As a business owner, one of the most important tasks you'll face is determining how to collect and remit sales tax. For new business owners using Shopify as their ecommerce platform, it's important to understand how Shopify handles sales tax collection and remittance.
We understand that if you're new to Shopify, or ecommerce in general, you may be wondering if Shopify collects sales tax on your behalf. You will be better able to decide what is best for your company and its taxes if you fully appreciate and recognize these ideas.
This blog post will provide an overview of Shopify sales tax policy and answer some common questions about sales tax for Shopify app users.
Why is it necessary for companies to gather sales tax?
Sales tax is a fee levied on the acquisition of interests and services. Businesses are in charge of obtaining sales tax from clients and sending it to the appropriate authorities. In the United States, the sales tax rate is governed by state and local laws, which means that rates and rules can vary depending on where you do business.
For enterprises that market taxable interests or services, collecting sales tax is an important part of complying with the law. Remitting sales tax to the government ensures that businesses are contributing their fair share to the funding of public services. Sales tax also levels the playing field between brick-and-mortar businesses and online sellers, who might otherwise have an unfair advantage.
If you're a store owner, it's important to understand your obligations with respect to sales tax. The good news is that there are many tools at your disposal to assist you in navigating the complexity of sales tax law. With a little bit of research and planning, you can ensure that your business is compliant with all sales tax requirements.
Does Shopify automatically collect sales tax?
You won't have your sales tax collected by Shopify. Shopify is not obligated to handle your sales tax collection and remittance. Even if you are a retailer located in the U.S. or Canada, Shopify will not automatically compute, remit, and organize sales tax on your behalf.
This is due to the fact that, unlike Amazon, eBay, and Walmart, Shopify is not a marketplace facilitator. These websites facilitate the transactions between sellers and customers who compete for business using the same store front.
It’s a downer that Shopify doesn't collect or handle your sales tax. Nevertheless, you may connect a tax app with your business and modify Shopify's settings to ensure that each qualified transaction automatically adds the right sales tax rate at checkout.
What about those outside the U.S. and Canada?
Tax registrations for the following regions are used to establish taxes:
- New Zealand
- European Union
- Norway
- United Kingdom
- Australia
- Switzerland
These regions follow the same process as merchants from the U.S. and Canada. On the other hand, depending on your local tax rules, taxes are imposed at the national or regional level if you are not headquartered in one of these regions and you need to levy taxes.
Where can I learn more about Shopify’s sales tax collection?
If you're a small business owner using Shopify, you may be wondering how to handle sales tax collection. In general, you must charge and collect sales tax from customers in any state where you have "nexus," defined as having a physical presence in a state such as a store or a warehouse.
If you have nexus in a state, you'll need to register with the state's taxation department and obtain a sales tax permit. After you've acquired your authorization, you may begin collecting sales tax from consumers in that jurisdiction.
Some business owners make the mistake of thinking that they only need to collect sales tax from customers in their own state. However, this is not the case. If you have nexus in another state, you must also collect sales tax from customers in that state. As a result, it's critical to keep your knowledge up to date on the states where you have nexus so that you may properly collect sales tax.
Fortunately, Shopify makes it simple to collect and pay sales tax. You may include the appropriate taxes for each state where you have nexus with Shopify's built-in Sales Tax settings. On the Taxes and duties tab in your Shopify admin, you may access and check your settings as you set up taxes.
Where can business owners learn more?
You must be aware of sales tax laws if you're selling anything online. You might need to gather and pay sales tax on the goods you sell depending on where you live. But don't worry—Shopify can help simplify the process for you.
First, go to your Shopify settings and navigate the "Taxes" page. From there, you can enter your location, and Shopify will automatically calculate the appropriate sales taxes for your area.
So if you're ever wondering, "Where can I find more information about Shopify and sales tax collection?" just head over to Shopify's website—they've got everything you need to get started.
Commonly Asked Questions
How do I configure sales tax in Shopify?
Select the applicable tax location by going to Settings > Taxes. Integrating a tax app with Shopify can help you make sure you are collecting the necessary amounts for each state if you are selling in the U.S. across numerous states.
Is a sales tax license required in order to sell on Shopify?
Before you may collect and send sales tax to Shopify, you must apply for a sales tax permit. Locate the states that are part of your nexus and register there. Then you may modify your store's settings to charge sales tax on your purchases.
Does Shopify levy a VAT fee?
If you conduct business with the UK or Europe, you must also review the VAT and sales tax regulations in each region. They will each have their own criteria and tax software that can assist you in determining the appropriate charges to make and payments to make.
Conclusion
Fortunately, Shopify has a great support team that can help you with any questions. They also provide helpful guides that explain the fundamentals of sales tax on their website.
Therefore, if you're thinking about beginning a business on Shopify, do your study on sales tax before you launch. Although it's not as difficult as it seems, you must first grasp the fundamentals before you can begin selling. It's critical for business owners to grasp the fundamentals of sales tax. This way, you can ensure you are collecting and paying taxes correctly.
There are a few other things business owners should know about Shopify and sales tax collection, which we cover in our other blogs. Unloop is here to assist you with your taxes and other financial issues.
Don't be afraid to seek outside assistance if you need it, but don't sell yourself short. Concentrate on what you ought to be doing—managing your small business—and book a call with us today!