Does Shopify collect sales tax for you? Yes, it calculates and collects sales tax from your customers at checkout. However, it does not remit those taxes to the government on your behalf.
Shopify’s automated system determines the correct sales tax rate based on your customer’s shipping address and applies it to each transaction, making the collection process straightforward.This guide explains how to identify where you owe sales tax (nexus), set up Shopify Tax, and understand the difference between collecting and remitting sales tax to help you stay compliant with state and local regulations. By the end, you’ll have a clear understanding of your responsibilities and the tools available to help you manage sales tax effectively.
Does Shopify Collect Sales Tax?
Shopify serves as the platform that automates sales tax calculations and collection at checkout, but it is the taxing authorities, such as state and local governments, that set the rules and receive the remitted taxes.
As the “merchant of record,” the seller is ultimately responsible for tax compliance, including registering for permits, filing returns, and remitting collected taxes. However, as of 2026, Shopify Tax is a comprehensive service that includes Shopify Tax Automated Filing as an integrated feature for eligible U.S. states. This facilitates both the filing and remittance of collected sales tax on your behalf, streamlining compliance and reducing manual effort.Shopify Tax vs. Manual Tax
When managing sales tax on Shopify in the U.S., merchants can choose between Shopify Tax (Shopify’s automated tax solution) and a manual tax setup. Here’s how they compare:- Shopify Tax: Shopify’s automated tax engine for U.S. merchants, offering advanced features like smart product categorization, address-level rate accuracy, and automated filing in supported states.
- Manual Tax: Merchants manually configure tax rates and rules for each state and locality, update rates as laws change, and handle all compliance steps without automation.
The right choice depends on your store’s size, complexity, and desire for automation. Here’s a side-by-side comparison:
| FEATURE | Shopify Tax (Automated) | Manual Tax Setup |
| Tax Rate Calculation | Automated, rooftop-level accuracy | Manual entry, zip code, or state |
| Product Tax Categorization | Automated, with guidance | Manual, must research categories |
| Rate Updates | Shopify updates rates automatically | Merchant must update rates |
| Reporting Tools | Enhanced, exportable reports | Basic, manual reconciliation |
| Automated Filing & Remittance | Integrated in eligible states | Not available |
| Compliance Risk | Lower, due to automation | Higher, due to manual processes |
| Filing Fee | $75 per return ($50 for Plus) | Varies by state; typically free if self-filed |
| Pricing | Transaction-based (no subscription) | Free |
| Best For | Growing/multi-state U.S. merchants | Small, single-state merchants |
Understanding Sales Tax Nexus: When Are You Required to Collect
While Shopify makes it easier to calculate taxes, understanding sales tax nexus ensures you know where you must collect tax. Various factors establish nexus, such as having a physical presence, employees, or economic activity in a state.Physical Nexus
A physical nexus is established when your business has a tangible presence in a state, such as an office, warehouse, or employees, creating a legal obligation to collect and remit sales tax in that state. Consequently, this requires compliance with local sales tax laws.Economic Nexus
An economic nexus ensures you know where you must collect tax. Various factors establish nexus, such as having a physical presence, employees, or economic activity in a state. Currently, most states, including California, New York, Texas, and Illinois, base their economic nexus solely on sales volume and no longer consider the number of transactions. Now, their economic nexus is typically based solely on sales volume, often $100,000 or $500,000 in annual sales, regardless of physical presence. Always check each state’s current requirements, as thresholds and rules can change.Tracking exposure inside Shopify
To help sellers monitor their tax obligations, Shopify provides a liability tracker tool that highlights where your business is approaching or has crossed nexus thresholds. This automatically reviews your Shopify sales data, and highlights states where you have either reached or are approaching nexus thresholds, displaying statuses such as:- Monitoring: If you have reached 80% of a state’s threshold.
- Action Required: If you have crossed the threshold and must register to collect tax.
Step-by-Step: How To Configure Shopify For Tax Collection
Before you can legally collect sales tax from customers, you must register for sales tax permit with each state where you have established nexus. Collecting sales tax without a valid permit is prohibited and can result in penalties. The registration process typically involves applying through the state’s Department of Revenue, providing business details, and receiving a permit number. After that, you can begin setting up your Shopify account.- From your Shopify admin, go to Settings > Taxes and duties.
- In the Manage sales tax collection section, click your country or region.
- Click Collect sales tax.
- In the Tax number, enter your tax number. If you have applied for a tax number, but don’t have one yet, then leave this field blank. You can update it when you receive your number.
- Click Collect tax.
- Optional: To add more regions and account numbers, click Collect sales tax.
Managing Overrides and Exemptions
Overrides are where brands either get very precise or very confused. Common override needs include tax-exempt products, reduced rates, and differences in shipping taxability by state. For B2B sales and exemption claims, Shopify Tax now offers an integrated exemption feature. Sellers can now upload and manage exemption certificates directly within the customer profile in the Shopify admin, streamlining compliance and recordkeeping. While Shopify can improve the transaction experience, maintaining accurate exemption records in the platform is essential for audit defense.Setting Up International Taxes
If you sell to customers outside the United States, you may need to collect and remit international taxes such as VAT (Value Added Tax). Shopify provides tools to help you configure these taxes for different countries, ensuring you meet global tax obligations. Be sure to research the requirements for each country you sell to, as international tax laws can vary widely.Shopify Collection vs. Remittance
A common misconception among Shopify merchants is that Shopify handles the entire sales tax process, including sending the collected tax to the state. In reality, Shopify only calculates and collects the tax at checkout, then deposits those funds (along with your order proceeds) into your bank account. The responsibility for filing sales tax returns and remitting payment to the state remains entirely with you, the merchant. A simple flow looks like this:
However, the gap between collection and remittance is bridged with the Shopify Tax Automatic Filing feature. For eligible U.S. states, Shopify can now facilitate the remittance process, effectively taking the funds and filing the returns for you.
Shop Channel Orders: Limited Remittance Scope
Currently, Shopify automatically collects and remits sales tax for all U.S. orders placed within the Shop app marketplace. However, this automatic remittance does not apply to Shop Pay checkouts on your own website, but only orders made directly through the Shop App are covered. If you sell across multiple channels, be sure to document which channel is responsible for remitting tax and reconcile accordingly.Shopify Tax: Is It Worth It?
Shopify Tax is designed to minimize manual work and reduce the risk of costly errors, especially as your business grows and tax complexity increases. Key features that set Shopify Tax apart include:- Smart Tax Categorization: Automatically applies the correct tax rates to different product categories, such as clothing, digital goods, or other items, helping you avoid misclassification and compliance issues.
- Address Validation: Calculates sales tax based on precise rooftop locations rather than just zip codes, ensuring more accurate rates and reducing the risk of under- or over-collection in states with complex local tax rules.
- Enhanced Reporting: Offers improved reporting tools that make it easier to export detailed tax reports for reconciliation and tax season, streamlining your accounting workflow.
Common Pitfalls Sellers Should Avoid
Most sales tax issues do not come from “Shopify calculated the wrong rate.” They come from process gaps around registration timing, product taxability, and filing discipline. A few recurring pitfalls are:- Collecting without a permit: Turning on collection before registration can create problems with the state.
- Marketplace confusion: Amazon may remit on marketplace orders; your Shopify storefront generally does not.
- State nexus assumptions: a state you did not owe last year may become a requirement after a few months of growth.
- Product miscoding: taxability varies for apparel, groceries, supplements, and digital items.
- Missed filings: Many states require a return even when you had no sales during the period.