Why are some customers not being charged tax on my online store?

[Richardson1014]

Hi, I just noticed that some of my orders are not having tax added to them. I think I've narrowed it down to customers that live in my state are being charged but customers outside of my state are not being charged? Anyone know what's going on? I've made sure all my products are checked to have tax added. 

[Max]

Hi, @Richardson1014. 

This is Max from the Shopify Team.

It sounds like you are working with the automatic tax rules for the United States. If you need to charge and collect taxes for all sales made, then, you would want to use some overrides and exemptions. Check out this link for some more details on how to implement those.

I'd also advise working with a local tax expert or accountant to make sure that you are charging the correct amounts for based on location (you and your customers) and the products being sold! 

Cheers,
Max

[allison_wilcox]

I feel really stupid as I don't see how Tax Overrides fit into this picture at all.  My store is only charging tax to Texas sales.  Which means I'm paying a TON of taxes I never collected from customers, so it needs to be fixed immediately.  Do we have to enter EVERY state and put in the Texas sales tax rates to them?

It makes no sense to me that the default is to NOT charge taxes based on the store's location.  I just don't get it.

[gigistexas]

What I ended up doing is manually entering the Texas sales tax for every state. That has worked so far.

[allison_wilcox]

Thank you so much Gigistexas!

I did some research tonight that suggests we actually don't have to charge
tax on out of state sales from texas, which brings up a separate accounting
nightmare...but...hey, one nightmare is as good as the next, right/

[gigistexas]

With Texas being an origin state, I think we have to don’t we?

[tax_pro]

Hi gigistexas,  I'm a state and local tax professional specializing in multi-state sales and use taxes. The terms "origin based" and "destination based" refers to which sales tax rate will be used - origin meaning the sellers location and destination meaning the buyers location.  However in the case of origin based the sales upon which the tax rate is applicable are limited to those where the destination is in the same state. 

So assuming your location is in Houston TX (with a rate of 8.25%) then all sales that are shipped anywhere in Texas would be taxed at 8.25%.  Sales shipped to any other state should not be charged sales tax unless your business has a physical presence (also referred to as nexus) or economic nexus in that state.  If sales tax is charged on sales shipped to other states and you do not have a sales tax license in those states then the tax cannot be reported to those states and this is known as "collecting not remitting" which is a serious offense.  

If you're not registered for sales tax in any state except Texas then you don't want to have sales tax enabled in shopify for any other state.   

Hope you've found this information helpful.  

[gigistexas]

Yes! So helpful, thank you!

[Jomercito31]

Hello, excuse my ignorance in this kind of matter but are you saying that we have to be registered to charge taxes in the state we reside/run our business (Texas) and not charge taxes to other states?

[allison_wilcox]

Yes, that's exactly what the last poster is saying.  I was incorrectly under the impression that we had to charge tax on purchases going to states other than Texas.  Apparently we just charge sales tax for sales in Texas (as a Texas business).

[Jomercito31]

Thank you. I’m new to all this, so I guess I will have to go register to
charge taxes here in the state of Texas. ##- Please type your reply above
this line -##

[allison_wilcox]

Yes, but only if your business is located here in Texas (we are a brick and
mortar store with an online presence).

[lightning_art]

so do you still have to file sales taxes on items you sell out of state since you don't have to charge sales tax on them?

[allison_wilcox]

No.  You only file state sales tax in the state you are physically located in.

[lightning_art]

I know I only have to file taxes for the state that I live in, but what I'm asking is if I need to file taxes on items that I sold in a different state with the taxes that I file for items that I sold in my state that I live in or if I don't need to file anything on items that I sell out of state. Example. I live in Minnesota so if I sell something for $20, there is a sales tax of $1.48 that gets added on. If I sell the same item in North Dakota and it doesn't get taxed, do I still have to pay $1.48 of it towards taxes and really only make $18.52 or do I not have to pay any kind of tax on that item since it was sold to a different state.

[allison_wilcox]

You do not pay or charge tax on the out of state items

[cauliflower1]

if this is true... then how come I am paying sales tax anytime I make a purchase from literally every company online?

[ARena1]

I said the same thing but it's true, after filing 3 years in a row and had no issue for some reason i have only collected sale tax from people who order from my site that are in my state, doesn't make sense to me and I'm starting to think it's a "Shopify" thing. 

[tax_pro]

You would not file/pay tax on the item sold and shipped to a customer in North Dakota. In fact you would not even include that sale on your Minnesota sales tax return (as part of gross sales)

[GBOutdoors]

Yes, I have the same question.  Do I file sales taxes for all items sold if in Texas or just items sold in Texas?

[allison_wilcox]

Just items sold in Texas 😉 If it's shipped out of state the system
shouldn't charge sales tax. That changes if your sales are over some
ridiculous number like a million dollars or something (think Amazon) but
for most of us, just charge sales tax on Texas sales.

[tax_pro]

Hi allison,

It sounds like you're comment regarding "sales over some ridiculous number like a million dollars or something..." is referring to economic nexus laws so I'd like to provide a little clarification.  Please understand my intent is to help business owners become informed about various aspects of sales tax rules across the states so that they may then make informed business decisions about their sales tax obligations and responsibilities.  

• These laws began being implemented in June 2018 by various states and currently all of the 45 states that have a sales tax except Florida, Kansas and Missouri have implemented an economic nexus law.  (The 5 states that do not have a sales tax are New Hampshire, Oregon, Montana, Alaska and Delaware however many cities in Alaska have implemented a city sales tax)
• The economic nexus laws include a provision for a "small seller exception" or threshold to exclude those sellers from being required to register for a sales tax license and collect and remit sales tax in that state. 
• This small seller exception is defined by a $ amount of sales and/or number of transactions that are calculated within either a calendar year period (for most states) or the previous 12 month period
• Most states have settled on $100,000 of sales OR 200 transactions. However some have only a $ threshold like California which is $500,000 while a few others have a threshold of both $ and transactions like New York which is $500,000 and 100 transactions

As you can see by the last bullet point it is possible for a business to have a registration, collection and filing requirement in a state with sales of much less than $100,000 simply because they made over 200 transactions in the state.  I also recognize that the risk to the business owner for not registering may be much less than the administrative costs incurred by the business to register, collect and report a given state's sales tax. This would need to be taken into account by the business owner along with their risk for being located by a given state where they may have established economic nexus, meaning they have exceeded the small seller exception.

Hope you find this explanation helpful as well as anyone else reviewing it in the future.

Regards,

[Kdriskell88]

Hello!

I just wanted to clarify for myself since I’m new to this thread. I do not have a brick and mortar and I run my entire business online. My sales are under $50,000/year since I am a small business. I currently am in Michigan and I charge MI sales tax for those purchases made online from people within my state. Obviously shopify doesn’t charge tax for my products when out of state purchases are made.
Do I even need to be taxing my items at all? Even within Michigan? From what I am understanding, because my business is all online and so small, I do not need to tax my items. I just wanted to check!

[tax_pro]

Hi Kdriskell88
Your business still has nexus (a physical presence) within Michigan because that is where you as the owner of the business reside. Therefore the business is required to be registered for sales tax in Michigan.
Also the sales volume is irrelevant since physical nexus had been established.
Hope you find this helpful

[DowningHouse]

I am in Missouri and this tax thing has fought me every step of the way regarding setup. I work from home and all sales are online. If I am understanding correctly, I will only charge sales tax to Missouri customers. All customers from states other than Missouri will not be charged sales tax nor will I include their sales on my Missouri Sales Tax form that I submit and pay. Am I correct in my understanding?  Also - Shopify is automatically charging city sales tax, however, I do not have to collect for my city as my physical residence/business is not in the city/unincorporated land. How can I not have the city tax in there? Thanks for any insight!

Rossann

[tax_pro]

Hi Rossann,

Yes your understanding is correct.  As far as Shopify including the city sales tax I think that is because they are using the highest rate for your zip code so I'm speculating that part of the zip code boundary is inside the city and part is outside.  In order to exclude the city rate you'll need to setup a tax override for the entire state of Missouri since I'm assuming that you will be reporting all Missouri sales at the same rate correct?  

If you need help setting up override start with this link - https://help.shopify.com/en/manual/taxes/tax-overrides?utm_source=gurucopy&utm_medium=link&utm_campa... - and then go down to this section - Override the taxes on a collection or on shipping charges.  Lastly I suggest you initiate a test transaction from your website to confirm that the rate you want to be charged is now the rate that Shopify is applying.

In regard to whether or not you have a requirement to register and collect sales tax for another state did you happen to see my earlier comments concerning "economic nexus"? If you'd like to discuss that subject further please call me 713-858-0085.  Reason is so that I can help you make an informed business decision for not registering in a state where you may have met their requirement to register under their economic nexus laws.

[DowningHouse]

So...how do I set up a tax override for the state of Missouri? I need someone to explain it to me as if I am 6. I have a doctorate degree and cannot figure out how to make this durn thing calculate the shipping correctly. I put in an override for Missouri [under shipping] of 5.6%, which is the state and county tax I should collect. It is still collecting too much. 

[tax_pro]

Do you have the override set in both the product and shipping sections of the overrides? Is the rate 5.6 only set on the (state) with the boxes for (county) and (city) below the state checked and their rates set to 0% ?
If so the only other thing to do is send me an email ([email protected] ) with screenshots of your tax settings screens so I can tell what needs to be changed.

[DowningHouse]

No and no. The product overrides requires manual collections and mine are automatic. The shipping override is just 5.6% for MO. I do not see boxes for city and county. 

[tax_pro]

Please send the email that I previously described

[DowningHouse]

Email sent

[RyanAnderson]

This was a great explanation. Do you have a tax service come tax season!?

😄

[tax_pro]

Hi RyanAnderson,

Thank you for the inquiry. My company specializes in multi-state sales and use tax consulting and return preparation services and does not provide federal and state income tax services. However we do work with many CPA and other accounting firms as a resource for their clients sales and use tax needs. If you'd like more info about my company please email [email protected]

[Jesskah]

I have a question to the tax pro Jerry! I’m in WA state and will be selling online from my home. From what I gathered earlier on in this thread or another is that taxing in states outside of your origin is dependent on if your state is origin or destination based. Is that right? It seems that WA is destination based - therefore Shopify should automatically collect sales tax from my buyers dependent on their shipping address? 
thank you in advance

[tax_pro]

Hi Jesskah,
Thanks for the question. Taxing in states outside of your origin (where your located in WA) is not dependent on whether your state is origin or destination based. It is instead dependent on whether or not your business has established physical nexus or economic nexus in a particular state (I've explained nexus elsewhere in this topic). When you establish nexus in another state then you have to enable tax collection in Shopify for that state.

The meaning of origin vs destination based state describes how the state sources the tax rate to use on sales that are delivered to a customer ONLY in that state. Destination means the tax rate is sourced to the location where the product is shipped within that state. Origin means the tax rate is sourced to the sellers location on sales shipped within that state. If the seller does not have a location in the origin based state then the tax rate of the destination is used.

Hope this explanation helped.

[Madhattertees]

My shop is not charging taxes. I applied for a Tax permit, entered the registration code and all the products are showing taxable. My customers are also not "non-taxable." Also, I am not receiving orders from other countries at the moment. I am not sure what else to do. The customers are coming from others states if that matters. 

Thanks

[Bbulls]

I live in Texas abs sold to someone in New Mexico. Shopify charged my usual Texas tax.  I don’t think it should and can’t figure out how to change it. 

[AshleyCole]

I have the same problem. I was on the phone for hours and no one could help me. I need to charge my sales tax and it literally won’t.

[duplex]

Hello!

I have set up collect sales taxes in NY state (NYC in particular so 8.875%) and the taxes are being calculated at the checkout but not collected by sShopify.

Clearly I am having to pay taxes I never collected.

I have reached out to Shopify Support however it seems impossible to get a proper answer so far?

Any input?

Thank you

[PTex]

Hello:

I'm having a similar issue and understand about only charging taxes where you have a physical location (Nexus) but how to you pass on that tax to the customer as it reflects the tax, holds it back from the deposit but doesn't add to check-out.  How can that be done?

Thanks..

PT

[AshleyCole]

Did you figure out a way to tax and collect the taxes?

[aldessaf]

How do I go about getting a tax license to charge taxes in other states?

[rosevelt15]

I want to make sure I'm not making an error when it come to collecting taxes in IL. Shopify is only collecting taxes in the state of IL and not anywhere else. I do not have a nexus in another state, and want to make sure that I'm not going to be on the hook for out of state sales tax. Should I only be worried about sales tax in the state of IL?

Thanks for your help in advance,

[FOXYLOUS]

Omg I have been researching and researching. This helped so much. Thank you!!!

[Nikig1816]

See this makes no sense to me..I’m in Texas shipping from my apartment closet 😩 lol I am filing for a sales tax cert today- however .. I went on another residents website and ordered through my New York address and was charged tax - she’s a texas resident - I can’t see how people everywhere are exempt from paying taxes except people in my state of texas - I can’t figure it out and it’s annoying me to no end 

[allison_wilcox]

Taxes should be charged for Texas orders only. We use Report Toaster to
calculate our non taxable sales every month (annoying that it's not easily
done in Shopify that I've been able to find). 😉

[tax_pro]

Hi Nikig1816,
I'll be happy to explain / clarify all this "sales tax stuff" to you over a phone call. Well at least the stuff that's annoying you. My phone is 713-858-0085 and if you reach my voicemail please leave a message and I'll call you back. Since I receive alot of "spam" calls I either don't answer and let it go to voicemail or I answer, don't say anything and wait for the human on the other end to say something before speaking. Hope that makes sense.
Look forward to helping you!!

[AshleyCole]

How did you do it? I cant figure it out? Do you add it in after they place the order? 

[DowningHouse]

Ashley - 

My problem sounds a bit different than yours. My problem wasn't that it was only charging sales tax in MO [because that is correct for MO]. My problem was that the city tax was being added and my business is not in city limits so I am not required to collect for the city. I was trying to do an override for that issue. In your case, I think it may be working correctly as in many states you do not have to collect [or pay] sales tax for online transactions for other states. You will need to make sure your states is one of those states.

[CowboyChannel]

How do you change the sales tax for each state?  Did you use the same percentage as your current state?