Sales tax for Shopify users

By Robert Dumas on Tue, Dec 20, 2022 @ 11:00 AM

Shopify is one of the most popular e-commerce platforms. The e-commerce website builder claims that more than 1.7 million businesses have made over $200 billion in sales with the Ottawa, Ontario-based company’s websites.

Free trials, tiered plans, 24/7 support, thousands of app integrations, unlimited storage and bandwidth… Truly does sound like what Forbes called an “all-in-one platform [with] everything you need to launch an online store.”

What about sales tax?

Doesn’t file or remit

Shopify is not required to collect and remit sales tax for its sellers, as it is not a marketplace facilitator like Amazon, eBay, or Etsy.

The site says users can set up Shopify “to automatically handle most common sales tax calculations” and “tax overrides to address unique tax laws and situations.” Shopify uses many default sales tax rates, updated regularly.

Though the site offers resources to double check nexus and sales tax registration in jurisdictions, Shopify does not file or remit your sales taxes for you.

“You might need to register your business with your local or federal tax authority to handle your sales tax,” the platform stipulates. The calculations and reports that Shopify provides should help make things easier when it’s time to file and pay your taxes.

“You should always check with a local tax authority or a tax accountant to make sure that you charge your customers the correct sales tax rates, and to make sure you file and remit the taxes correctly.”

The more advanced (and pricey) the Shopify tier, the more the platform does for users regarding sales tax, including integration with third-party providers. Shopify + has the most robust sales tax support providing the ability to make taxing decisions and apply the applicable sales tax rate via plug-in sales tax options.

Other versions of Shopify including Basic, Standard, and Advanced have some rudimentary capabilities to charge sales tax – often times sufficient when selling tangible personal property where the item or good is taxable in every jurisdiction. However, when selling items with varying taxability depending on the jurisdiction, the Shopify + platform is better suited.

Beginning in January of 2023, Shopify is launching a new module, Shopify Tax. Shopify Tax will have the ability to make taxing decisions and apply the proper tax rate for many items sold on the platform – features historically reserved only for Shopify Plus but now available for the lower tiers of Shopify. There is an additional cost associated with using Shopify Tax as outlined on their website.

Other features of Shopify Tax:

  • “Liability insights” to monitor stores’ sales and locations to compare sales into a specific state to that state’s sales tax thresholds.
  • “Rooftop accuracy” to collect tax based on a customer’s specific address, billed as an improvement over ZIP Code-based calculations.
  • Automatic suggesting of categories for products and application of the most accurate tax rate for that product based on a customer’s local tax rules.
  • Enhanced sales tax reporting (coming early 2023) with filterable sales data to facilitate reports to send to each jurisdiction.

Sales tax is more complicated than ever, and everyone who says they’re simplifying sales tax is still leaving the hardest parts – and the liability – up to you. Rely on sales tax experts to maintain your compliance. Contact TaxConnex to learn what it means when sales tax is all on us.

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2011 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.