Clarification on Automatic Tax Application and $100,000 Threshold for Shopify Tax

XXX1
Tourist
7 0 5

I'm launching a print-on-demand store exclusively for the USA. In my tax settings for USA, I've activated Shopify Tax with a fee structure of 0.35% per taxable order, applicable when reaching $100,000 in US online sales annually (capped at $0.99 per order and $5,000 per year).

I understand that new sellers might not be subject to sales tax until they reach $100,000 in annual sales. Could you confirm whether, with the "Charge tax on this variant" option checked for each product, taxes will only be automatically applied to customers once the store's total sales in the United States reach the $100,000 threshold in a calendar year? Or should I manually uncheck this option for each product until the threshold is met?

Reply 1 (1)

BreezyFile
Shopify Partner
8 0 0

Hey there,

Since no one else has answered this, I will give it a whirl.  

It seems like you might be talking about two separate thresholds here.  Shopify tax's billing starts once you reach $100,000 in sales annually (capped at $0.99 per order and $5,000 per year).  So this is what your store will pay Shopify in return for Shopify providing you with accurate sales tax calculations and return ready reporting (you have to file the return and remit the tax money on your own).  So as far as the actual tax collection goes, this has nothing to do with calculations being turned on or off for your orders, it has to do with what you owe Shopify in return for using their service.


"I understand that new sellers might not be subject to sales tax until they reach $100,000 in annual sales. Could you confirm whether, with the "Charge tax on this variant" option checked for each product, taxes will only be automatically applied to customers once the store's total sales in the United States reach the $100,000 threshold in a calendar year?"

This part of your question is seemingly talking about economic nexus thresholds. So let me clarify for anyone reading when you need to begin collect tax as a Shopify merchant.

You need to register and begin collecting in any state where you have nexus. You can gain nexus in a state in one of two ways.  First and most easily achieved, you could have a physical presence in a state. This means that if you have an employee (including yourself), a warehouse, inventory, a storefront, etc, you are obligated to register for your sales tax license, set up your Shopify store to begin collecting in that state, and then begin reporting your sales to that state (or those states if you are physically present in many states).

 

The other way to meet nexus requirements is to cross economic nexus thresholds.  I am guessing this is what you were referring to when you wrote "new sellers might not be subject to sales tax until they reach $100,000 in annual sales".  Economic nexus thresholds are set individually by each state.  Each of them say that if you have had $x in sales in a state in a certain time frame, you need to register and begin collecting and remitting sales tax when you ship to those states.  These thresholds are most commonly $100,000 or $200,000 in sales into that state within the last calendar year and some states also state that you could also cross an economic nexus threshold if you sell 100 or 200 individual transactions into that state.

 

So to recap, figure out in which states you have physical or economic nexus.  Then, you need to make sure you have Shopify tax's region settings set up to collect tax when you ship to those states (just add them as regions in the US to tax).  From there, you will need to make sure you file and remit your tax to those states with the frequency they request (usually once per year or quarter to start).  You can use Shopify's reports or a service to do this.

 

Then, Shopify will begin charging you for this service once your Shopify store has $100,000 in sales across all states.  They will charge 0.35% per taxable order and cap it at capped at $0.99 per order and $5,000 per year.


I hope that helps clear things up!