Settings help - NJ sales tax exemption for clothing

NotoriousSaints
New Member
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Hopefully there are some fellow NJ clothing retailers that can provide their experience with collecting sales tax.

NJ is a destination state, so the sales tax you charge is based on the address of the customer. 
- If you have no nexus in the state of the shipping address, then no tax is charged. 
- If you have nexus in the state of the shipping address, then the customer's location is used to determine taxes.

As I understand it, since I have nexus in NJ, the only state I must collect sales tax is NJ?

Since my products are tax exempt, I can setup a tax override for NJ and set it to 0%?

Now, the confusing part for me is that if someone in FL makes a purchase (where clothing is not tax exempt), they don't pay a sales tax because I don't have nexus there?

In effect, I won't be collecting sales tax from any of my US customers. Hope that made sense.

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Victor
Shopify Staff
Shopify Staff
976 85 226

Hi @NotoriousSaints,

Thank you for getting in touch. Shopify cannot provide you with direct tax advice, and we would always recommend you speak to a tax professional if you are unsure of your obligations, but from you've said I believe you have the right idea. 

Generally, you are required to charge taxes to customers in the US if you are deemed to have a tax nexus in the state they are based in. This could be a physical nexus, such as having an office or employees in a state, or an economic nexus, which would apply if your business earns a certain amount of revenue from customers or receives over a number of orders from within a state. Destination or origin-based states determines whether the customer or the merchant's location is used to calculate the amount of tax charged, if indeed you are required to collect taxes from customers within a state.

If you are solely based in New Jersey, and have no tax nexus in any other state, then you likely will not need to collect taxes from US-based customers in any of the other 49 states. In terms of the clothing tax rules, Shopify does have built-in overrides for the sales of clothing products in the states of New York, Massachussets, and Rhode Island, but not for New Jersey. If you believe that your products are tax-exempt for sales in New Jersey, then yes, you can add a tax override for the state and set the tax rate to 0% for the products in question.

I hope this has helped clear things up, but please let me know if you have more questions on this topic.

Victor | Social Care @ Shopify 
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