Why are some customers not being charged tax on my online store?

Accounting & Taxes

Topic summary

Store owners are confused about Shopify’s default tax collection behavior, which only charges sales tax to customers within the merchant’s home state. Many merchants mistakenly believe they need to charge tax on all orders and are concerned about paying uncollected taxes.

Key clarification from tax professional:

  • Merchants should only collect sales tax in states where they have physical presence (nexus) or meet economic nexus thresholds
  • Most states use $100,000 in sales OR 200 transactions as thresholds
  • Charging tax without proper state registration is illegal (“collecting not remitting”)
  • Origin-based states like Texas still only tax in-state sales at the origin rate

Common issues reported:

  • Tax only charging for home state customers (working as intended for most cases)
  • Confusion about whether to manually add tax rates for all states (generally not recommended)
  • Some reports of tax calculation errors after platform updates
  • Difficulty getting clear guidance from Shopify support

Recommended actions:

  • Consult local tax professionals to determine actual obligations
  • Only enable tax collection in states where legally required to register
  • Use tax overrides cautiously and only when necessary
  • Verify economic nexus status in other states before expanding collection
Summarized with AI on October 28. AI used: claude-sonnet-4-5-20250929.
26

Hello!

I just wanted to clarify for myself since I’m new to this thread. I do not have a brick and mortar and I run my entire business online. My sales are under $50,000/year since I am a small business. I currently am in Michigan and I charge MI sales tax for those purchases made online from people within my state. Obviously shopify doesn’t charge tax for my products when out of state purchases are made.
Do I even need to be taxing my items at all? Even within Michigan? From what I am understanding, because my business is all online and so small, I do not need to tax my items. I just wanted to check!