Should I charge sales tax for both business and distribution locations?

[Ike-Shipley]

The past 2 years I’ve been using Shopify to sell on my E-commerce website. I’ve been charging sales tax to the rates of where the primary business address is. Which is in North Dakota. The distribution is out of Los Angeles California. I recently started getting g a notification stating that I need to start charging sales tax for California beings I distribute from there. Does this mean I’m supposed to charge sales tax twice?? I don’t understand how I’m expected to charge sales tax twice. Do I need to be charging twice or is this an error on Shopify. 

[Victor]

Hi @Ike-Shipley,

Thank you for getting in touch. You are not required to charge sales taxes twice for an order, and whether or not you are required to charge sales taxes at all will depend on where the customer is based and whether or not you and your business have a tax nexus in the state the customer is located in.

A tax nexus can be defined by physical factors such as having an office, warehouse, or employees in a state, or by economic ones. These are typically defined as making a certain number of orders into a state or earning revenue above a threshold through orders received from customers within a certain state. 

As you are based in North Dakota and have distribution facilities out of California, you are likely deemend to have a tax nexus in both states based on physical factors. This means you will likely need to register for sales taxes in those states and charge sales tax to customers based in either one.

A customer based in North Dakota would then pay the rate of sales tax determined by that state, while a customer in California would pay Californian sales tax on their order. A customer based in a state where you do not have any tax nexus would typically not be required to pay sales taxes on their order.

Shopify's tax system has a tax liability feature which is designed to alert merchants when they may be required to register for sales taxes in a state. If you are eligible to register for sales taxes in a state, then you can do so with the local tax authorities and provide your tax registration number for the state in your tax settings. This will then allow Shopify's automated tax system to charge sales tax at checkout to customers who are eligible to pay it.

I hope this has helped explain things, but please let me know if you have further questions. Please also note that while we are happy to offer general advice with regards to setting up your taxes correctly within Shopify, we would always recommend contacting a professional if you are unsure of your liabilities or obligations from a tax perspective.

[Ike-Shipley]

Thank you for your response. I see and understand what you are saying. I was under the impression that beings I had a sales tax set up in North Dakota as it is my primary location, all my orders were being charged a sales tax to North Dakota’s rates. I see now it wasn’t. So brings Shopify has this alert, is this just in a sense a warning or does Shopify stop customers from buying infill you fix it?

[Victor]

Hi @Ike-Shipley,

Being in North Dakota means you likely have a tax nexus in the state, and therefore need to register for and charge sales taxes for orders placed by customers in North Dakota. The same likely applies to California as you have your warehouse there, and Californian customers will pay the California state taxes and not the ones set in North Dakota.

Shopify's tax liability system is an informative tool, and will not prevent customers from making purchases. Ultimately, it is the merchant's responsibility to understand their own tax obligations and to charge and remit sales taxes accordingly. We provide information and assistance to merchants on tax issues where we can but we are not in a position to determine accurately what your liabilities from a tax perspective are; it is for this reason we do suggest speaking with a tax professional if you are uncertain about things.

[luciferbenz826]

It's crucial to adhere to sales tax regulations, and in this case, charging sales tax is typically based on the point of sale or destination. If your distribution is from California, you may need to charge sales GST tax based on California rates for orders shipped within the state. It's advisable to consult with a tax professional or Shopify support to ensure accurate compliance with tax laws and clarify any discrepancies in notifications.