I have set up my account to remit taxes for the state I am working out of, and the state that my products are made. (GA & NC) However, the state I am located is a destination based state, and I noticed that customers that make orders out of my state (CA as an example) are not being charged taxes based on their state. How do I fix this? I am SO confused.
Hey there, @Dusty73085!
Ryder here, from the Social Care Team at Shopify. Thanks for your post! US Taxes can be confusing to understand at first, so I'm glad you're reaching out for clarification. I'd be happy to explain how United States Taxes are calculated in our system; however, if you have any specific concerns or questions we advise that you speak to a tax expert in your region.
Taxes are calculated based on certain circumstances and state. We use the shipping address zip code to determine which tax rate to apply unless there's only a billing address provided, then we use the billing address zip code.
For origin-based states, sales tax is based on where the seller is located. For destination states, if the shop has no nexus in the state of the shipping address, no tax will be charged. If the shop has a nexus in the state of the shipping address, we look up the State, County, and City tax rates up from our tax database using the shipping address’ zip code. These three taxes are then applied to the order. It sounds like you might not have a nexus in California, which is why you're not seeing tax charges at this time.
In June 2018, the United States Supreme Court ruled that states can also require online sellers to collect sales tax based on economic nexus. If you're unsure whether you have or require an economic nexus, you can read more about the South Dakota v. Wayfair, Inc court ruling here, or contact a tax expert. We also have a guide to help you set up your taxes to handle the economic nexus.
I hope this information helps clarify how taxes are calculated. If there's anything I can clarify, please let me know!