When you run an online store on Shopify, it’s important to know how to collect sales tax from your customers. Sales tax can be a tricky topic, and Shopify has simplified the process for you. Sales tax is a tax on sales of tangible personal property or certain services and this tax rate varies from state to state. In this article, we’ll discuss the basics of shopify sales tax collection so that you can spend more time focusing on building your business and not on tax compliance.
First, you need to know if you’re required to collect sales tax. Laws regarding sales tax collection can change frequently and can vary by state and location, so it’s important to stay up to date on this topic. If you’re unsure if you need to collect sales tax, check with your state’s tax agency or consult with a tax professional. If you’re selling to customers in multiple states, you may need to collect sales tax from customers in each state. You need to get a sales tax permit and know the rate of sales tax where your customers are located.
One of the benefits of using Shopify to collect sales tax is that it can automatically calculate and add sales tax to your customers’ orders. To get started, you’ll need to set up your Shopify store’s taxes settings. You can set your tax rate based on where your business is located. In addition, you need to check with your local authority, to determine the tax rate they have in your state, as well as depending on your products and if they’re taxable or not. Once you’ve set up your tax rate, Shopify can generate tax reports to help you keep track of the taxes you’ve collected.
If you’re selling to customers outside the United States, you may also need to collect a local Value Added Tax (VAT). VAT is a tax on goods and services sold in the European Union, and other countries like Australia, New Zealand. To collect VAT, you’ll need to enable the Shopify tax override so that the VAT rate is added to your prices during checkout. You also need a Shopify plan that has support for VAT.
Another thing to consider when it comes to sales tax collection is if you have a physical presence, or nexus in different states. If you have a physical presence in a state other than your home state (like a warehouse, office, or employee), you may be required to collect and remit sales tax. This can get complicated, as each state has its own laws and thresholds for what counts as a physical presence, so consult with your tax professional.
Collecting sales tax on Shopify can appear daunting, but it doesn’t need to be. Familiarize yourself with the local applicable tax laws in each state where you sell and use Shopify’s sales tax collection features to simplify the process. To ensure you comply with applicable tax laws and regulations, consult with a tax professional before taking any action. Streamlining this process frees up your time and lets you do what you’re passionate about – running your online store. With Shopify’s built-in functionalities and our helpful guidelines, sales tax collection couldn’t be simpler!