Shopify Store Sales Tax : A Beginner’s Guide
Finally your Shopify store is up and running and now, customers are picking your products regularly and consistently. And then you realize, there’s is one more hurdle to get over and it’s called sales tax. In other words collecting, filing and remitting your Shopify sales tax.
Why do you need to file sales tax? Because you are a responsible citizen and it’s only prudent to remit your taxes.
Tax laws can be a bit of a pain to deal with. But the great thing is that Shopify allows you to place settings that make it simple for you to make quick calculations automatically.
There are different tax rates that you can select on your Shopify store. The correct one will depend on your particular situation.
But, doesn’t Shopify remit taxes?
Heck no! You are the one who is left with the task of tax remittance.
But is ok, forget about the hassle of making too many calculations. Shopify makes everything easier for you by providing you with reports. Filing and remitting of taxes becomes a walk in the park!
It is always important to charge the right tax to your customers and remember to always stay updated with the right rates by checking with a local accountant.
ok, I get it…
But how do I set up the Shopify store sales tax?
That’s what we are here to learn. Let’s get into it now!
How to Set up Shopify Sales Tax
A few simple steps should take you through the whole process of setting up the sales tax on Shopify. The first step requires you to set the countries you ship your products to.
- When you set the countries you are shipping to, find the default tax rates for those shipping zones.
- Some sellers use Shopify POS. To charge the correct rates to your customers you will need to set tax rates depending on the location of the store.
- Then you have to add the tax rates depending on the countries to which you will be shipping your products.
- If you are located in the States, then you will need to select automatic tax settings. You might manually have to add the rates for the state as well as shipping taxes.
- If, however, you are NOT based in the United States, select the values available in default. Pick the right rates based on the country as well as the region in the country. You will also need to specify whether you will be charging shipping taxes.
- There are specific taxes for digital products. If you specialize in selling these, then you will have to add the right taxes.
- Sometimes it is necessary to override the tax rates. You might also need to exempt certain products from taxes.
Making Regular Reviews as you put the Settings
You can do this by checking your taxes page on your Shopify admin. This ensures that you have added the right settings. After all, you do not want to end up charging the wrong tax to your customers, do you?
Understanding Sales Tax Nexus
When you set up your Shopify store, you are excited and waiting patiently for the orders to start streaming in. But when they do, you quickly learn that there is a business concept to your Ecommerce store.
You can’t escape it!
Anyone who is selling a product has to deal with sales tax. In fact, in the United States, 45 states combined with the Columbia District require merchants to charge sales tax to their clients. Note however that it is usually always the case when you have a sales tax nexus.
What was that?
A sales tax nexus simply means a business or store that has a significant physical presence. The sales tax nexus is different from one state to the next but the general agreement is when the merchant has some sort of physical presence such as a warehouse or an office.
As a first step before you even start charging sales tax to your customers, determine whether you have a sales tax nexus. Find out the states which you might have any physical presence and communicate with that states’ department of revenue.
Getting a Tax Permit
You have determined the states where you have a sales tax nexus. The next step will require you to get a tax permit. You will do this by contacting the Department of Revenue in your state.
This is an absolutely crucial step mainly because you will often be required by law to have a permit before you can begin charging sales tax to your clients. Every state may approach the issue slightly differently from the next.
Once you’ve got your sales tax permit, you will also receive information as to when you are required to remit the sales tax. Usually, it is every month, sometimes quarterly or every year.
Do you remember the sales nexus?
Well, if you have these in multiple states, you might find one state requiring you to remit sales tax every month while another requires annually.
Getting the Sales Tax from Your Customers
Now its time to dig your teeth into the flesh of it! This step requires you to set up your Shopify store so as to be able to collect your sales tax. This again will be in the states where you have a sales nexus.
It’s absolutely easy!
The great thing about Shopify is that it allows you to automatically collect your sales tax. To put the settings in place, go to “Settings” then to “Taxes” and read through the tax manual. This will provide you with an easy guide on how to set up your sales tax collection.
There are a few tips to keep in mind though!
- Make sure that your sales tax is separate from the price. Customers are accustomed to sales tax being added afterward. If you were, for example, to include the sales tax with the price, the price would appear higher.
- Don’t forget to set the tax overrides. This is due to the fact that certain categories such as drinks or foodstuffs are normally tax exempt.
And that’s it!
Reporting on the Collected Sales Tax
You’ve successfully set up your Shopify sales tax and now, the due date is slowly creeping up. Many sellers find this part quite tricky. This is because states will not only expect you to report on the total amount of sales tax you have collected per state but also per county and sometimes even cities.
Normally this is a long and tedious process. However, by installing the TaxJar app in your store, the information is broken down per state and location. The result is a report presented in a fashion that the states will want to see.
And that’s not all!
Not only will TaxJar provide you with the right format of reports, you can also take advantage of its Autofill feature. This enables automatic filing and remittance of sales tax.
If you are eligible for sales tax discounts, TaxJar will also collect these and send them back to you. Things never got easier. Once you are set up, everything else becomes a piece of cake!
You can then go back to what you do best—running your Shopify Store!
Wrapping this up
Filing sales tax might seem like a confusing engagement, but with Shopify, the whole process is simplified. By following a few guidelines from the tax manual, and incorporating TaxJar, you can set your Shopify store sales tax with no hassle at all.
Have you set up your taxes properly already? What kind of problems are you having? Let me know in the comment section.