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The Limitations of Shopify Sales Tax Reporting

  • Aug 25, 2015 | Laura McCamy

A relative elder in the brave new world of ecommerce platforms, Shopify got off to a slow start, outrun by Etsy and old-timer Amazon. Its numbers have taken off in recent years, however: the site had only about 11,300 participating merchants in 2010, but that number had jumped to 50,000 by April 2013 and then doubled to 100,000 a year later.

Shopify offers a relatively robust set of perks and features, particularly for users who pony up $79 a month for its professional plan or $179 a month for the unlimited plan. One of the benefits that comes with the higher level plans is a report detailing the sales tax collected on your orders.

Like other ecommerce platforms, however, Shopify places the responsibility for tracking and remitting sales taxes squarely with the merchant.

Sales Tax Tools From Shopify

Shopify gets high marks from users and one of the key reasons is that it offers a broad array of functionality and a robust selection of complimentary apps. It’s no slouch when it comes to sales tax information, either.

When you set up on your online store, Shopify will automatically load sales tax rates for your county of origin. The site doesn’t guarantee that it will always keep those rates up to date, however, so the onus is on you to verify that you are charging your customers current sales tax rates.

You can customize your sales tax settings, including an override setting for tax-exempt transactions. Shopify sales tax reporting help, however, is limited. When the rubber hits the road, you are still responsible for tracking, reporting, and remitting the sales taxes you collect from your Shopify store.

Shopify and Nexus

The Shopify app store offers a wide selection of fulfillment services to its sellers. The platform encourages its sellers to consider using a shipping service to make volume selling easier.

Third party shippers raise the thorny issue of nexus, however. When you ship your product to the drop shipper’s warehouse, your business gains a new physical location that can bring new sales tax obligations with it.

If you choose to use one of the fulfillment services that integrates with Shopify, your first step is to make sure you know the physical locations of the warehouses where your product will be stored. Next, you need to research the sales tax regulations of the states where those warehouses are located.

If you are liable for taxes in other states, you will need to apply for sales tax licenses in those states. Finally, you will want to update your sales tax settings on Shopify so your online store is programmed to collect the appropriate sales taxes.

Online Sales Taxes Made Easier

What Shopify does not do--and what most ecommerce sites will not do--is guide you through the sales tax collection and reporting process and provide the information you need to stay in compliance with the sales tax laws that apply to you.

For that, depending on the complexity of your sales tax reporting, you can use third-party tools like Avalara's AvaTax and TrustFile. The latter allows you to import your Shopify sales data, create free tax reports, and even have Avalara file your sales tax returns for you.

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
Laura McCamy
Avalara Author Laura McCamy

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