Sales tax liability: Five things to know for your Shopify store
by September 17, 2023
Please note: This blog was originally published in 2021. It’s since been updated for accuracy and comprehensiveness.
If you use Shopify as a part of your e-commerce strategy, you may have noticed that they’ve added some additional sales tax support to their offering. Shopify now helps merchants manage their sales tax liability by showcasing which states you might have physical and economic nexus via their Manage Sales Tax Liability report, accessible within your Shopify admin. While this liability report can be helpful, there are several other important considerations to keep in mind when managing sales tax liability:
- Understand Nexus: Nexus determines a company’s sales tax liability within each state or jurisdiction which dictates when to register, collect, and remit sales tax on behalf of the state. Before 2018, a company would only need a physical presence (e.g., office location, employees, inventory etc.) within a state to reach nexus. Following the South Dakota v. Wayfair ruling in 2018, a company could reach economic nexus in a state without having a physical presence if it breaches economic activity thresholds set by the state (e.g. sales revenue and / or transaction order volume). Since the ruling, 46 states have adopted economic nexus laws.
- Do you only sell on Shopify or do you sell across multiple channels? Shopify reports your sales tax liability based upon sales that occur through the Shopify platform. If you are selling through other channels (e.g., Amazon) it’s important that you have a way to view your nexus based upon your overall business sales and not just one sales channel.
TaxJar has an Economic Nexus Insights tool and a way to track your Amazon inventory to inform which states you need to register and enroll to file your sales tax returns. TaxJar aggregates your sales data across all of your online stores, e-commerce, marketplace, and ERP platforms into one view.
3. Does your business have exemptions and are those accounted for in the Shopify report? If you have exempt orders or marketplace sales, they might not count towards your nexus, depending on the state.
TaxJar can filter out marketplace sales and exempt orders and determine if that should count towards your Economic Nexus threshold with a state.
4. Once you identify where you have nexus, you need to register for each state(s) before collecting sales tax.
Before you collect sales tax, you must register for a sales tax permit with that particular state. It’s critical that businesses do not collect sales tax before they’re registered because states consider this fraud/illegal. Registrations can take 2-4 weeks depending on the state. Then once you are registered, the state will tell you your filing frequency which can range from monthly, quarterly, semi annual or annually to name a few. This will depend on the state and the sales volume you have in that state.
- In general, these are the steps to register with a state to collect sales tax:
- Gather vital info like your EIN and other business identifying information
- Visit the State’s Department of Revenue website
- Search or click on the “Sales and Use Tax” section of the website
- Click the link to register your business
Note: Every state and every website is slightly different, so we’ve listed every state below with a step-by-step guide here.
Managing different state requirements and portals can be confusing, daunting, and time consuming. If you’d like to streamline your compliance, TaxJar can handle the registration process for you. Visit our registration page to request our team of experts manage your sales tax registration on your behalf.
5. File your returns. On time. Repeat.
It’s crucial to file sales tax returns, on time, every time. With filings due in multiple states with different timelines, it’s easy to miss dates when you’re busy with other finance-related tasks. But missing deadlines comes with late fees and harsh penalties. Save time and minimize avoid human error with TaxJar AutoFile. TaxJar AutoFile is our automatic electronic filing service for state sales tax, built on best-in-class technology. Once enrolled in a particular state, we’ll use the data that we receive from your e-commerce platforms or ERP systems to prepare and submit an accurate return along with your remittance. TaxJar manages all your filing details and deadlines, scaling up as you grow, so you can focus on the big picture.
Streamlining your sales tax compliance with TaxJar
All it takes is a single click to link up TaxJar to your Shopify and other e-commerce platforms. Once you’re synced with TaxJar, you can access reports on sales tax collected by jurisdiction, across all the states where you have sales tax liability (nexus). See at a glance whether you are collecting enough sales tax and when your returns are due. Enroll in TaxJar AutoFile to gain the confidence that your returns are taken care of — on time, every time.
Our cloud-based platform automates the entire sales tax lifecycle across all of your sales channels — from calculations and nexus tracking to reporting and filing. Behind the TaxJar platform is a knowledgeable customer service team ready to help you be successful.
From educational resources to award-winning support, we equip you with the things you need to expertly navigate sales tax compliance without needing to be a sales tax expert. TaxJar is dedicated to making your sales tax experience run smoothly. With innovative technology and customer-focused support, we simplify sales tax compliance so you can grow your business with ease.
Talk to sales and request a demo today to learn how we can help you manage your sales tax liability.
