TAX based on buyer address US only

[Talha1]

I am launching an online store in the U.S., and my company is registered in Atlanta, Georgia. My plan is to sell only within the United States. However, I am facing challenges with sales tax calculations on the checkout page.

Here’s the issue and my questions:

1. When I use a Georgia-based address, sales tax is correctly calculated and displayed as a separate line item under the product price. I believe this is working as expected.
2. However, when I enter an address from any other state, no sales tax is applied at checkout—only the product price and shipping charges are shown.
3. After consulting Shopify support, I was informed that I need to register my business for tax collection in each state where sales tax applies.

My concerns:

• Should I limit my business to selling only in Georgia to avoid complex tax compliance?
• How can I expand my business to all U.S. states without running into tax issues?
• As a small business, managing tax compliance across multiple states seems overwhelming. Would using Amazon FBM be a better option since Amazon handles tax calculations?

I would appreciate any guidance or advice on the best approach.

[ES1 · Accepted solution]

Hi @Talha1 

You're facing a common challenge for e-commerce businesses in the U.S. when it comes to sales tax compliance. Here’s a breakdown of your options and the best way to move forward:

Why is Sales Tax Only Applied in Georgia?

Shopify only applies sales tax where your business is registered to collect tax. Since you’re only registered in Georgia, Shopify correctly charges sales tax to Georgia customers but not to buyers in other states.

The U.S. sales tax system follows the economic nexus rule, meaning:

• You are required to collect sales tax in other states only if you exceed a certain threshold (e.g., $100,000 in sales or 200 transactions per year in most states).
• If you don’t meet these thresholds, you don’t have to collect tax in those states.
• You may not need to register in every state right now. Start by selling nationwide and monitor your sales volume per state. Only register when you hit nexus thresholds.

Should You Limit Your Business to Georgia Only?

No, you don’t have to. Limiting yourself to Georgia means fewer potential customers and lower revenue. Instead, you can:

• Sell nationwide without collecting sales tax in other states (until you cross the nexus threshold).
• Use Shopify’s Sales Tax Report to track where you may need to register in the future.

How to Expand Without Running Into Tax Issues?

To legally sell across the U.S. without overcomplicating tax compliance, follow these steps:

1. Continue collecting sales tax in Georgia (since your business is registered there).
2. Use Shopify’s tax reports to track sales by state.
3. Monitor state thresholds and only register in a new state when required.
4. If you reach nexus in multiple states:
   • Use a tax automation tool like TaxJar, Avalara, or Shopify Tax to handle tax calculations and filings.
   • These tools automatically track your nexus status and file returns for you.

Would Amazon FBM (Fulfilled by Merchant) Be a Better Option?

Amazon FBM does not automatically handle taxes for you, but Amazon does calculate and collect sales tax in most states where required (if you opt-in for tax settings). However:

• You are still responsible for remitting taxes in states where you’re registered.
• Selling on Amazon means paying referral fees (typically 15%) on each sale.
• You have less control over your branding and customer experience.

Hope the detailed explanation helps you understanding how it all works. If it helped you, Please do Like and Accept it as a solution 🙂

[Talha1]

Thank you for the guidance! This really simplifies things for me. I appreciate the great support!

[Talha1]

Thank you for the valuable information. It was really helpful!

One clarification needed, is the $100,000 threshold or 200 transactions per year calculated per state or in total across all states?

[ES1]

Hi @Talha1 

This is calculated per state.