When you start to set up your sales tax settings in your Shopify store, it’s common to pause and wonder if you’re doing everything right. This guide will help Shopify sellers determine in which states to collect sales tax.
Sales Tax Nexus Explained
In the U.S., due to the precedent set by the Quill v. North Dakota Supreme Court ruling, online sellers and other retailers are only required to collect sales tax from buyers in states where they have sales tax nexus. Sales tax nexus is just a legalese say to say “significant presence” in a state. In the U.S., states make their own sales tax rules and laws, and every state is slightly different. In general, though, these factors create sales tax nexus for businesses:
- A location – An office (even at home office at the kitchen table,) store, warehouse, factory or other location
- Personnel – Employees, salespeople, contractors, installers or other personnel
- Inventory – Inventory stored for sale in a state
- A drop shipping relationship
- An affiliate – Someone who sends sales to your store in exchange for a small cut of the proceeds creates nexus in some states. This is also known as “click-through nexus.”
- Temporary business activities – In some states, making sales temporarily at trade shows or craft fairs creates nexus.
You can read what every state has to say about sales tax nexus here. If you do have nexus in a state, your next step is to register for a sales tax permit in that state.
You can read more about setting up your Shopify tax settings in our Sales Tax Guide for Shopify Sellers.
Sales Tax Nexus for Multi-Channel Shopify Sellers
New companies often only have sales tax nexus in a single state – the state where the company is based. But as your business grows, certain business activities can cause you to have sales tax nexus in other states. You may hire employees in different states, or store items in a warehouse on the other coast so you can enjoy faster shipping times. Both of these activities will ilkely create sales tax nexus for your business.
Using 3rd party fulfillment services like Amazon FBA can create nexus in many states.
Shopify and Amazon FBA: Where do you have sales tax nexus?
Shopify has made it incredibly easy to store your inventory and fulfill your orders with Amazon’s vast fulfillment network.
Working with Amazon FBA, however, also creates sales tax nexus in the states where your inventory is stored. (This is with the key exceptions of Virginia and New York, which have both ruled that only using a 3rd party fulfillment service in the state doesn’t create sales tax nexus for sellers.)
Once you begin using Amazon FBA with your Shopify store, you may find that you soon have nexus in ten or more states. Going from collecting and filing sales tax in one state to ten or more can be a system shock!
Here are some guidelines to keep from becoming totally overwhelmed:
- Determine in which states your inventory is being stored – You can do this by pulling your Inventory Event Detail report from Amazon or by signing up for a 30-day free trial of TaxJar
- Read our guide on when to register for a sales tax permit – This guide will help you balance your appetite with risk with a balanced strategy for getting your sales tax registrations in place.
- Register for sales tax permits – You can register yourself following the guidelines in our How to Register for a Sales Tax Permit series, or sign up here to consult with a sales tax expert who you register for you
- Be sure you’re collecting sales tax correctly – Once you are registered to collect sales tax in a state, be sure you are collecting sales tax on all of your sales in that state. This includes sales you make on all the eCommerce channels on which you sell. Check out our Getting Started Guides for more on how to collect sales tax on the major online shopping carts and marketplaces.
How to Handle Sales Tax Nexus in Multiple States
Aside from making sure you collect sales tax correctly, there are a few other considerations you should take into account when collecting sales tax in multiple states and on multiple sales channels.
- Know your sales tax due dates – When you register for a sales tax permit, the state will assign you a sales tax filing frequency. This is generally monthly, quarterly or annually. Also, in a majority of states, sales tax is due on the 20th of the month after the filing period, but that isn’t across the board by any means. Be sure to keep track of your sales tax filing due dates in every state. (If you sign up for TaxJar, we’ll send you reminders of your sales tax filing due dates each month.)
- File zero returns – Be sure to file a sales tax return even if you didn’t collect any sales tax over the filing period. States consider sales tax filing a “check in” even if you don’t have any collect tax to remit. Some states even fine you for failing to file a zero return! Don’t risk it – file by every due date, even if you didn’t collect any tax.
We hope this guide has helped you understand sales tax nexus as a Shopify seller. For a whole lot more about sales tax, check out our Sales Tax Guide for Shopify Sellers. Have questions or something to say? Start the conversation in the comments!