Everything You Need to Know About Shopify Sales Tax

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Everything You Need to Know About Shopify Sales Tax

Author: Christopher Stout
Published on: 12/9/20 6:47 PM
Last modified on: 12/10/20 6:52 PM

Shopify is not responsible to collect and remit sales tax for online sellers. It is the sellers responsibility to handle sales tax matters, which includes everything from determining sales tax nexus to registering for sales tax accounts.

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Does Shopify Collect Sales Tax?

Although your website can be set-up to collect Shopify sales tax, it is not Shopify’s responsibility to do that. Whether or not you collect is determined by your nexus.

What is nexus?

Nexus is the connection you have with a state. For example, if you have an office that holds inventory in a state, you’re likely required to collect. Additionally, if you meet certain thresholds such as the number of transactions or sales, you’re likely required to collect.

Do You Need a Business License to Sell on Shopify?

Whether or not you need a business license for Shopify sales tax depends on your physical location. If you’re operating out of your home, then your municipality or county may require one. Each city and county are different, with different rules. Some may allow home based businesses, others may not. 

Before starting your business, you may need an EIN (Employer Identification Number) issued by the IRS. If you are a sole proprietor with no employees, then your social security number will suffice. If you have employees or are incorporated as a corporation or LLC, then you will need one. If you have a trade name you wish to protect, you may need to contact the Secretary of State located in your home state.

How To Properly Set-up Shopify Taxes

Setting up Shopify sales tax can be a time-consuming process. After the process is completed, a customer will automatically be charged sales tax when checking out.

Step 1:

Go to your Shopify administers page and select Settings and then choose Taxes

Step 2:

Choose the tax region. You will set-up each state as a tax region. You will not need to set-up states in which there is no sales tax.

Step 3:

Choose how the tax rate will be set-up. You have two choices – automatic rate calculation or manual rate input. Unless you have items with a special tax rate, you’ll want to use automatic rate calculation.

Step 4:

If you have products that are not subject to tax – like food in most states – you will need to exempt those items.

Step 5:

Finally, you’ll be asked whether to include tax in the price. You must check to see whether the state will allow this. It’s usually not allowed because it gives you an unfair advantage over competitors.

How Does the Shopify Sales Tax Report work?

The Shopify Sales Tax report can be used to record tax liabilities if your Shopify store is not connected to your accounting system. It can also be used to file your tax return. To prepare the report to be able to do this, you will first need to filter the date for the filing frequency. For example, if you must file returns every quarter, and are preparing the first quarter return, you would choose dates between January 1st and March 31st.

How Do I Handle Shopify Tax Reporting?

With the responsibility to collect Shopify sales tax on you, you will need to determine which states you should register in, and then obtain a sales tax permit for that state.

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How long does it take to get a sales tax permit?

Sometimes the permit or certificate number can be provided right after you submit the application online. Other times, you may need to wait for the permit to be mailed to you. The process varies by state, but once you receive the permit number you can set-up an online profile on the state website.

Return Filing

After setting up your eFile account you will be able to file returns and make electronic payments. Now you’re ready to file Shopify sales tax returns. Using the report prepared in the previous section in hand, login to the state website. Again, these steps vary by state, but once you have logged in, you’ll either be directed to file a return, or you will locate the section to file the return on the dashboard.

Depending on the state, you may be required to enter specific jurisdiction sales. Always make sure that your report and the return you are filing are for the correct period.  Sometimes the payment and return are submitted at the same time, sometimes you have to submit them separately, so be sure to check that you’ve filed the return AND made the payment.

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