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An Overview of Sales Tax on Shopify

  • Mar 31, 2015 | Ryan O'Donnell

Shopify has made it easy for the lay person to start an online business. Gone are the days of monkeying around with HTML and trying understand how to install a shopping cart solution. Shopify handles the hosting, security, styling, and SEO of online storefronts.

How you configure your account determines the tax treatment of your sales. This in turn impacts your ability to collect sales tax. Remember, depending on where nexus has been established, the business owner is solely responsible for collecting and submitting taxes owed on sales.

How does Shopify handle taxes?

Shopify doesn’t guarantee 100% accuracy with regard to which taxes apply to your business.   They recommend seeking outside consultation. It does, however, allow you to indicate that you would like Shopify to automatically calculate state and local taxes.

How are nontaxable sales handled?

There is a sales override function that uses the Shopify concept called "collections". Setting up collections is straightforward and can be completed in the following three steps.

  1. Indicate what products aren’t taxable and put them in a collection.
  2. Associate the collection with a state, city, and county.
  3. Enter the appropriate tax treatment for the collection.

As an example, if you are selling your baked goods on a plate for immediate consumption in Texas, the baked goods are taxable. Create a collection for ready-to-eat baked goods as they are treated as an exception since baked goods prepared for consumption off-site are not taxable.

You can also indicate on a per item basis if an item is taxable. This is accomplished when you create your Shopify inventory.

How does Shopify handle nexus?

Shopify merchants indicate the states and the zip codes of where they have physical presence when setting up their account . This might be the location of an office, a state in which inventory is stored, or the home of a remote employee.

How does Shopify handle sales tax for mobile businesses?

For merchants selling from a variety of locations, the Shopify Mobile app allows sellers to apply tax rates at the point of sales based on the GPS determined location of the sale. The app also, syncs with sellers' Shopify accounts to allow for mobile inventory management.

Shopify Mobile is currently available for iPhone and Android devices.

How does it help me with remitting taxes?

Shopify has tax reports that can help you figure out what needs to be paid to whom. It breaks the sales tax that was collected down by state, county and municipal amounts.  There are some quirks you should be aware of, so read the documentation carefully particularly around partial orders and refunds.

You can download Shopify sales tax reports in CSV format and then import them into TrustFile for processing.

Here’s a sample tax report:

Shopify Sales Tax

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Ryan O'Donnell
Avalara Author Ryan O'Donnell