If you’re a new Shopify merchant, you may notice something odd during your first sale. The itemized transaction will have the total price of your product but no taxes. If your business has a physical presence in a state with sales tax, that’s a concern. That can leave you pondering, “Why isn’t my Shopify store charging taxes?”
By default, Shopify does not set up your taxes for you. They also do not file or remit your sales taxes. It’s up to you to register your business with your local tax authority. From there, you’ll have to determine what you need to charge in sales tax.
The good news is that you can set up Shopify to handle standard sales tax calculations. Yet, you need to enable this feature in your settings first.
If you want to learn everything you need to know about adding sales tax to Shopify, you’re in the right place. Read on to find out if you need to start charging taxes on your e-commerce store products.
Determine if You Need to Charge Sales Tax
Not every state requires businesses to charge sales tax. Currently, Washington D.C. and 45 states require sales taxes. Not only that, but you only have to charge sales tax in these states if you have ‘sales tax nexus.’ What’s that? It means that you have a significant business presence in that state.
Requirements for sales tax nexus include:
- A physical office in the state
- Affiliates operating in the state
- Storing physical inventory
- Dropshipping from 3rd party providers in the state
- Doing temporary physical business in a state, such as at a trade show
If you have no physical presence in the state and don’t manage inventory, you may not have to charge sales tax. That brings us to our next point.
Double Check with Local Tax Authorities
It’s crucial not to guess whether or not you have to charge sales tax. To make sure, you should check with your local tax authority. They will have all the official answers for all your tax-related inquiries.
If they find that you need to charge sales tax, you’ll need to register your business with the tax agency. Only after you’re registered should you start charging taxes on Shopify. Next, you’ll learn how to set up sales tax through the e-commerce platform properly.
Setting Up Taxes On Shopify
Remember, Shopify will not charge taxes by default. You need to set up the proper sales tax for your state through your Shopify admin first.
There are some integral steps that you need to take to set up taxes on Shopify. First, you’ll need to configure the country’s tax rate. Here’s what you’ll need to do:
- Go to Settings > Taxes in your Shopify store admin.
- Select the country that your business operates in, and then enter the tax rate. Shopify has default country tax rates, but you can change them if they’re incorrect.
Next, you’ll need to specify the regions where you’re registered to collect tax. To do so, follow these steps:
- Go to Settings > Taxes.
- Under Tax Regions beside the United States, select Set-Up.
- Click Collect Sales Tax under the Sales Tax Collection section. Pick the state that you’re registered in to collect sales tax.
- Under Sales Tax ID, enter the unique ID your local tax authority gave you. If you’ve applied for an ID but have yet to receive it, you can leave this field blank for now. Don’t forget to go back in and enter your ID as soon as you receive it.
- Select Start Collecting Sales Tax.
Now, your Shopify store is officially set up to collect sales tax for your state. Shopify uses default rates for each state, so double-check that they’re correct. You can override these defaults if you find that the rate isn’t correct.
Also, certain states require businesses to charge taxes on shipping. That applies if you live in one of these states:
If you need to charge shipping tax, you can also set that up through Shopify. Here’s how:
- Under Taxes, click on Advanced Options.
- Under Shipping Tax, click Apply.
Now your Shopify store will charge both sales and shipping tax. Of course, it’s essential to double-check with your local tax authority to confirm that you need to charge shipping tax.
Creating Tax Overrides
By now, you should know the answer to the question, “Why isn’t my Shopify store charging taxes?”
Shopify does not charge taxes by default for lots of reasons. For one, Shopify has no clue where you’re located. Different countries, states, and regions all have different tax rates.
Taxes are something that you need to set up and closely monitor through Shopify. Yet, the platform has many tools to help you make charging taxes as pain-free as possible.
Tax overrides are another feature you can use to make sure that you always charge the correct rates. Sometimes, you’ll find that the standard sales tax rates don’t apply to certain items.
An example would be selling an entirely digital product. In general, digital products are exempt from taxes.
Also, some types of children’s clothing may have lower tax rates. The same is true for certain types of medical devices and food products.
In these particular cases, you’ll need to set up a tax override through Shopify. It will allow you to enter exemptions and special rates for products. Here’s how to create an override:
- From the Shopify admin, go to Products > Collections.
- Select Create Collection, and give it a unique name.
- Under Collection Type, select Manual.
- Add all the exempt or lowered rate products to the collection.
- Click Save Collection.
- Go to Settings > Taxes.
- Under Tax Regions, click Edit beside your country.
- Under Tax Overrides, select Add a Product Override.
- Select your Collection.
- Select the region for your override.
- Enter the special tax rate or exemption for that region.
- Click Save.
Once you’re done, all your unique products will have new tax rates or exemptions. Shopify allows you to make sure you’re charging the correct tax rates with all these helpful tools.
Why is My Shopify Store Not Charging Taxes? ( quick video )
If you’ve asked yourself, “Why is my Shopify store not charging taxes,” then you should know the answer now. It’s something too complicated to automate for every store. Luckily, Shopify has a lot of tools to help you set up taxes for your unique location. Once your taxes are enabled, you won’t have to worry about them again.
For more great content to help you develop your Shopify strategies, check out the rest of the merchant posts on the site. If you want to see a list of our top recommended Shopify apps visit this link here.