Sales Tax: What Shopify Merchants Need to Know

“Nexus” determines where your business has a tax obligation. Before 2018, states could only require sales tax collection if your company had a physical presence (such as an office, a remote employee, or a warehouse).

After the South Dakota v. Wayfair (2018) decision, states adopted economic nexus laws — meaning even without a physical presence, you can still owe sales tax if you exceed sales or transaction thresholds in that state.

👉 Translation for Shopify sellers: If your store sells a high volume or dollar amount into another state, you may be legally required to register, collect, and remit sales tax there — even if you’ve never set foot in that state.

Marketplace facilitators like Amazon, eBay, Etsy, and Walmart are required to collect and remit sales tax on behalf of their merchants. However, these sales can still count towards economic nexus in some states. In other words, even though you’re not liable for sales tax on those channels, they can still contribute to where you need to register and file sales tax.

Additionally, many states want to see Gross Sales reported on. This means that when you’re filing sales tax returns, marketplace sales may still need to be recorded in certain fields.

If your business sells to wholesalers or resellers, those customers are likely to present you with documentation that exempts them from sales tax (exemption certificates). 

However, much like the marketplace facilitated sales mentioned above, these sales can still contribute to economic nexus in more than half of US states.

And, even if there’s $0 in sales tax to be collected and remitted in these scenarios, many states still want to see Gross Sales reporting on when filing sales tax returns.

The moral of the story is that, if you sell across multiple channels – including marketplaces and wholesale/resale – relying on Shopify’s Liability Insights is only going to show you where you’ve triggered nexus based on the data in Shopify. 

You need to consider all sales when looking at economic nexus exposure and when filing sales tax returns.

Before collecting sales tax in any state, you must first register for a sales tax permit. Collecting before registration is considered illegal by most states.

Shopify also typically requires a valid registration/sales tax ID before sales tax collection can be enabled for a state.

Once you’re registered for a sales tax permit, it’s time to start collecting in that state.

In most cases, there isn’t just a state sales tax rate but also county, city, and sometimes district-level rates. There are thousands of sales tax jurisdictions across the US.

As part of Shopify’s Taxes & Duties feature updates over the years, there are now a few options available to calculate and collect sales tax. For the most automated and accurate calculations at checkout, we recommend their native sales tax engine, Shopify Tax.

From clothing to food and beverages to digital goods, many products and services are taxed differently across the US. Make sure you have your products categorized within Shopify.

When you register for a sales tax permit, the state assigns you a schedule (often monthly, quarterly, or annually) to file sales tax returns and remit the tax you’ve collected.

This is typically done through the state department of revenue portal, and most states have their own specific format for submitting the return.

You may be subject to penalties and interest if you file or remit funds late. However, some states also offer incentives for filing early or on time (usually a small percentage of the amount due).