How should I manage sales tax for out-of-state and international customers?

[ineedcake]

Hello,

My company is based in New York and I will be selling items to customers in the U.S and internationally (product is clothing). I set up sales tax on Shopify and selected my state 'New York' and entered my sales tax id. However I got my first sale today from another state today in the U.S today and they didn't have to pay any sales tax through the Shopify checkout.

Do I need to change my sales tax settings? Do I need to collect sales tax for places outside of New York? Would really appreciate any advice on this. 

[Moeed · Accepted solution]

Hey @ineedcake 

I can provide some general guidance, but it's important to note that tax regulations can vary by jurisdiction, and it's always recommended to consult with a tax professional or advisor who can provide specific advice based on your business's circumstances.

Regarding sales tax for your online store, the rules can be complex, and it often depends on the nexus, which refers to the level of connection or presence your business has in a particular jurisdiction. Here are a few key points to consider:

1. Nexus: Nexus determines whether you are required to collect sales tax in a particular state. In general, having a physical presence in a state, such as having a physical store or office, establishes nexus. However, other factors like economic nexus (reaching a certain threshold of sales or transactions) can also trigger the obligation to collect sales tax.

2. Sales Tax Settings on Shopify: Shopify provides tools to configure your sales tax settings based on your nexus. In your case, since your business is based in New York, you correctly set up sales tax for New York. However, you also need to consider whether you have nexus in other states or countries where you are selling your products.

3. Other State's Sales Tax: If you have nexus in other states (e.g., a significant presence or meeting economic thresholds), you may need to register for sales tax in those states and collect sales tax from customers based on their shipping address. Each state has its own rules, so it's essential to research the specific requirements and consider using tax automation software or consulting a tax professional to help manage multi-state sales tax compliance.

4. International Sales Tax: When it comes to international sales, you may need to consider value-added tax (VAT) or goods and services tax (GST) requirements in the countries where you sell your products. Each country has its own tax laws, and compliance can vary. You might need to register for VAT/GST, collect tax from customers, and remit it to the appropriate tax authorities.

To ensure compliance with sales tax obligations, I recommend reaching out to a tax professional who specializes in e-commerce or online businesses. They can guide you through the specific requirements and help you set up your sales tax settings correctly on Shopify based on your nexus and the jurisdictions where you sell your products.

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Best Regards,
Moeed