Shopify blog
When your business starts to reach more customers in more places, it means you’re doing something right. But with great success comes great responsibility: more conversions means you have more obligations to register, collect, and pay sales tax.
Growing your business should be a cause for celebration, not added stress. That’s why we created Sales Tax Insights for the US and Canada. With Sales Tax Insights, you can easily track where you may be required to collect and pay sales tax, receive guidance on how to register with the proper tax agencies, and begin collecting taxes on orders in that area.
How does Sales Tax Insights work?
Let’s face it: sales tax is complicated. In the United States alone there are over 11,000 tax jurisdictions and tax rates, many with unique rules and regulations that determine when your business needs to collect and remit sales tax. Rules are determined by time frame, number of transactions, and total dollar amount of sales, and vary from state to state. In Canada, things are a bit simpler, with some sales taxes imposed at the federal level and only a handful of local sales tax jurisdictions.
Sales Tax Insights takes the stack of rules and requirements needed to determine when you’re required to collect Canadian GST/HST and US state sales tax and automates it for you.* Through the Taxes page in your Shopify admin you can see which locations you’re obligated to collect tax in, and which you may soon cross tax thresholds in. From there, you can find helpful links to relevant tax agencies where you can register and find answers to any questions you may have.
Where can I find it?
From your Shopify admin, go to Settings → Taxes. If you currently have sales in either country, you’ll be able to select either the United States or Canada. Your potential obligations will be displayed in one of three categories:
- Action required: Locations where you may currently have a tax liability.
- Monitoring required: Locations where your Shopify sales have reached at least 80% of the location’s threshold requirement.
- No action required: Locations where your Shopify sales do not reach the location’s threshold requirement.
You can view more details on how these determinations are made by visiting our help articles for the United States and Canada.
What are the next steps?
After you’ve reviewed Sales Tax Insights and confirmed your obligations with a tax professional, congratulate yourself on this impressive milestone. While no one (except maybe your accountant) enjoys dealing with taxes, reaching a new economic threshold means you have an established base of customers who believe in your business. Well done!
Next, register with the relevant tax authority. On your Tax Insights page you’ll find links to the relevant tax authority or you can find a complete list of tax authorities here. Once registered, you can get started by selecting Start collecting taxes and providing your tax ID. We also recommend speaking with your accountant or tax adviser at this point to ensure you:
- Understand your tax obligations
- Register properly
- Know when and how to remit your taxes to the relevant authorities
Other considerations
It’s important to remember that tax insights are limited to the transactions that occur within Shopify. Sales through other ecommerce sites, or marketplaces such as Amazon or Wayfair, may count toward your thresholds, and physical locations may also impact your tax status.
While Shopify is committed to helping you navigate the complexities of managing a business, every company is unique. You should always consult with your local tax authority or tax professional to ensure your business is in good standing.
We’re here to help you succeed
At Shopify, we’re committed to helping you start, run, and grow your business. As rules and regulations change, we’re working hard to help you stay on top of your tax game. Because when understanding your tax obligations is a breeze, you have more time to focus on making your business a success. Let us know in the comments what else you’d like to see.
More resources
- Taxes in the Shopify Help Center
- US taxes
- Review your US tax liabilities
- Canadian taxes
- Review your Canada tax liabilities
*This guide is for merchants who sell in the US and Canada. United States tax insights analyze obligations at the state level. Some cities or counties have separate requirements not currently incorporated into the insights tool. The Canadian insights analyze obligations at the Federal level (GST/HST). Some provinces have separate requirements not currently incorporated into the insights tool.
It's your responsibility to consult with local tax authorities or a tax professional to verify that you charge your customers the correct tax rates, and to ensure that you file and remit your taxes correctly.
Read more
- How to Price Your Products in 3 Simple Steps
- 8 Steps to Prepare Your Ecommerce Store for Tax Filing
- Better Global Buying Experiences with Duties & Import Taxes at Checkout
- Announcing New Customer Segmentation and Marketing Automation Tools—Plus 10,000 Free Emails
- New EU 2021 VAT Rules for Ecommerce
- HTS Codes- International Commerce and Imports
- Shopify Flow for Businesses With Advanced Plans Is Here
- How Heatonist Became the World’s Top Hot Sauce Website
- Last Minute Holiday Shipping and Fulfillment Tips
- Forecasting for Seasonal Businesses- Turn Big Months into Great Years
Shopify Sales Tax FAQ
Does Shopify automatically collect and remit sales tax for me?
Shopify can calculate and collect sales tax at checkout once you activate collection for a region, but Shopify doesn't remit or file your taxes for you, unless you use Shopify Tax and set up automated filing. Sellers still need to confirm nexus, register with the correct tax agency, and submit returns on each state's schedule. One exception is the Shop app, where the Shop channel automatically collects, remits, and files taxes for all orders shipping to or within the United States, covering all states that administer statewide sales tax.
How do I know if my store has sales tax nexus in a state?
Nexus exists when a business has a physical presence in a state, such as an office or warehouse, or when sales there cross an economic threshold set by that state. In Texas, the threshold is $500,000 in gross revenue, while other states set the bar much lower. Because these thresholds vary widely, sellers need to check sales location by location rather than relying on one national rule.
Do I need to charge sales tax on shipping charges?
Whether shipping is taxable depends on the state: some tax the full order total including shipping, while others exempt it. Shopify handles this automatically, but several states have rules worth knowing. Leaving the default "Charge sales tax on shipping" setting active lets Shopify apply the correct rule per state, and sellers can add shipping-specific overrides in Tax rates and exemptions for unique cases.
What happens if I don't collect tax after crossing a threshold?
Failing to collect tax after crossing a state's threshold can create back-tax liability, since if you hit the threshold in a state and don't collect tax, you could owe back taxes, and possibly penalties, even if it wasn't intentional. States may also request historical sales records during an audit once unregistered nexus is discovered. Registering as soon as a threshold is reached, rather than after the fact, keeps the tax owed limited to future sales.
Does Shopify file my sales tax returns automatically?
Shopify doesn't file sales tax returns by default; sellers must register, calculate, and submit them independently unless automated filing is enabled. Shopify Tax includes Shopify Tax Automated Filing as an integrated feature for eligible U.S. states, facilitating both filing and remittance of collected sales tax. Sellers using this option still need to confirm eligibility and verify amounts, since orders outside the covered states or channels require manual filing.
