🤷 What Shopify Sellers Need to Know About Sales Taxes
If you run a shop on Shopify, you may wonder about sales taxes.
In this article, we’ll give you a basic understanding of sales taxes in the US and how they apply to Shopify sellers.
🤷 What Shopify Sellers Need to Know About Sales Taxes
Sales tax is one of the most important – and complex – aspects of running an online business. Yet, it’s also one of the most commonly overlooked.
As a Shopify seller, it’s important to clearly understand sales tax and how it applies to your business. This article covers everything you need about sales tax, from collecting and remitting taxes to more complex topics like Nexus and Avalara.
❓ What is sales tax?
Sales tax is a tax levied on the sale of goods and services. The tax is calculated as a percentage of the sale price and is collected by the seller at the time of sale. The seller then remits the tax to the appropriate tax authority.
Sales tax is generally imposed at the state level, although some localities may also impose a sales tax. In the United States, the tax rate can vary from state to state and even county to county.
❓ What is Nexus?
The term Nexus describes the connection between a business and a taxing jurisdiction. A business has Nexus in a jurisdiction if it has a physical presence, such as a store, office, or warehouse.
A business may also have Nexus if it has economic Nexus, a connection to a jurisdiction based on economic activity, even if there is no physical presence. For example, a business that sells goods online to customers in a jurisdiction may be considered to have economic Nexus in that jurisdiction.
❓ What is Avalara?
Avalara is a tax compliance software that helps businesses automate collecting and remitting sales tax. Avalara integrates with Shopify to provide real-time sales tax calculations at checkout and streamlined tax reporting and filing.
❓ What else do I need to know about sales tax?
There are a few other things to keep in mind when it comes to sales tax:
Sales tax is generally imposed on the sale of goods and services, but some exceptions exist. For example, in some states, sales tax is not imposed on the sale of food.
The Different Types of Sales Taxes 🤷
Sales taxes are one of the most complicated online business aspects.
There are many different types of sales taxes, and it can be hard to track them all.
- The first type of sales tax is the state sales tax. This is a tax that is charged by the state in which your business is located. The state sales tax rate can vary depending on the state, but generally between 4% and 7%.
- The second type of sales tax is the local sales tax. This is a tax that is charged by the city or county in which your business is located. The local sales tax rate can vary depending on the locality, but generally between 1% and 3%.
- The third type of sales tax is the use tax. The use tax is charged on purchasing goods used in your state. The use tax rate can vary depending on the state but is generally between 4% and 7%.
- The fourth and final type of sales tax is the destination-based sales tax. The destination-based sales tax is a tax that is charged on the purchase of goods that are shipped to another state. The destination-based sales tax rate can vary depending on the state but is generally between 4% and 7%.
As you can see, there are many different types of sales taxes. And as a business owner, it is important to be aware of all of them.
The best way to stay on top of all the different sales taxes is to use sales tax automation software. A sales tax automation software will help you keep track of all the different sales taxes and ensure you are compliant.
If you are looking for sales tax automation software, we recommend TaxJar. TaxJar is the leading sales tax automation software, offering a free trial. Click here to start your free trial of TaxJar.
❔ What Shopify Sellers Need to Know About Sales Taxes in Their State
If you’re a Shopify seller, you need to be aware of the sales tax laws in your state. Depending on where you’re located, you may be required to collect and remit sales tax on your transactions.
Sales tax is a tax levied on the sale of goods and services. In the United States, sales tax is governed by individual state laws so the rules can vary from state to state.
Some states, like Delaware, have no sales tax. Other states, like California, have a statewide sales tax. And still, other states, like Texas, have a combination of statewide and local sales taxes.
As a Shopify seller, you must collect and remit the correct sales tax amount to the appropriate authorities. Failure to do so can result in penalties and interest.
The best way to ensure that you’re complying with the sales tax laws in your state is to use a reliable sales tax automation software like TaxJar. TaxJar will automatically calculate, collect, and remit the correct sales tax amount on your behalf.
If you’re selling products in multiple states, TaxJar can also help you keep track of your sales tax obligations in each state. With TaxJar’s Multi-State Sales Tax Report, you can see how much sales tax you’ve collected in each state and how much you owe.
If you’re not using a sales tax automation software like TaxJar, you must know the laws in each state where you have nexus. Nexus is a legal term that describes a significant presence in a state.
Having Nexus in a state generally means having a physical presence, like an office, warehouse, or store. But it can also mean having employees or contractors in the state or selling products through an online marketplace like Amazon.
If you have Nexus in a state, you must collect and remit sales tax on your transactions there. The best way to determine if you have Nexus in a state is to consult a tax advisor.
Once you know which states you have Nexus in, you need to determine the
🧮 Sales Tax Tips for Shopify Sellers
Sales tax can be confusing and daunting for any business, let alone Shopify sellers who may be new to the online selling world.
However, sales tax is an important part of running a business, and it’s important to understand the basics. The good news is we’re here to help!
Here are Five sales tax tips for Shopify sellers:
1. Know the basics of sales tax 📑
Sales tax is a tax levied on the sale of goods and services. In the United States, sales tax is imposed by state and local governments. The tax rate varies by state but is generally between 4% and 10%.
2. Know which states have sales tax 📑
As of 2018, 45 states and the District of Columbia have a statewide sales tax. The five states that do not have a statewide sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon.
However, even if a state does not have a statewide sales tax, local jurisdictions (cities, counties, and special districts) may still impose their own sales taxes.
3. Know what items are subject to sales tax 📑
In general, most goods and services are subject to sales tax. However, there are some exceptions. Food, prescription drugs, and medical devices are typically exempt from sales tax in the United States.
4. Know how to calculate sales tax 📑
To calculate sales tax, you first need to determine the tax rate. The tax rate is the sum of the state sales tax rate and the local sales tax rate.
To calculate the sales tax due on a purchase, multiply the item’s price by the tax rate. For example, if an item costs $100 and the tax rate is 6%, the sales tax due would be $6.
5. Know when to collect sales tax 📑
Generally, you should collect sales tax from your customers at the time of sale. However, there are some exceptions. For example, in some states, you may not need to collect sales tax on items that will be shipped out of state.
Shopify sellers need to be aware of sales taxes and their implications. Sales taxes must be collected on all sales made in the state where the business is located, and Shopify sellers must register with the state to do so.
Additionally, Shopify sellers should know which states have sales tax holidays, as they can take advantage of tax-free shopping on specific items.