Shopify Calculating California Sales Tax Incorrectly?

gone_wild
Tourist
5 0 2

It looks to me as though Shopify is incorrectly calculating taxes when "Calculate taxes automatically is clicked."

TaxJar says: "If you only have one location in California, then you’ll charge two sales tax rates. You’ll charge your district rate to buyers located in your district, and the California state rate (7.25% in 2018) to buyers outside your district." https://www.taxjar.com/states/california-sales-tax-online/#how-to-collect-sales-tax-in-california

The California BOA website says the same thing (https://www.boe.ca.gov/sutax/faqtaxrate.htm#5): you only have to collect district taxes if you make a sale to someone else in the same district in California. When you sell to other districts in California, you only need to collect district sales tax if you are "engaged in business" in that district. The website defines engaged in business, but the relevant part here is if you: "Ship or deliver the property into the district using your own vehicle." 

Here is what the website (https://www.boe.ca.gov/sutax/faqtaxrate.htm#5) says:

If I am located in a district, am I subject to my district's tax if I make a sale to a person located outside the district?

You are generally not required to pay for your district's tax if the customer does not take possession of the property in your district.

However, if your customer is located in another district, you are generally required to pay that district's use tax if:

  • You are “engaged in business” in that district and you ship or deliver the property, as agreed to in the contract of sale, into the district (or otherwise participate in the district in the making of the sale).


Shopify appears to be charging district taxes to those in counties in which I am not engaged in business.

Am I missing something?

Replies 26 (26)
Peter_Mendola
Tourist
8 0 7

That's odd because it's the opposite for us. We need shopify to charge all the district taxes but they are not. We have economic nexus (no physical location in CA), but the only way to set that up in shopify right now is to add a random zip code, so it's only charging the correct tax rate for sales in that zip code.

 

Either way, the CA tax setup in shopify needs work and quickly!

Nick
Community Moderator
Community Moderator
4510 433 980

Hi @gone_wild,

 

Nick here from Shopify. 

 

Thanks for reaching out, I know how taxes can be confusing to figure out even on the best of days. California is a very unique state in the fact that it has both an origin and destination based sales tax. While county and city taxes are origin based, district taxes are based on the customer/ buyers location within California and this is why Shopify charges district taxes automatically for you with the setting. Should customers from different districts in California buy from your store no matter where you are located, there are different tax implications. I did some research and found a blog post from Tax Jar which goes into this in much more detail here02-54-pig65-o01hz

 

I would recommend you visiting your local tax office or a professional accountant about this to make sure this is correct, but from what I have found out by researching this, is that if you sell to a customer who's address is based in a different district you are required to charge the tax of that specific district. Shopify has an information guide for setting up taxes for economic nexus which you can see here but I cannot stress going to see a professional accountant or your local tax office enough to make sure you are charging the right taxes based on your exact situation. 

 

I hope this helps and explains why Shopify's automatic tax setting would charge district taxes in this case. 

 

All the best, Nick

Nick | Community Moderator @ Shopify 
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gone_wild
Tourist
5 0 2

Hi Nick,

 

The quotation you posted from TaxJar confuses the issue somewhat. It says that "district taxes are based on the destination of the buyer." This seems to imply that in California you pay the district tax according to the destination of the buyer. As the TaxJar quote and the quote from BOA that I posted above clarify, in California you only pay district taxes when you do business in the same district as the buyer. It is only in this sense that California is a modified origin state. 

Therefore, it is incorrect for Shopify to charge district taxes for California customers that live outside of the district in which you do business.

Thanks,
Wren

tjwatley04
New Member
1 0 1

I am having the same issue. I contacted the California BOA and they gave the exact explanation that Wren provided. Thus Shopify is not charging the taxes correctly. Is there anything that can be done to resolve this so that retailers don't have significant tax accounting issues?

Ana7
Excursionist
23 0 18

Hi Peter_Mendola, 

 

Since the Wayfair decision many companies are having the very same problem, physical presence is not the only criteria to have a nexus anymore and it's tricky to set up in most marketplaces. I'd recommend you to use a software that calculate state and local sales taxes automatically such as Quaderno

 

Quaderno automatically charges the right sales tax rate in every sale, updates the them when they change, and notifies you every time you surpass a sale threshold. Also, with Quaderno tax reports, tax filing is a matter of minutes not hours.

 

Disclaimer: I work at Quaderno. If you have any questions, please feel free t reach out. I'm happy to help.

Mike_M1
Shopify Partner
19 0 8

Ana7, I see you posting a lot about your solution.. But as far as I can tell from reading and watching the video at  https://quaderno.io/integrations/shopify/, Quaderno shopify integration does not actually calculate tax rates per order, but merely produces receipts and reports.  On that Shopify landing page, there is NOTHING about calculating taxes.  If it does integrate with shopify to calculate taxes, you guys did a terrible job explaining that.

Ana7
Excursionist
23 0 18

Hi 

 

Then it's definitely our bad and I thank you for pointing it out. Quaderno automatically calculates sales tax (state and local in US) on every sale, in real time. Indeed! We also notify users when they have surpassed a sale threshold and they have to start collecting sales tax (i.e. Economic Nexus in the US or VAT/GST thresholds in other countries). And, of course, we also send tax compliant invoices and generate instant tax report so anyone can easily fill their taxes. 

 

I understand that you have checked many of our resources but in case you wish more info, this is our Sales Tax Guide For Shopify sellers.  However it would probably lack of info on tax, as you said before. Again, I really appreciate your feedback. 

Mike_M1
Shopify Partner
19 0 8

"Quaderno automatically calculates sales tax (state and local in US) on every sale, in real time. Indeed! "

 

This is exactly opposite of the answer I got direct from the company:

 

"we apply the taxes that Shopify applies in their checkout. Quaderno does not handle the tax calculation there, but rather Quaderno allows you to have all receipts from Shopify in one place. So if it's not possible to add this CA tax calculation in Shopify, then unfortunately this can't be updated from Quaderno's side."

 

 

Ana7
Excursionist
23 0 18

Hi Mike, 

 

Shame on me! You are absolutely right. Quaderno does as I said for other platforms and payment gateways but not for Shopify since they provide the tax. The Quaderno support team, of course, gave you the correct answer. Quaderno lets you know when you have hit the limit of sales and gathers all the data from Shopify and other channels for you to file taxes. My apologies for the confusion.

Best

Ben_Carter
New Member
1 0 0

I'm in the same boat as you. Have you found a solution for this issue yet?

Mkco13907
New Member
5 0 0

This might help out some of you, since I just got off the phone with California sales tax representative.

 

If you:

- have no physical presence in California (usually applies to remote sellers)

- make less than $500,000 in (online) sales from customers located in California

 

Then you only charge flat-rate 7.25% sales tax to CA customers.

 

But if you start making $500k or more in California, then you're considered to be "heavily engaged" in doing business in California so you have to charge district sales tax (meaning: state + county + city) even if you don't have any physical presence there.

 

Just my 2 cents.

TommyInTustin
New Member
2 0 3

Nick with Shopify: Thanks for your post about California sales taxes.

Without getting into the complicated tax advice issues involving origin and destination, our company, based in the city of Tustin in Orange County, California was audited by the then State Board of Equalization (now some other name). Because we attend conferences and tradeshows in different cities within California, keeping track of where we did and didn't have a presence became messy.  The easiest solution by far is to simply collect sales taxes based on the shipping destination for the product.  We then breakdown these different zones on the standard sales tax forms when we pay the state.  Our accounting software is set up easily to handle these issues and all of the various districts are in the software and these rates are calculated easily, reports are simple, life is good.

But now I'm looking at Shopify and I'm baffled that you apparently do not have a way to accomplish this, at least that's what a support person told me on a long support call today. Just to be clear; Whenever a product is shipped within California, we need to charge whatever state/county/city taxes are in effect for the DESTINATION regardless of having a presence.  The Shopify support person said the only way to accomplish this is to create a zillion different "locations" so that Shopify would charge those taxes accordingly.  Wow, that makes no sense. 

You have the various entity tax rates loaded into Shopify.  Why can't those rates be used automatically when a customer fills out their Ship To location based on that destination? It would be such a simple option to provide Shopify sellers this feature. It would appear Shopify caters to mom and pops where this wouldn't be a problem.  

Is there a reasonable way to accomplish this sales tax calculation automatically with California rates?

Chris_Heynen
Tourist
3 0 2

If I'm understanding this correctly the work around to have destination tax calculated in California correctly is to add all 2589 zip codes in as a physical location in California that Shopify has listed when you click on the county, municipal and other tax hyperlink in the tax setting?

 

all_zips.jpgtax_click.jpg

 

 

 

sagetree
New Member
1 0 0

Is there a way to bulk add all the zip codes?

New-to-this-sho
Tourist
6 0 1

Hi I have the same issue. So far Shopify was not of any help.

Spoon
Tourist
13 0 1

I'm chiming in. I am my company's web developer and this problem was just brought to me by my associates in accounting. I was hoping I could do research to learn how to configure the Shopify to work correctly for CA businesses getting correct sales tax from CA customers. I'll still contact Shopify to try my luck, but judging from the comments here, I'm gonna have to go back to accounting with bad news on this matter. There are similar threads on hear from four years ago, complaining about this issue. Hopefully Shopify will decide to fix this and put developers on it soon!

New-to-this-sho
Tourist
6 0 1

Hello no, there is not. The good news is that you can add all zip code you need.

New-to-this-sho
Tourist
6 0 1

Hello, we added all CA zipcodes manually and it works.

Spoon
Tourist
13 0 1

Hi, That's 2600 individual entries. How did you do it manually?