Determine Whether You Need To Charge Sales Tax
You need to determine whether you should charge sales tax. If you’re not sure, then consult with a local tax accountant or other tax specialist, as well as with provincial and federal tax agencies.
In general, Canadian merchants need to register for a GST/HST account if both of the following are true:
- You sell or lease taxable products or services.
- Your worldwide revenue is more than 30,000 CAD over the past four consecutive calendar quarters.
If your store is not based in Canada, then generally you need to register for a GST/HST account if both of the following are true:
- You sell taxable products or services to customers in Canada, and fulfill those orders from a warehouse located in Canada.
- Your revenue from taxable orders in Canada is more than 30,000 CAD over the past twelve months.
If either of the preceding cases applies to you, then you might need to collect taxes on your sales, remit those taxes to the appropriate tax authority, and file regular reports with the tax authority. If your sales are lower than the threshold, then you don’t need to register for a GST/HST account, and you don’t need to collect or remit taxes.
If you charge GST/HST, then you must register for a GST/HST account. Before charging tax on your products, ensure that you have entered a tax number for Canada. If your store uses location-based taxes, then follow these steps to enter your tax number for Canada instead.
For a summary of Canadian tax rules, refer to Canadian taxes reference.
Figure Out Where You Need To Collect Tax
This will involve researching each states requirements, then estimating based on current and previous sales records whether youre likely to meet their nexus thresholds.
Dont forget that physical nexus hasnt gone away. If you use Shopify Fulfillment Network, youll need to know the locations of the warehouses theyre shipping your merchandise from. Youll need to report taxes in each of those states.
How To Remove Powered By Shopify From My Store
To remove Powered by Shopify from your store, follow these steps:
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Shopify Sellers Need To Track The Economic Nexus Threshold Of 200 Transactions In 27 States
Everyone has concluded it is much easier to collect and remit when you pass the notice and reporting state threshold. The challenge is if you dont know these different notice and reporting requirements in 16 states now, you may be subject to heavy fines, up to $20K in some states. Although most states are being cooperative with sellers and lenient with these fines , we dont recommend you press your luck as these fines are real.
Shopify sellers must be aware of these thresholds and track your taxable sales and transaction in each state and month to determine when you first triggered nexus in a state. In most cases, once you trigger nexus in a state, it is up to you to determine when you want to get registered with a sales tax permit.
Once you have a sales tax permit, you may turn on your sales tax settings in Shopify and collect sales tax in the states where you have nexus. Several remitting companies will automate the process to remit or give back the states sales tax.
Selling on Shopifys Fulfillment Network?;Your inventory stored in this network creates physical nexus in those states. This creates sales tax nexus and a sales tax liability for your Shopify business.
How To Fill Your Us Taxes For Your Shopify Store
Taxes in the United States are based on nexus, origin, and destination.;
A nexus is a connection between your business and the state. A nexus gets established when you have a physical presence such as a storefront or warehouse in a particular state. Certain states also consider fulfillment centers or the presence of inventory as a nexus as well.;
The majority of states require taxes to be paid on a destination basis, meaning taxes must be paid in the state where products are delivered. Other states have origin-based tax laws, meaning sales tax must be paid in the state where the merchant is located.;
The easiest way to manage your US taxes is by setting up automatic tax rates. Heres how you do it:
Step #1: Navigate to the Taxes option of your Settings page.
Step #2: Scroll until you see United States and click Edit .
Step #3: Click Calculate Taxes Automatically.
Step #4: Add states where you have a nexus .
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Best Practices For Setting Up Shopify Sales Tax
Once youve set up taxes and have a reporting and filing system in place, there are still a few best practices to keep in mind to ensure youre following the rules of the states and cities you sell in. And dont forget, managing the customer experience is part of managing your sales tax as well. Setting up your shop properly takes time and accuracy, and customers need to have a seamless experience so they come back again:
- Include a physical location for your store even if you only sell products online. Shopify requires this information to help with destination-basis and origin-basis tax calculations.
- Confirm which forms you need to file your taxes. Ask your state government once you have your sales tax permit. Forms differ based on whether youre a sole proprietor, partnership, or corporation.
- Add sales tax as a separate line item at checkout to make it clear to customers what theyve been charged. Also, if your state requires it, charge tax on shipping.
- Set up tax overrides to only collect tax on taxable items. For example, New York considers clothing sold for less than $110 non-taxable.
- Use robust software to scale your business.Avalara AvaTax is available to sellers on the Shopify Plus plan and is more powerful than Shopifys built-in tax tracking and calculation feature. It offers real-time reporting using tax rates from over 12,000 taxing jurisdictions and makes it easy to collect value-added tax from customers in EU countries.
Set Up Automatic Tax Rates For Physical Nexus
Next, you need to set up Shopify to automatically calculate the tax rates for the shipping zones located in your physical nexus. To do this, go to Settings >Taxes and complete the following sections.
Select whether taxes are included in your prices and if you want to apply taxes to your shipping rates. If you have presence in states with different rules on shipping rate taxation, you can set up a manual override once you have completed the tax rates section below.
Select the United States and tick the box to enable automatic tax calculation. Under Country, municipal, and state taxes section, add all the states that you have a physical presence in, along with the zip codes. For example, an office, warehouse, or other facilities.
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There Are Two Kinds Of Sales Tax
The states you operate in will also tell you whether you have to calculate taxes on a destination-basis or an origin-basis. Heres how they work:
Destination-basis: Shopify sales tax is calculated based on where each of your customers is located. If you have nexus in an origin-basis state like Ohio, and you sell products to a customer in Utah, sales tax is based on Ohios tax rate.
Origin-basis: Shopify sales tax is calculated based on where youre located. If youre in a destination-basis state like Michigan and sell products to a customer in Maine, sales tax is based on Maines tax rate.
The following states use an origin-basis tax system:
This is a lot of information to keep track of, but, fortunately, Shopify takes a lot of the guesswork out of setting up and collecting sales tax. This way, you have confidence that youre collecting sales tax legally and correctly.
The Best Seo Practices For Shopify Stores
Another effective way of making sales on Shopify is to optimize your SEO. This can be done in a few different ways, such as:
Optimizing your website structure
A clear website structure goes a long way to helping both Google and customers better understand your website.;
Easy navigation will encourage shoppers to spend more time on your website, whilst a simple design helps search engines crawl through your pages.
;Try to ensure it only takes 2-4 clicks to reach specific items. An example of this could be to have a homepage that leads you to categories and then product pages from there.
Creating a good website experience
Another factor that can help your SEO is to create a positive website experience.
You should try to avoid clutter as it makes it difficult for customers to find their way around your site.
Conducting effective keyword research and targeting
Keyword research and targeting are the most significant part of SEO. To create the perfect product pages to draw customers in, you need to use the perfect language.
You can find the ideal wording for your titles and descriptions by doing keyword research.;
Research can be done through various free and paid keyword research tools. You can also try putting yourself in your buyers shoes, and then creating buyer personas from what you find out.
This will help to give you a better idea of what your customers are searching for.
Creating perfect product pages
Using content and social media marketing
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How To Demand Higher Rates
Just because the clients that come to you today wont pay your higher rate, doesnt mean clients who will dont exist. There will be customers out there who are willing to pay your higher rate; its just a matter of attracting them. In my experience, there are three different ways you can do this.
Of course, all of this will take time. Its not going to happen overnight. You will have to gradually increase your rates for new customers, as you adjust your business. By even increasing your rate fractionally it will free up some of those weekends and evenings to start moving your business in a different direction. A path that will allow you to increase your rates further.
How To Setup To Collect Sales Tax In Shopify
Setting up your Shopify store to accurately collect sales tax can be more complicated than anticipated. But here are the basic steps we suggest you go through:
Lets dive into each with screenshots and explanations. You can also view our walk-through of these steps in our YouTube video Shopify sales tax setup for stress-free compliance | Walk-through guide.
Tell Shopify where to collect sales tax
First, you need to tell Shopify in what states it should collect sales tax from customers. As referenced above, you should always start with the state your business is located .
On the home page, click Settings, then Taxes:
Then find the United States and click the button Set up or Edit :
Finally, enter in any states where you should be collecting sales tax due to a physical or economic presence. Depending on your Shopify version, you may need to enter your sales tax permit, instead of your zip code:
Setup your sales tax shipping options
Now, you need to make sure that you collect taxes on shipping rates. Go back to Settings and Taxes. Down at the bottom you will see a Tax calculations section. Select the box that says, Charge tax on shipping rates:
Tell Shopify which products should collect sales tax
Add warehouse locations
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How To Increase Your Rates The Right Way
There are two factors to consider if you are thinking about raising your rates. First, you don’t have to do it overnight, and second, you don’t have to charge everybody the same price.
Before you implement a new rate, test it out to see whether its feasible. Start by only considering a higher rate with new customers. Also, if youre uncertain, only quote the higher rate with new clients who you wouldn’t mind losing. You know, those projects where youre unsure whether theyre worth pitching for at all.
Once you’re a little more confident with the rate, its time to roll it out to all new customers. Meanwhile, contact your existing clients and tell them that you have increased your rate, but that because of their loyalty, you will not put up their rate for another six months.
That gives them time to adjust to the new reality, and encourages them to book work with you sooner rather than later.
However, what do you do if it turns out that even new customers baulk at the higher rate?
File Your Sales Tax Return
Now comes the part where you turn in the sales tax youve collected from buyers to the state or states where you have sales tax nexus.
Most states make it fairly easy to file online. In fact, some states require that you file online or pay a penalty. Check with your individual state on when and how to file.
Dont think youre off the hook if you didnt collect any sales tax over this taxable period. Many states still require that you file what is know as a zero return even if you dont have any sales tax funds to remit to them. A zero return is a sales tax return that just tells the state that you didnt collect sales tax during that taxable period. They basically want you to check in and ensure them that youre still in business. If you forget to file a zero return, you can receive a penalty, just as if you forgot to file and pay.
Speaking of paying, it pays to file your sales tax returns on time. Many states realize that sales tax is a burden and will award merchants a sales tax discount for paying early or on time. Dont leave that money lying on the table.
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Report And File Sales Tax
When they issued your sales tax permit, your state assigned you a sales tax filing frequency.
This means your sales tax due date will roll around either monthly, quarterly or annually
Keep in mind that every states sales tax due dates are slightly different.
Most states want to hear from you on the 20th day of the month after the taxable period, but others want to hear from you on the last day of the month, or the 15th, or the 23rd, etc.
When your due date rolls around, your job is to report how much sales tax youve collected in each state.
If the state just wanted to see one number, your job would be easy.
But to complicate matters, most states want to know how much sales tax you collected from buyers in each taxing jurisdiction.
This means figuring out how much sales tax you collected in each state, city, county and other special taxing jurisdiction in all of your nexus states.
This process becomes especially painful if you sell on multiple channels, and have to attempt to integrate more than one sales tax report.
Fortunately, we live in a time where ecommerce sales tax software automation technology exists to make this process simple.
TaxJar is one sales tax automation app you can use within the BigCommerce dashboard.
Once youve reported how much sales tax youve collected, your next step is to file your sales tax return and remit the sales tax youve collected from customers.
There are a couple of important considerations here:
Periodic Sales Tax Checkups
You should double-check your sales tax compliance periodically.
Business activities such as hiring an employee in another state, or opening a location in another state, or simply making over a certain amount of sales or making a certain number of sales transactions in a state may mean that you now have sales tax nexus in new states. TaxJars Sales Tax Insights report will warn you if you are about to hit a threshold.
Conversely, you may also close a location or have an employee leave your company, which means that you no longer have nexus in a state.
If your sales tax liability changes, be sure to update your sales tax permits with each state, and also to update your sales tax collection on your various shopping carts and marketplaces.
A periodic review will ensure that you are fully sales tax compliant.
For more information about internet sales tax, you can check with your states department of revenue or a qualified sales tax professional.
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How To Collect Sales Tax On Shopify
Theres no doubt about it, sales tax is getting more complicated for all e-commerce businesses. Ever since the 2018 Supreme Court ruling on South Dakota v. Wayfair, U.S. states have been free to make their own tax nexus rules.
No longer is it just about having a physical presence in the state a store, branch office, employee, or stored inventory in order to trigger nexus. Now more than 40 states have economic nexus which includes any business that sells and delivers taxable merchandise or services into the state. And they each have their own specifications for total annual revenue and/or a number of transactions, as well as types of goods and services being sold, that would make you liable for collecting and remitting sales tax.
That means you could be responsible for sales taxes in 40+ different states, whereas just a few years ago it might have been only one: your home state. Heres how to do it: