in the admin settings, so the relevant tax will be added to your sales at checkout.

4. Report and File Sales Taxes Collected

Shopify Tax does not file the returns for you or help you pay the taxes; it also does not currently consider sales tax holidays’.

You will have to file a monthly or quarterly return to every state where you are registered, where you report all the sales you made to their state. The tax returns are filed electronically using the relevant state tax office’s filing portal – they must be submitted before the specific deadline, and you have to remit the tax you have collected.

The tax returns are very complicated because transactions must be reported at a jurisdictional level, and sometimes by product. You need to factor in discounts, refunds and ‘sales tax holidays‘ and ensure the exact amounts are reported in the correct boxes – or you risk severe penalties.

Why It’s So Important to Register for Sales Tax

If merchants don’t register and remit their sales taxes, it could lead to legal and financial problems. 

States have the right to legally demand all historic taxes you should have paid to them, and they can add ruinous penalties on top of that. What are the chances of them catching you? Very high!

In addition to the financial penalties that can be payable, there are other ways non-compliance can impact your business negatively, including: 

Does This Apply to US Sellers Only?

No. While it is more likely a State will find and penalise a US business if they are not complying, the sales tax legislation applies to all merchants who sell into the United States. It doesn’t matter if you export your products from outside the USA or have a local fulfilment – if you sell to a State you need to consider your Nexus.

Why Is Shopify Sales Tax So Complex

Sales tax in the USA is a consumption tax on the sale of goods. If you sell products to US states from your Shopify store, you might need to charge sales tax.

The tax is imposed at a state level, so there is no federal law which governs the tax for the USA as a whole. The first state to implement a sales tax was West Virginia in 1921 and since then, it has been adopted by 46 states (and is used in Washington DC).

Although the tax is charged by the state and local authorities, it is administered by the seller who is responsible for charging it. Shopify merchants must charge sales tax if they have ‘Nexus‘ in the state, which is the USA’s way of saying “a legal obligation to register and collect sales tax”.

Every state has different rules, so it is not so simple to know where you have to register.

 In general, there are two main ways to establish nexus:

  1. Physical presence: Having a physical location like a store, warehouse, or even an employee working remotely in the state can create nexus.
  2. Economic activity: This occurs when your business surpasses a specific sales threshold within the state, even without a physical presence.  Each state sets its own sales threshold for triggering economic nexus.


Why has Shopify updated Shopify Tax to include US sales tax?

Most Shopify merchants sell non-compliantly across the US. This means they are not registered and charging sales tax where they should be. It is very likely Shopify has been in talks with the US states, who are clamping down on non-compliance because they want their tax revenue. 

Similar to how they put pressure on marketplaces like Amazon and Walmart to ensure they are charging sales tax; it makes sense the government would collaborate with Shopify instead of having to contact merchants directly. 

Non-compliance can destroy your business, it is fundamental you understand your obligations and take action immediately. Yonda can help you do this.

Does Shopify automatically register me for sales tax?

No, Shopify doesn’t handle sales tax registration itself. You’ll need to register in each state where you have nexus (sufficient business connection) to collect and remit sales tax. Generally, if you store inventory or make sales in a state, you’ll likely need to register.

Does Shopify collect and remit sales tax?

No, Shopify does not collect and remit sales tax on behalf of its sellers. This is because Shopify is not a marketplace facilitator, and therefore, does not need to legally automatically charge sales tax on purchases. As a result, Shopify sellers are responsible for collecting and remitting sales taxes to the appropriate US states. 

Because of this, sellers may be left overwhelmed or confused by the process of sales tax with Shopify. Sales tax is complicated, and doing it alone can be even more so.

Does Shopify file my sales tax returns?

Shopify’s sales tax reporting helps you gather the information you need to file your sales tax returns, but it doesn’t handle the actual filing process itself. So no, Shopify doesn’t file your sales tax returns. You’ll need to handle filing and remittance yourself or use a third-party service (like us).

Yonda is here to help. Our team of experts and automation software can make collecting, remitting and filing sales taxes now easier than ever for Shopify sellers.

Can I integrate Shopify with a sales tax app?

Yes, Shopify integrates with various sales tax platforms like Yonda Tax that can automate calculations, filing, and compliance for a wider range of locations.


Our Other Services

Since we are a full tax compliance solution we can offer you much more than just eCommerce tax help. Here are some of our other services that you may find handy:


Nexus Monitoring

Free sales tax nexus monitoring helps you understand your tax obligations in every state. We monitor your sales in each jurisdiction, letting you easily stay on top of which US states you need to collect sales tax in, based on your sales and order volume.

Learn More

Sales Tax Registration

Our team of sales tax experts understands the nuances of each state’s regulations. Simply fill out a user-friendly form, and we’ll handle the entire registration process for you. We’ll ensure you’re registered in all the necessary states, communicate directly with tax authorities on your behalf, and save you valuable time and effort.

Learn More

Automated Tax Filing

Filing sales tax returns just got easier! Simply provide your US sales data, and Yonda takes care of the rest. We connect securely to your website, accounting, or payment systems to automatically import your sales data each month. No manual entry from you is required!

Learn More

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