Charging the correct amount of sales tax for economic nexus (Wayfair)

Excursionist
13 0 4

Hi wendyweeber,

There are two situations in which California sales tax collection requirements could be simplified... 

1. IF you're a "remote seller" to California, meaning you do not have physical presence in the state, and you're total sales have not exceeded $500,000 in either the previous calendar year or the current calendar year THEN you are not required to collect and remit California sales tax. 

2. IF your business does have physical presence in the state (at one or more locations) and IS NOT engaged in business in any other district tax jurisdictions and you're total sales have not exceeded $500,000 in either the previous calendar year or the current calendar year THEN you are required to collect and remit California sales tax basic rate of 7.25, plus district tax of any sales shipped to a destination within the same district as your primary business location but NOT required to collect district tax of any sales shipped to a different district. 

 

In situation 2 there would be two options for setting up the tax rate... 1) Use the zip of your business location or 2) setup a tax override of 7.25 for the entire state.

The disadvantage of option 1 is if your location is in a district tax jurisdiction then the additional tax rate would be applied on all sales across the state resulting in excess tax which, while it can be reported to the state,  the state frowns upon when it is done on a continual basis.

The disadvantage of option 2 is if your location is in a district tax jurisdiction then the tax would be under collected on sales shipped to a destination within that district and your business would pay more sales tax to the state than it collected.  However perhaps that difference is well worth the trade off in the time saved on tax rate setup?  The other disadvantage with a rate override is having to manually change it when the base rate in the state changes but fortunately those do not happen often (typically years) in comparison to local jurisdictions.

 

Hope you found this explanation helpful.

 

If you'd like to discuss you're situation in more detail to determine how to simplify you're business' sales tax reporting obligations please email jerry.shopify@tsttllc.com. 

 

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New Member
2 0 1

I have been going back and forth with Shopify support on the CA sales tax issue for non-plus users who have reached the $500K threshold, and there is absolutely zero movement.  They have been quoting outdated guidance and I am at a complete loss.  Has anyone received a more realistic or optimistic response?  

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Excursionist
10 0 3
I did finally get through to someone after weeks of hounding and they said they are working on a solution.
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New Member
2 0 1

Thanks so much for the update - I assume there is no timeline, but happy to hear they are at least working on a solution.

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Excursionist
10 0 3
Fingers crossed! Seems ShopifyPlus is somehow able to handle the CA sales taxes correctly, but I’m not making enough dough to make it cost effective. But it gives me hope that if ShopifyPlus can do it, so can Shopify. Keep in mind these state sales tax laws are probably still in flux (for example California changed the threshold to $500,000). Shopify might need to wait to see how other states adjust/respond.
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Excursionist
13 0 4

Forty three of the 46 states that have a sales tax have already implemented a economic nexus law. Actually Arizona's is scheduled to go in this coming October.  Subsequently the percentages of remote sellers required to file in those states is continuing to grow and there sourcing rules for determining which tax rate to charge will be destination based even in most of the 11 states that Shopify has identified as origin based sourcing (meaning the sellers location within that state). In the case of Illinois the remote seller is only required to collect the state rate of 6.25.  

 

Therefore it would appear to me that the simplest and quickest solution is to change the logic of those origin based states to use the same logic as the destination based states.  Unfortunately this would adversely impact those sellers physically located within any of the 11 origin based states in that they would need to enable a tax override for their state to match the tax rate of their physical location.  However their solution / workaround is much less labor intensive compared to what is currently required of a remote seller trying to collect the correct tax in those states.

 

But then I also recognize maybe it is more complicated than this.  So hopefully Shopify will resolve soon. 

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Excursionist
10 0 3

My solution for California was to enter all zip codes. It's a huge pain in the booty. If you are not located in California, or you make under $500,000 in sales in California, then you do not have to file Ca sales tax. Read above thread. Nothing has yet changed on Shopify's end, but they say they are working on it.

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New Member
5 0 0

Shopify needs to get to the bottom of this. This Wayfair ruling is creating so much headache for small businesses like us who are the majority of Shopify's users.

 

Some of the states are planning to implement streamlined sales tax rates to make things easier for remote seller in the near future. Shopify needs to be ready to update the way they calculate sales taxes when that happens.

 

Another suggestion is to work with sales tax app developers such as Taxjar or Avalara. I heard that Taxjar cannot fully override Shopify sales tax calculation, so sometimes the sales tax $$$ recorded on Taxjar don't match sales tax $$$ collected by Shopify. This is very true to orders made in California.

 

Taxjar and Avalara are more up-to-date with tax regulations and rates. Shopify needs to let their apps fully integrate (and sometimes override) Shopify's default tax calculation method.

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