Retiring a legacy United States sales tax service

[Jacqui]

In September and October, we’re retiring a legacy United States tax service that’s sometimes been referred to as “location-based tax settings”. The legacy service was built before economic Nexus rules were established in the United States, and is based on an older model of sales tax calculation. It served its purpose at the time, but sales tax and technology has come a long way since then. This out-of-date service struggles to help merchants run a fully-compliant business. So we’re retiring it to focus on developing services that support the new realities of sales tax. If you’ve been using this legacy service, your store will automatically be upgraded to Shopify Tax, which offers the highest level of compliance with the least amount of upkeep. With Shopify Tax, you’ll have access to:

• The most accurate collection at checkout: Collect the most accurate tax rate for every purchase, based on your customer’s precise address and any product exemptions. This lowers your risk of paying back-taxes to the state from your profits.
• New advanced reports: No more days wasted on finding the details you need to file. View your sales tax data broken down by state, county, and jurisdiction for less hassle at filing time.
• Automatic liability tracking: Be notified as soon as we detect it’s time to start collecting sales tax in each state. Shopify Tax keeps track of state rules, so you stay compliant through constant regulatory changes. Just watch for alerts, turn on tax collection where you’re liable, and let Shopify Tax handle the rest.

Though the upgrade itself happens automatically, there are a few things to be aware of:

• Shopify Tax calculates sales tax at a much higher level of precision than legacy services. This, combined with the ability to automate product exemptions based on product categories, means there’s no longer a need to set county- or city-level overrides. This will be retired alongside the legacy service. 

• Shopify Tax uses your product categories to automatically apply product rate exemptions. Because of that, it’s a good idea to set or double-check your products’ categories as they will begin affecting the rate charged on your orders.

• Update any customized email templates you may have.

Choosing another tax service

If you decide Shopify Tax isn't the right fit for your business, you can downgrade at any time to Basic Tax or Manual Tax in your US tax settings. Remember, Shopify Tax is free until November 6, 2023 (and always free until you reach $100,000 in US online sales), so you can test out its benefits until then! We'll also send you a reminder before billing begins to help you make an informed decision.

This table can help you determine which tax service is best for your needs.

	Shopify Tax	Basic Tax	Manual Tax
Sales tax calculation
Automatic rate calculations using tax registrations	✔	✔	✘
Automatic rate calculations using product categories	✔	✘	✘
Automatic recommendations for product category	✔	✘	✘
Rooftop accuracy	✔	✘	✘
Support for state fees	✔	✘	✘
Tax holidays	✔	✘	✘
Markets Pro	✔	✔	✘
Reporting and insights
Tax reports	✔	✔	✔
Tax liability insights	✔	✘	✘
Advanced reports	✔	✘	✘
Exemptions and overrides
B2B tax exemptions	✔	✔	✘
Customer tax exemptions	✔	✔	✘
Manual tax rate overrides	✔	✔	✔
Collecting tax in states with no state sales tax	✘	✘	✔

We're here for you

Visit the Shopify Help Center for more details and guidance on how to make these changes. And be sure to visit your US tax settings on September 5 to find all of the Shopify Tax features available to you. If you need extra assistance, our 24/7 support team is ready and waiting to help.

[bethjewelry]

Do POS sales count toward the $100,000 in online sales?

[DT12]

Hi, @bethjewelry this is David from the Shopify Tax team. POS sales do not count towards the $100,000 in online sales. You can find the specifics about what is and is not included here!

David 

[arcweld]

When we do need to collect taxes in the US. Does Shopify collect and remit them to where they need to go? Or do we need to hire a service to provide that?

[DT12]

Hi @arcweld ,

Shopify alerts you when you may be liable to collect tax in a new state. It is then your decision/responsibility to activate tax collection in Shopify and register with the state. Once activated, Shopify Tax calculates and collects tax automatically on your behalf. When it's time to file, you can use Shopify Tax's new reports to help with filing, but you're required to file and remit. I'd recommend checking out this article to learn more about the key steps!

We're actively exploring ways to help merchants like you with the tax registration and filing process. Would love to hear more about what you'd like to see from us! As always, we recommend you speak to a local tax advisor if you have any business-specific questions.

David

[notwicons]

In California the old Legacy Shopify system allowed me to collect district county and city taxes correctly. I did have to manually set this up using zip codes for each tax district in California that had their additional county and city taxes above the 7.25% state rate. But now this Legacy system has been eliminated earlier this month. The new Shopify system is charging just 7.25%, even in counties and cities that have tax rates above 7.25%. What is the best way to get my Shopify website to start charging the correct destination sales tax in all the different tax districts in California that I ship to?

[DT12]

Hi @notwicons this is David from the Tax team. I will send you a direct message and see if we can get this resolved. 

[notwicons]

David,
Thank you for contacting me. I look forward to hearing from you.
What I really need is for my Shopify website to correctly charge the
destination sales tax in California as if I have a nexus in every city and
county in the state of California. Outside of California no sales tax
should be charged.
Even though my overall web sales are well under $100,000, I still want to
charge sales tax like bigger businesses in California who charge the
destination sales tax for all of their shipments within California. So at
my bookstore in Santa Rosa, Sonoma County, California, I charge 9.25%. In
parts of California where there are no district (city or county) sales
taxes, I should charge 7.25%. But in cities and counties that have district
taxes, I should charge exactly what the customer would pay if they went
into a bookstore next door to their home.
I know I am only required to charge/collect 7.25% for California packages I
ship outside of my actual physical nexus (Santa Rosa, Sonoma County). But
if I charge only 7.25% in say, Los Angeles County unincorporated, where the
county district taxes are 2.25% (thus a total sales tax of 9.5%), by
customer is legally required to report that 2.25% when he pays his income
taxes to the State of California. But almost nobody actually does that.
Thus almost everybody is breaking the law. It is called a "courtesy sales
tax" if I charge the 9.5%, because it keeps my customer from being tempted
to break the law and not pay that 2.25% later.
A final point. This may actually not be a problem for me. But I heard on
one Shopify thread that a business was able to set this destination tax up,
but their Shopify website was charging not only the destination district
sales tax for each address, but on top of that, Shopify was also charging
the district taxes where their actual business was located. So double
district taxes were being collected. Nasty big mistake on the side of the
Shopify software. Hopefully this will not happen if I start charging
destination taxes throughout California.
By the way, when I pay my share of sales taxes to the CDTFA (California
Department of Tax and Fee Administration) every Quarter (4 times a year), I
am required to report sales to all districts in California. I have been
doing that properly for several years now, but now because Shopify has
eliminated the Legacy tax service, I am not able to do this properly
anymore. I am not in legal trouble. It just means I am charging 7.25%
everywhere outside of my city and county. But I want to charge the correct
"courtesy" tax rates so my customers are not obligated to pay the district
taxes themselves when they file their own taxes. Hopefully this all makes
sense to you.
Again, I hope to hear from you soon.
Daniel

[sunnyimes]

Is there a way to turn off the breakdown of county taxes?   My customers are leaving their carts abandoned because this is always broken out and they feel like they are being over charged. 

[notwicons]

I am having the same problem in California. Fortunately my Shopify hosted website is charging sales tax correctly throughout California. But my customers receive a breakdown of the taxes that is confusing them. For example: A $10 sale mailed from my Santa Rosa, Sonoma County, California bookstore to an address in Los Angeles County shows the following perfectly detailed breakdown of the sales tax charged.

$0.03 (Sonoma County Tax 0.25%),

$0.23 (Los Angeles County District Tax Sp 2.25%),

$0.10 (Sonoma Co Local Tax SI 1.0%),

$0.60 (California State Tax  6.0%).

The total tax charged was $0.96. The tax rate for unincorporated is 9.5% The penny difference is due to rounding off. It is this rounding off discrepancy that is causing a problem here. This sample order was just one $10 item. I had another order for over 100 items, and the rounding off of sales tax for each of the four or five taxes being calculated for each 100+ item led to a discrepancy of 75 cents, compared to what would have been calculated if the sum total of all 100+ items had first been added up, then multipled by the 9.5% tax. To make a long story shorter, Shopify breaking down taxes causes rounding off discrepancies. So if they show a 9.5% tax, and a tax of 96 cents on a $10 order, the customer will also be confused. On bigger orders, like my 100+ item order, the discrepancy grows. Shopify calculates per item partly because some items, like food, are not taxed. This is not an easy problem for Shopify to solve.

[sunnyimes]

i understand the rounding issue I would just like for it to be hidden so that the customer doesn't see it.  I order a lot of items from other shopify stores and i do not ever see the breakdown but for some reason my customers are on their end.  

[notwicons]

I also would like to find a way to hide all the details so my customers are not confused. Hopefully a Shopify tech will contact us soon on how to do this.

[DT12]

Hi all, 

David from Shopify here. I'm working to get an answer to your question and will post back as soon as i have details.

[DT12]

@notwicons I've tried to send you a follow up message via community over the past couple weeks and received a notice that you deactivated your account. Could you please DM me your email address?

[notwicons]

Thank you David. I replaced the 12 lines of code with the 10 lines of new code (you provided to me in a private email) for my order confirmation emails that my Shopify website sends to my customers. I did a test order and now the multiple lines of sales taxes is reduced to just one line showing the total sales tax charged. Much better. Thank you for fixing this problem. When my customers look at their order history they will still see the multiple lines of sales taxes broken down for each of their orders, but at least the initial email confirmation will not sow confusion anymore. Big improvement!

[DT12]

Glad we were able to remedy this! posting the solution here for visibility. Also, I believe the order history you are viewing is a merchant-only view. The customer should not see that level of granularity when reviewing their orders from here on it. If you have an example showing otherwise please share and we'll look into it!

[DT12 · Accepted solution]

Here's the solution if your customers are seeing the granular tax breakdown. It is due to the code in your order confirmation emails, which can be modified or reverted to their default version:

To find this template go to settings >notifications>order confirmation and then select edit code. To resolve the issue you should search for this code snippet

{% for line in tax_lines %}

<tr class="subtotal-line">
  <td class="subtotal-line__title">
    <p>
      <span>{{ line.title }}</span>
    </p>
  </td>
  <td class="subtotal-line__value">
    <strong>{{ line.price | money }}</strong>
  </td>
</tr>
        {% endfor %}

and replace it with

<tr class="subtotal-line">
  <td class="subtotal-line__title">
    <p>
      <span>Taxes</span>
    </p>
  </td>
  <td class="subtotal-line__value">
      <strong>{{ tax_price | money }}</strong>
  </td>
</tr>

You can also revert to your default templates, but if there are other customizations you've made to the code they will go away.  Hope this helps!