I am confused so I registered my tax ID for NY state however my site is not charging state tax from sellers in other states. Am I suppose to register for it from every state or am I suppose to just activate it for every state without a proper tax ID number? It is very unclear and I feel like this would trap most sellers when it comes to tax time.
Typically, you would only need to collect and remit sales taxes in states where you have a tax nexus. It sounds like you are based in New York state and therefore have a tax nexus there, meaning you have correctly registered for sales tax in the state and are now able to charge and pay sales taxes on orders from New York-based customers. However, if you do not have a tax nexus in other states—i.e. no physical locations, employees or operations—then you likely do not need to collect sales taxes from customers in these states, or therefore pay any taxes to the respective state authorities.
Most states do classify some tax nexuses as being economic rather than physical, meaning that you may have to register for sales taxes in states where you meet an annual revenue threshold and/ or a minimum number of sales made into that state in a year. However, these figures tend to be quite high, with many states not classifying you as having an economic nexus until you generate $100k+ worth of sales in their state in a calendar year, or 100-200+ transactions. You can review the various economic nexus laws for each state on the TaxJar blog.
I hope this has helped explain things but please let me know if you have further questions. I would also recommend seeking out a tax consultant if you are looking for professional advice on what your tax obligations are.
Victor | Shopify Social Care