California Sales Tax not automatically calculating on Shopify

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Tourist
5 0 1

Hi There, I have been selling wines on Shopify for 1 month now. Our physical presence is in California. I am having an issue with Shopify calculating incorrect sales tax based on destination. As per California BOE law, I must collect State sales tax rate + District sales tax rate. For example my home town's rate is 9% but if I ship to an out of district city, the rate will be different. How do I set that up in Shopify because it is not automatically calcuating this. Shopify is set to only charge the state sales tax rate for all cities outside my district. Which is not correct. All major retailers like Amazon, Lululemon etc... are set up to collect this way. 

Any ideas?

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Shopify Staff (Retired)
Shopify Staff (Retired)
78 0 7

Hi Monica,

Cian here from Shopify. Great tax question!

If you are a merchant with a business that needs to charge tax within the United States, you can enable automatic tax rates in your Shopify admin. Taxes will apply on the county, municipal and state taxes level, depending on your local tax laws. For more information on this see the following link: https://docs.shopify.com/manual/taxes/usa-tax-settings#automatic-tax-rates-use-within-united-states-...

There are special tax rules that apply to California. This is how it would work in practice:

- Sales within the same city and county observe all three taxes (State, City, County).

- Sales to a different city in the same county only pay State and County taxes.

- In the case of a city spanning multiple counties, a sale to a different county in the same city is charged State and City taxes.

- A sale to a different county and a different city in the same state pays only State tax.

Here are two examples below that should help to clarify how the taxes are applied:

Example:

  • Sale from LOS ANGELES city, LOS ANGELES county (California, 90001)
  • Shipping address in MALIBU city, LOS ANGELES county (California, 90263)
  • State and County taxes are charged.

Example:

  • Sale from LOS ANGELES city, LOS ANGELES county (California, 90001)
  • Shipping address in DEATH VALLEY city, INYO county (California, 92328)
  • Only State tax is charged.

I have emailed you directly and I would be happy to look into the taxes that have been applied on any specific orders for you!

All the best!

Cian

 

 

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Tourist
5 0 1

Hello Cian,

Thanks for getting back to me. My settings in Shopify are set up correctly as per the manual. However is there a way to collect destination based sales tax? I would like to collect ALL levels of the sales tax on behalf of the customer and report it to the state of California.  This is the way all major online retailers operate. Please let me know how I can do this.

Thanks,

Monica

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New Member
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I have the same issue. If the product ships outside of my city or county the district tax is not collected. I had a sale of $3,156.86 that was shipping to a city with a  combined tax rate of 10%. However, only the CA tax rate of 7.5% was collected by Shopify. 

I'm still required by the BOE to pay the 10% tax rate.  The California BOE requires we collect the sales tax of the district/city the product is being shipped to. 

How can we resolve this issue so that we do not lose additional money on sales sold outside of our city? 

 

Thanks,

 

Jeff

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New Member
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I have the exact same issue. WIth the automatic selection, I am collecting less taxes then required by the BOE. How do I make sure that couty taxes are also collected in California?

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New Member
5 0 0

I resolved the sales tax question I had, however I am also a vendor in California so would like to see these questions answered. Thanks

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Tourist
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Aparently you are still in compliance if you just collect the sales tax rate for your district. Anything outside of your district you don't need to collect ( it would collect the 7.5% for California only). We called the BOE and they said both ways are fine but really the minimum is to just collect within your district (which is what Shopify does). If you want to collect sales tax rate with each city, district (you will need to manually set up each one) plus it doesn't automatically update when BOE release changes in rate. Hope this helps. 

 

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Tourist
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I just talked with the BOE and some of the information listed above is not accurate.  Also, Shopify does not appear to be collecting the appropriate amount of sales tax for many of the districts in California.

According to the BOE, in addition to the 7.5% State sales tax, individuals purchasing online but living in certain districts must pay an additional amount, ranging from 5-2.5%.  It does not matter where your business is located (except that non-California businesses without any presence in California do not have to charge any sales tax to California residents), the State is only concerned with the district your customer is shipping to.

As stated above, the problem is that Shopify is only collecting the standard 7.5% for all orders regardless of where the person I am shipping to is located.  This means that I am paying an additional 5-2.5% out of my own pocket rather than the system correctly collecting this from my customers.  It appears my only option is to override and collect the full 9.5% (the highest rate) however that would mean I am collecting too much sales tax for many of my customers.

Kate

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New Member
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I am having the same issue- it's July 2016 and what Shopify's tax rates in US are incorrect. 

Shopify, who is your CPA to validate this statement is true?

I have proof of incorrect taxes from the state of California based on the county (zip code).

I am losing money on each order from California because your tax rates are incorrect.

 

 

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New Member
1 0 1

Hi there. I'm also a California Shopify store owner. Just want to let other CA store owners know that I spoke with the BOE today. I was told there are two ways you can file – the way Monica (user in above post) where you don't worry about the District taxes, or the way Kate does (where you DO report all District sales.) Because I don't want to do extra work and figure out the District taxes and figure out how to set that up in Shopify, I decided to go the "don't collect District taxes" route. This way Shopify collects the correct amount of sales tax (7.5%) and I don't have to worry about it. I asked the BOE lady if not reporting the District sales (outside of my County, of course) was okay, and she said that it was. 

I also want to mention that I am a BIG fan of TaxJar. It's an app that works with Shopify to easily help you figure out and file your sales tax. I've found that the Shopify sales tax reports are not accurate. They don't account for refunds and partial refunds (so if you have a refund for a CA order, the report doesn't take off the sales tax amount for that order.) TaxJar just works and it's easy to use and $19/month.

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