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How To Get Sales Tax ID For Shopify?

You can obtain a sales tax ID for your Shopify store by registering with the relevant state sales tax authority for sales tax. In the US, the Departments of Revenue for various states are responsible for registering merchants for sales tax and issuing sales tax IDs in return.

If you have reached a nexus with a particular state and are obligated to collect sales tax from your customers in that state, you as a Shopify store owner will need to register with that state’s sales tax authority and obtain a seller’s permit as well as the sales tax ID.

Remember, you will be able to charge sales tax on your customer orders in that state only if you are registered with the state sales tax authority and have obtained a sales tax ID for that state.

Also, the amount of sales tax you charge would vary across states depending upon the state’s sales tax laws and regulations. You will require a sales tax ID to set up taxes for your Shopify store.

In this article, we will tell you everything, right from what is sales tax ID, if you need sales tax ID for Shopify to how to get sales tax ID for Shopify.

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What Is Sales Tax ID?

A Sales Tax ID is a unique number issued to a business that wants to sell goods or products within a specific state in the US by that state’s sales tax authority. It is issued after a business registers with the state’s sales tax authority to collect sales tax from customers in that state.

Each state has its own sales tax laws and every state requires a business to obtain the State sales tax ID if it wants to sell goods or products and collect sales tax within that state. The state sales tax ID authorizes a business to charge and collect sales tax on the goods sold by it to customers in that state.

Further, the sales tax ID is called by different names across the states in the US. Accordingly, the state sales tax ID may also be called by the following names.

  • Sales Tax Permit
  • Reseller Permit
  • Reseller Certificate
  • Reseller Tax ID
  • Sales Tax Registration
  • Certificate of Authority
  • State Tax ID Number
  • Sales Tax Exemption Certificate

Additionally, there are various types of sales tax licenses that states can issue. For instance, a standard sales tax license, a wholesale sales tax license, temporary seller permits for selling products for a few days, etc.

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How To Get Sales Tax ID For Shopify?

There are a few steps involved in applying for the sales tax ID for a state. As stated earlier, each state has its own sales tax rules and sales tax authorities resulting in a variation in the amount of tax charged, the application forms for sales tax registration, the sales tax license fee, etc.

That is why, you as a business entity will have to refer to the state sales tax authority website for the state/states for which you want to obtain a sales tax ID for your Shopify store. However, the basic process remains the same.

1. See If You Have To Get A Seller’s ID For Shopify

The first thing in getting a sales tax ID for Shopify is to check if you need a seller’s ID for your Shopify store. Ideally, you will have to register with a state and obtain a seller’s ID for your Shopify store if you reach a nexus with that state. Reaching a nexus (physical and economic nexus) can have different meanings in different states.

A. What Is Nexus?

Nexus means a connection between a state’s sales tax authority and a business entity. Each state has its definition of nexus basis which requires merchants to collect sales tax on merchandise sold to customers in that state. Nexus is of two types including physical and economic nexus.

i. Physical Nexus

A business entity has a physical nexus with a state when it maintains a place of business in that state. This could include a store, a warehouse, or an office, and sells tangible personal property or services to customers within that state. As mentioned earlier, what constitutes physical nexus and taxable tangible personal property and services vary from state to state.

For instance, your business is in a physical nexus with New York City if you:

  • have a place of business in New York City that could include a store, a warehouse, or an office from where you sell tangible personal property and services to customers within New York City
  • undertake business through employees, agents, independent contractors, and other representatives who sell personal tangible property and services within New York City on your behalf
  • undertake business and sell tangible personal property via catalog and additional marketing material and have further connection with the state
  • sell taxable goods in New York City and frequently deliver these goods (a minimum of 12 times) in a year in your vehicle

Want to know more about obtaining a sales tax ID in New York City?

Read: New York Sales Tax 2023 For Businesses: A Complete Guide

Similarly, businesses organized or domiciled in Alabama have a physical nexus with the state and are liable to charge sales tax from customers on goods sold.

ii. Economic Nexus

You reach an economic nexus with a state when you are not physically located within the state but meet the sale threshold set by that state for selling tangible personal property and services to customers within that state. Remember, each state will have its laws for economic nexus. Therefore, you need to check with the state’s sales tax authority to know more about the economic nexus rules.

For instance, you are in an economic nexus with New York City if you sell tangible personal property and services to customers within the state and meet the following conditions:

  • for the immediately preceding four sales tax quarters, your cumulative gross receipts from sales of tangible personal property in New York City exceeds $500,000 and
  • you made more than 100 sales of tangible personal property in New York City

Likewise, if a business is not commercially organized or domiciled in the state of Alabama, then the business needs to see if it has a factor presence determining the economic nexus of the business with Alabama.

Accordingly, for the tax years beginning or after January 1, 2022, a business has an economic nexus with Alabama if it has the following in the state of Alabama:

  • $60,000 of property
  • $60,000 of payroll
  • $596,000 of sales
  • 25% of total property, total payroll, or total sales

Is your Shopify store selling goods to customers in Alabama? Want to know more about state sales tax for Alabama?

Read: Alabama Sales Tax 2023 For Businesses: A Complete Guide

Also, to understand in detail how physical and economic nexus and how sales tax works in the US for you as a Shopify store owner, read the following blog posts.

Read :

2. Go Through The Sales Tax ID Application Checklist

Once you have determined that you are required by the state tax laws to register for sales tax, charge sales tax from customers, and remit the sales tax to the state sales tax authority, the next step is to go through the list of things you’ll need to keep handy to apply for the sales tax license for that state.

Again, the documents you will need for state sales tax application will vary from state to state. Therefore, you will have to check with the website of the state sales tax authority website for state sales tax license application. For instance, the following are the things you will need to apply for a sales tax license in New York City.

  • A business account with NY.gov
  • Reason for application – like starting a business, updating sales tax account, etc
  • Business contact information – like legal name, federal employer identification number, address, phone number, email ID
  • Type of Entity – sole proprietor, partnership, LLP, or corporation
  • Bank account details
  • The date on which you will start doing business for sales tax purposes
  • License numbers are needed in case of certain types of businesses like liquor, lottery, etc
  • Tax preparer information like preparer’s federal EIN, address, phone number, etc if you use a preparer to complete sales tax returns
  • Information about responsible persons and business contacts. This would include name, business title, home address, phone number, ownership, and profit distribution percentage
  • Social Security Number (SSN) of persons responsible
  • Primary business duties of persons responsible, etc.

3. Applying For the Sales Tax ID

Once you have all the details needed to apply for the sales tax ID with a particular state, the next step is to register and apply for your sales tax license. Each state has designated its methods of application for state sales tax ID.

For instance, you first need to have an NY.gov business account to apply for a state sales tax license in New York City. Once you have your NY.gov business account, the next step is to apply for the Certificate of Authority online via New York Business Express. If your application is approved, you will receive your Certificate of Authority on your email ID.

Sales Tax ID Number Example

1. Colorado Sales Tax License Example

How to Get Sales Tax ID for Shopify?

As mentioned earlier, each state has its own state sales tax laws and regulations and the form in which it issues a sales tax license. For instance, Colorado issues a Colorado Account Number (CAN) or sales tax license to businesses that register with the Colorado Department of Revenue to undertake sales and collect sales tax in Colorado.

CAN is the unique 8-digit number that is listed on the sales tax license of a business. It is the first 8 digits of the ‘Use Account Number’ of the business specified on the business’s Colorado state sales tax license. Additionally, most of the Colorado license types are valid for two years and expire at the end of an odd-numbered year.

Does your Shopify store sell to customers in Colorado? Want to know more about how sales tax works in Colorado?

Read:

How To Apply For A Colorado Sales Tax License?

Colorado Sales Tax 2023 For Businesses: A Complete Guide

2. Texas Sales And Use Tax Permit Example

How to Get Sales Tax ID for Shopify?

Similarly, the Texas Comptroller of Public Accounts issues a Taxpayer Number or Sales and Use Tax Permit to businesses that want to sell goods and collect sales tax from customers in Texas. The Texas Sales Tax License Number or the Taxpayer Number is a unique 11-digit number listed on the Texas Sales and Use Tax Permit.

Texas Sales and Use Tax Permit is valid as long as the business is active and is renewed automatically each year by the Texas Comptroller of Public Accounts.

Do you have a Shopify store selling in Texas? Want to know more about sales tax for the state of Texas?

Read: Texas Sales Tax 2023 For Businesses: A Complete Guide

Is Sales Tax ID Same As EIN?

No sales Sales Tax ID is not the same as EIN. Let’s look at the following table to know the differences between the two.

S.No. Basis Sales Tax ID EID
Definition Sales Tax ID number is a unique number issued by a state’s sales tax authority to entities who want to sell to customers in that state and charge sales tax from such customers. 

Each state has its own state sales tax laws and rules as well as sales tax rates to be charged on goods sold. 

Employment Identification Number (EID) is your federal tax ID. If you are a business and you undertake the following activities, you need an EID for your business. 

  • Have employees and pay them 
  • Operate a business, corporation, or partnership
  • Withhold taxes on income, other than wages, to a non-resident alien
  • File tax returns for employment, alcohol, tobacco, excise, and firearms
  • Have a Keogh plan
  • Involved in certain types of organizations like trusts, estates, non-profit organizations, etc. 
Need You need a sales tax ID if a state’s sales tax authority requires you to collect sales tax from customers for goods sold.  You need EID to run a business and hire employees, open bank accounts, pay your federal taxes, and obtain various types of business licenses and permits 
Cost The cost to obtain a state sales tax ID varies from state to state.  Getting your EIN is free
4.  Registration You have to register with the state’s sales tax authority and apply for the state sales tax ID. The Internal Revenue Service (IRS) issues the EIN. There are various ways you can apply for EIN including online, fax, mail, and telephone. Check the IRS website to know how to apply for EIN. 

How Much Does It Cost To Get A Sales Tax ID?

Since each state has its own sales tax rules, the cost of obtaining a sales tax ID varies across every state.

For instance, the following is the cost to obtain various types of sales tax licenses in the state of Colorado.

If you are applying for a new account, you will have to deposit $50 together with a sales tax license fee. The sales tax license fee varies depending upon the time of the year when you apply for the sales tax license. For example, the sales tax license fee from July through December 2023 was $4.

Thus, a total of $54 would have to be deposited to apply for a single new sales tax account. However, the $50 deposit amount will be automatically refunded once you as a business collect and pay $50 toward the Colorado state sales tax.

Accordingly, you will have to visit the state sales tax authority website for the state/states for which you want to apply sales tax license to know the cost of a sales tax license.

FAQs

1. Do I Need To Charge Tax On Shopify?

To know if you need to charge sales tax on your Shopify orders, you must first determine if you are obligated to collect sales tax from customers in that state. Check the physical and economic nexus thresholds set by the state where you want to sell goods and charge sales tax from customers. If you meet the nexus thresholds, you are required to charge sales tax on your Shopify orders and remit the same to the state sales tax authority.

2. Do I Have To Get A Seller’s ID For Shopify?

If you reach a nexus with a state and are required to collect sales tax from customers for goods sold in that state, you need a seller’s ID for your Shopify store. Check the state sales tax rules where you want to undertake sales to know when you should get a seller’s ID to collect sales tax from customers on goods sold in the state.

3. How To Set Up Taxes On Shopify?

Setting up taxes on Shopify is very easy. You must first determine if you are obligated to collect sales tax in the state you are selling goods. If yes, you must obtain a state sales tax ID and fill the same in the ‘Taxes and Duties’ section under ‘Settings’ in your Shopify admin. Read our article ‘How To Set Up Taxes On Shopify’ to know the step-by-step process of setting up taxes in Shopify.

Want Help With Shopify Taxes And Accounting?

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