As of January 1 2025 the Shop app Shop pay is automatically remitting sales tax from payout

Shopify Discussion

Topic summary

Starting January 1, 2025, Shopify’s Shop App (not Shop Pay) now operates as a marketplace facilitator, automatically collecting and remitting sales tax on orders placed through the app—regardless of whether merchants have nexus in the buyer’s state. This has created significant confusion among merchants.

Key Points of Confusion:

  • Many merchants initially conflated the Shop App (a product discovery marketplace similar to Amazon) with Shop Pay (Shopify’s payment processor)
  • The Shop App charges sales tax on all orders processed through it, even in states where merchants lack nexus or don’t normally collect tax
  • Shopify deducts the tax from merchant payouts and handles remittance directly

Major Concerns Raised:

  • Wholesale orders: The system incorrectly charges tax on tax-exempt wholesale/resale transactions
  • State filing complications: Merchants in states where they already collect tax must now distinguish between Shop App orders (handled by Shopify) and direct website orders (merchant’s responsibility)
  • Reporting challenges: Integration issues with tax software like TaxJar and Avalara, which receive Shop App transactions but shouldn’t include them in merchant filings
  • Nexus acceleration: Shop App sales may count toward economic nexus thresholds in some states, potentially creating new filing obligations
  • Missing TIN: Some states require Shopify’s Tax Identification Number for marketplace facilitator reporting, which Shopify refuses to provide

Workaround:
Many merchants have disabled the Shop App’s “Discovery” feature while keeping Shop Pay active for checkout convenience. The discussion remains unresolved regarding proper state filing procedures and software integration.

Summarized with AI on October 27. AI used: claude-sonnet-4-5-20250929.
1

Looking for some assistance in understanding this. https://help.shopify.com/en/manual/online-sales-channels/shop/sales-tax

Does this mean shopify is taking sales tax from the order payout for the cost of the products the customer purchased from my online store? I am a bit confused about this because I don’t charge the customer sales tax. For any online purchases that are in the us state I reside I pay sales tax monthly for those orders. For online orders placed from states outside of mine the customer is suppose to indicate and pay when they file taxes annually.

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2

I’m hoping for clarification, as well. Seems to be written by someone who has no idea what the real implications are for merchants on this. On top of how are they charging and then deducting from our payouts, I’d like clarification on what happens when an order is placed through the Shop app from a state that I do charge sales tax for already and remit on my own to my state.

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3

Hey, this is new so I am learning the ins and outs of it as well. I’d recommend searching your products on shop.app and going through the checkout process. Add in an address (don’t actually buy anything) and then tax and shipping costs should appear. Is the tax there being added?

It is my understanding that Shopify will now calculate tax across the board in the Shop app, they will take the money and remit it to the states, acting as a marketplace facilitator. Marketplace facilitators (Amazon, Facebook, TikTok, Etsy) handle all the calculations and remittance.

You’d be responsible for still filing your returns in the states in which you have nexus for the channels for your business in which you have sales that occurred outside of a marketplace (i.e. your Shopify website).

I help that makes some sense! Try out that test and see if it’s calculating properly.

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4

Shopify handles sales tax on orders placed through the Shop app as a marketplace facilitator. This means Shopify is responsible for collecting and remitting the tax for these orders in states with marketplace facilitator laws. For orders placed directly through your Shopify website, you remain responsible for collecting and remitting the sales tax.

If you’re filing in a state that requires you to report marketplace sales separately, you should include these Shop app sales in your return but mark them as “marketplace-facilitator.” This ensures you don’t pay tax on those sales since Shopify has already taken care of remittance.

So your site should remain the same - collect tax when you ship to your own state (or any nexus states), don’t collect tax when you ship elsewhere. Shop app will do it’s own thing. Just make sure you are considering the Shop app sales in your economic nexus tracking when applicable.

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5

They are taking the funds from the order to pay sales tax for wholesale customers that are business that are purchasing to resell. I have a mix of retail and wholesale customers. How do I stop them from doing this

6

Hmm, that is interesting! Feels like it should be noted. I wonder if the Shop app isn’t meant to have a wholesale channel?

7

Hi Matt,

I have been so confused by this. I am new to Shopify and I just recently this last month turned on Shop Pay. But now from what I am understanding, every time an order is made using the app It will be taxed as a facilitator? Until I understand this better I am disabling the app on our site. They say it helps with conversions but I am not so sure. I never use it when I shop and actually find it annoying. I don’t want to have to file in every state that I don’t have Nexus in. This would be a real nightmare for us. A lot of states charge upwards of $100.00 and that ads up fast. Never mind trying to figure out regulars sales versus facilitator sales. I would be interested in yours and anyone else’s opinion on this. Thanks!

Mary

8

I was confused on this as well. I just got off chat with Shopify support. The Shop Pay automatically charges sales tax on all out of state sales whether the customer is required to pay sales tax or not. This is not right. If you have nexus with a state your customers should not be automatically being charged sales tax. This is inappropriate and in my opinion unlawful. I have deactivated the Shop Pay for my online store until Shopify removes this feature! Very frustrated that they chose to do this.

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9

So explain to me this…if I have not met the nexus threshold for a state then my customer is not obligated to pay sales tax..is that correct? It is my understanding that until I meet the nexus threshold for that state I do not collect taxes for those transactions. If that is the case, then Shop Pay automatically charging and remitting taxes that are not legitimate or required is theft…no? I have not heard of marketplace facilitator laws but will check into that. This sounds illegal to me!

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10

I disabled my Shop Pay as well because of this issue. As a facilitator, this app is considered the “seller” and therefor reaches nexus quickly, where you and I may not sell that many or that much online in one state. It feels like theft to me and absolutely not fair to my customers. I am in Ohio and just read that they do have this marketplace facilitator legislation in place. Is Paypal considered a facilitator as I do not recall them automatically charging sales tax.

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11

I am in CA but our actual location is NV so we already have nexus in both these places. I only have nexus in 5 states so for me to keep Shop Pay does not make sense. It will mean that all our customers will have to pay more because of added taxes. It will mean that I have more liability because I have to register with every state I would assume anyway, I could be wrong but that is my understanding. I read the following explanation on Craftybase.com “As a Shopify seller, you may still need to account for these transactions in your reports to your local or state authority. If you use the Shopify Tax automated filing, these transactions will be included as required. Some states also factor in marketplace transactions within their nexus requirements. So, if you’re using Shopify Tax, these transactions will be considered while calculating your tax liability insights.”

I also heard they are trying to compete with Amazon therefore pushing the facilitator status. Hmmmm…

12

I totally get your frustration—this change has been confusing for a lot of folks. I’ll take a shot at explaining it since there’s a lot of questions around this in this thread. Feel free to ask if anything’s unclear or you’ve got questions.

The Shop App is now acting as a marketplace facilitator. That means Shopify is automatically calculating, collecting, and remitting sales tax on orders processed through the Shop App, even if you don’t have nexus in the state where the customer is located. The reason states are opting for these laws is to try to take the burden of sales tax off of individual merchants plates, like yourself. It’s also a lot easier for the states to work with one company to get tax information rather than hundreds of thousands. Theoretically, this is a move to take weight off of your shoulders, but I get how it might feel like they’re overstepping—especially if you’ve already got your sales tax setup figured out.

Marketplace facilitator laws in many states require platforms like Shopify, Amazon, Walmart, Etsy, eBay, to take on the responsibility for sales tax in certain situations.

The good news for you is that your products are automatically searchable in the Shop App by default (if they’re eligible). The idea is to get your products in front of more potential customers. When someone buys through the Shop App, Shopify handles the sales tax as part of their marketplace facilitator responsibilities.

I want to point out that this is different from Shop Pay. To my knowledge, nothing has changed with Shop Pay itself, just the Shop app.

If someone comes directly to your store and checks out using Shop Pay, your store’s tax calculations will rely on whatever tax service you’re using—probably Shopify Tax.

So, if Shopify started charging sales tax in states where you don’t have nexus for direct purchases on your store, that wouldn’t be correct. But in this case, they’re only charging tax for purchases made via the Shop App, which is now operating more like a marketplace (similar to Amazon, Etsy, or Walmart).

If you’re unsure about how this applies to your store specifically, it’s worth reaching out to Shopify support and asking them to explain it more clearly. I’m happy to help look into it with you, but they probably could do it with more efficiency.

If this change doesn’t work for your business right now, you might want to look at deactivating your visibility in the Shop App instead of turning off Shop Pay altogether.

I believe you can do that by:

  1. From your Shopify admin, go to Sales channels > Shop.
  2. Click Settings.
  3. Under the Shopping section, deactivate Discovery.

My thought is that this might reduce extra traffic coming to your store. The Shop App is more about helping customers discover specific products rather than specific stores, so it could be driving additional sales for you. That said, if it’s causing more headaches than it’s worth, turning off visibility could be the way to go.

Let me know if you need help figuring this out or want me to take a closer look—I’m happy to help!

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13

So I spent a bit of time looking into this. I don’t think that the Shop App supports wholesale orders. The good news is that is likely putting your products in front of more people, but if wholesale buyers are coming through the Shop app and asking you about it, could you maybe just redirect them through your normal checkout flow?

14

Hey I just wrote up a bigger comment down on your other reply. Take a look and let me know if you still have questions! Happy to jump in if so.

15

Hey Mary!
Happy to try to answer this a bit further. A lot of this is pasted from a comment I wrote below, but I think it should answer your questions. My TLDR is that I don’t think it’s an issue with Shop Pay, rather, it is the Shop App. If you take a look at it, it will allow you to search ALL Shopify stores that have opted in to allowing their products to be searched via the Shop App. Shopify will automatically opt you in if your store and products meet all the requirements. To be honest, this sounds like a good thing to me once we come to an understanding of how marketplace facilitators work. The Shop App isn’t meant for people that would come directly to your store otherwise. Rather, it is a place similar to Amazon where you can search for a specific product and then Shopify will surface your product and store for them to view and buy. If they buy it via this channel, Shopify will charge the proper tax and report/remit it to the state for you.

If anyone comes to your site specifically, the tax will behave like normal and tax will only be applied if you are shipping to a state in which you have nexus.

Here’s what I wrote below - let me know if you have any questions!

I totally get your frustration—this change has been confusing for a lot of folks. I’ll take a shot at explaining it since there’s a lot of questions around this in this thread. Feel free to ask if anything’s unclear or you’ve got questions.

The Shop App is now acting as a marketplace facilitator. That means Shopify is automatically calculating, collecting, and remitting sales tax on orders processed through the Shop App, even if you don’t have nexus in the state where the customer is located. The reason states are opting for these laws is to try to take the burden of sales tax off of individual merchants plates, like yourself. It’s also a lot easier for the states to work with one company to get tax information rather than hundreds of thousands. Theoretically, this is a move to take weight off of your shoulders, but I get how it might feel like they’re overstepping—especially if you’ve already got your sales tax setup figured out.

Marketplace facilitator laws in many states require platforms like Shopify, Amazon, Walmart, Etsy, eBay, to take on the responsibility for sales tax in certain situations.

The good news for you is that your products are automatically searchable in the Shop App by default (if they’re eligible). The idea is to get your products in front of more potential customers. When someone buys through the Shop App, Shopify handles the sales tax as part of their marketplace facilitator responsibilities.

I want to point out that this is different from Shop Pay. To my knowledge, nothing has changed with Shop Pay itself, just the Shop app.

If someone comes directly to your store and checks out using Shop Pay, your store’s tax calculations will rely on whatever tax service you’re using—probably Shopify Tax.

So, if Shopify started charging sales tax in states where you don’t have nexus for direct purchases on your store, that wouldn’t be correct. But in this case, they’re only charging tax for purchases made via the Shop App, which is now operating more like a marketplace (similar to Amazon, Etsy, or Walmart).

If you’re unsure about how this applies to your store specifically, it’s worth reaching out to Shopify support and asking them to explain it more clearly. I’m happy to help look into it with you, but they probably could do it with more efficiency.

If this change doesn’t work for your business right now, you might want to look at deactivating your visibility in the Shop App instead of turning off Shop Pay altogether.

I believe you can do that by:

  1. From your Shopify admin, go to Sales channels > Shop.
  2. Click Settings.
  3. Under the Shopping section, deactivate Discovery.

My thought is that this might reduce extra traffic coming to your store. The Shop App is more about helping customers discover specific products rather than specific stores, so it could be driving additional sales for you. That said, if it’s causing more headaches than it’s worth, turning off visibility could be the way to go.

Let me know if you need help figuring this out or want me to take a closer look—I’m happy to help!

16

I went and read the article you sited from Craftybase and I don’t mean to publicly call them out, but the article seems to be a bit inaccurate to me. Hopefully I can clarify a few things as I feel I have a good handle on what’s happening.

Shopify has a sales channel that they automatically opt eligible Shopify merchants into. It is called the Shop App. The Shop app essentially acts like a marketplace where I could go in as a consume, search for a product, and Shopify will surface all the products that their merchants sell that are opted into the Shop App channel. So it is bringing new eyes onto your products that wouldn’t be there otherwise.

This doesn’t affect anything going on if someone visits your site directly. So customers that find you via your website will still have the normal checkout flow where tax is only collected if it’s shipped to CA, NV or any of the other five states in which you have nexus.

When someone buys through the Shop App, Shopify will send you the payout MINUS the sales tax. They will take the sales tax and report the sale and remit it to the state as it is now their responsibility for all sales bought through the Shop App.

So to clarify, the only increased liability that you should have is that you might cross economic nexus thresholds more quickly with increased sales of having another sales channel (it doesn’t count towards all thresholds, but many states will include marketplace sales in their thresholds).

I hope that helps clarify some things! I wrote a more detailed explanation in a couple of other spots in this thread, but I wanted to answer your questions specifically, too. If you have any other questions feel free to ask!

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17

Thank you for the clarification. I chatted with support and I got someone that was very helpful describing it to me. I know understand clearly the difference between the shop app and shop pay! Why do they have to make it so confusing! LOL! I enabled the shop pay again because clearly it is only the app that is charging tax whether or not you have nexus. I might enable the app down the road but as for not I have uninstalled it. The marketplace tax should be communicating properly with with Alavera and TaxJar and they did have a glitch on one of my orders which set this whole thing off. I do not have nexus in AL but my customer was charged tax because the order was through the app. It was the only order out of about 10 App orders that showed up in Tax Jar. It triggered a warning that I needed to register with AL. Tax Jar removed it but said it has no control what it receives from Shopify. I am hesitant to reinstall the app until this tax thing is running smoothly. It really could create a mess to clean up. I will try in a month or to to reinstall and see what happens. Technically as you said we should have no liability. Thanks again!

18

No problem! Happy to help. I’m actually an ex-TaxJar employee, so it’s cool to hear people are still using it.

Glad you were able to get everything sorted with both support teams.

Happy to answer any questions if you ever need!

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19

Matt, This was a huge help! I have deactivated the Shop App and did turn the Shop Pay back on. I didn’t understand the difference between the two. I just don’t like the idea of my out of state customers being charged sales tax that is not due or justified. It felt unfair. Thank you again! This has been a real journey to understand not just the Shopify aspect but also learning about marketplace facilitators in general. I had no clue! Thank you so much!!!

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20

No problem! I’m happy to help. My company specializes in filing sales tax returns for Shopify merchants, so I do my best to stay up-to-date on these types of things.

To clarify in case it helps:

Shop App is essentially an additional sales channel. While I am guessing it is not widely used as a browser platform (maybe I am wrong!), its mobile app allows customers to search for products much like they would on Amazon or Etsy. It’s a useful way to list your products and potentially increase sales. Customers generally expect to pay sales tax unless the product is exempt, so the key is ensuring your products are categorized correctly. The app will handle exemptions based on those settings. If I had a store, I’d keep it activated and honestly be happy with this change. However, there are some situations where people price shop and might notice the tax - especially on higher dollar items. But you could always direct them to your specific site if they don’t want to pay sales tax. If I haven’t really clarified, I’d be happy to jump on a call with you to talk through it.

Shop Pay is Shopify’s payment processor designed to make the checkout process frictionless. It is cool because it allows customers to check out on any Shopify store without needing to re-enter their payment information, which can significantly increase conversions. Without it, customers might need to retrieve their credit card or remember other payment credentials, which could cause people to abandon carts. I think it’s a pretty good tool for simplifying payments and enhancing customer experience.

I hope that helps!