Now that I am starting to learn about how sales tax works for online sales I am seriously considering sticking to Etsy and forgetting about Shopify. I had always thought online sales taxes were only due to the state you are selling from. Now I find out you actually owe taxes to the states you are selling too. This means I would need to track the tax laws and pay taxes to 50 states in the U.S. That's 50 distinct tax laws, 50 different nexus thresholds, 50 different payment schedules, and 50 sales permits. Also, doesn't the sales taxes on destination based states depend on state, county, and city taxes? If that's correct, then there would be much more than 50 tax rates you need to keep track of? On Etsy, you don't need to do any of this sales tax stuff because Etsy does it all for you. I wanted my own online Shopify shop for a myriad of reasons but suddenly Etsy is not looking so bad anymore. Anybody else ever had these feelings and what did you do to overcome (since, obviously, you overcame this apprehension if you are still on here)?
Yes sales tax can be a bit of a burden for online sellers. It all stems from the Wayfair sales tax case. Basically states felt as though online sellers had an unfair advantage over brick and mortar sellers and started requiring that the online sellers collect sales tax if they sold enough (amounts and levels vary).
Some e-commerce platforms are marketplace facilitators which places the responsibility of sales tax on the platform as opposed to the individual seller. If you're an individual sellers and choose to have your store on a sales channel that is NOT a marketplace facilitator then there are third-party apps like TaxJar, Avalara, etc. that will do much of this for you.
Nick here from Shopify. Great questions, taxes can be difficult to figure out at the best of times!
The first thing I always like to say and ask is, have you checked this with a tax professional at all?
While we cannot give tax advice, it is highly unusual that you would need to charge tax in every single state. Merchants should only be charging taxes in states where they have a nexus (physical or economical). Just selling to a state does not automatically mean you should be charging tax there. For example, Shopify is a massive corporation that sells to the entire US market, and even we don't charge tax in every state. Because of this general tax rule - it is not possible to just select all states to charge tax on the system. Taxes wouldn't be that simple.
If you'd like to review some general tax rules there are some great resources below:
We also have US tax professionals on the Expert's marketplace. I strongly recommend the merchant get in touch with one if they haven't already You can find it here.
Something else to remember is that Etsy would be regulated differently as it's a marketplace that sits sellers side by side, while Shopify is an ecommerce tool that merchants can use to have an online branch of their business. It's a stand-alone asset for the merchant. So there are no such regulations on Shopify store owners, like for the marketplace. You would just need to charge tax like normal in that case - which is always based on your physical/economical nexus.
I hope this helps explain this a little and answers your question as well as where to go for the next steps! Any other questions, don't hesitate to let me know.