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How does sales tax calculation work in destination states on Shopify?

2SAAB
Visitor
1 0 0

Hi- A few questions regarding the set up of Sales Tax in Shopify. 

We are in a destination state, so we need to tax various rates based off of where we are shipping to. I have set up my state in the tax set up. Does Shopify have the various rates within each state already loaded into the system to calculate? Or is this something I need to do? We will also be shipping to other states, so same questions. Are those tax rates automatically calculated in the system? Or what do I need to do to set that up?

 

If I need to create Overrides, please share how to do that. I am only able to see where to create shipping overrides for states. 

 

Please advise on how Shopify works with destination states, what is automatically set up with Shopify's system, and if there is anything I need to manually set up. 

Thanks!

 

Accepted Solution (1)

Victor
Shopify Staff
2449 226 522

This is an accepted solution.

Hi @2SAAB,

Thank you for getting in touch. If you have a tax nexus in a state that uses destination-based tax system, Shopify will automatically calculate and charge the customer the appropriate tax amount based on the shipping address provided. Shopify has an internal tax database that is used for the calculation of state, county and city taxes. You would not need to manually add rates unless you had a specific reason to do so, and the key thing is that you provide Shopify with any and all locations and addresses that may serve as tax nexuses in US states. The automatic tax system can then work as intended.

You can read more about setting up US taxes in Shopify here. You can also place some test orders on your store if you'd like to see the automated tax system being used in practice. 

Please let me know if you have further questions!

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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Replies 15 (15)

Victor
Shopify Staff
2449 226 522

This is an accepted solution.

Hi @2SAAB,

Thank you for getting in touch. If you have a tax nexus in a state that uses destination-based tax system, Shopify will automatically calculate and charge the customer the appropriate tax amount based on the shipping address provided. Shopify has an internal tax database that is used for the calculation of state, county and city taxes. You would not need to manually add rates unless you had a specific reason to do so, and the key thing is that you provide Shopify with any and all locations and addresses that may serve as tax nexuses in US states. The automatic tax system can then work as intended.

You can read more about setting up US taxes in Shopify here. You can also place some test orders on your store if you'd like to see the automated tax system being used in practice. 

Please let me know if you have further questions!

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
 - Was my reply helpful? Click Like to let me know! 
 - Was your question answered? Mark it as an Accepted Solution
 - To learn more visit the Shopify Help Center or the Shopify Blog

jessnava
Tourist
5 0 1

Hi I'm going through the same thing. Would you have a video recording I could watch as reference? thank you! 

Victor
Shopify Staff
2449 226 522

Hi @jessnava,

Thanks for getting in touch. Can you tell me a bit more about your situation, and for which states you need to enable taxes for? I'd be happy to offer some more tailored advice if you can provide me with more information about your store and your tax obligations. I'd also recommend checking out the comprehensive US taxes guide we have on the Help Center, which covers a lot of the basic information you need to know when setting up taxes on your Shopify store.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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jessnava
Tourist
5 0 1
Hi Victor, i think I figured it out. I thought I needed to collect taxes in every state but turns out I only need to collect for my state now as I don't have nexus in other states. Still learning about nexus.
Victor
Shopify Staff
2449 226 522

Hi @jessnava,

Yes, that sounds correct, as you likely will only need to collect taxes in states where you have a tax nexus. This includes having a physical nexus in a state (such as an office or warehouse) or an economic one (such as making a certain amount of revenue from orders made to customers in that state).

I hope you have a better handle on your tax obligations now, but please feel free to reach out again if you have more questions.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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jessnava
Tourist
5 0 1
Thank you so much! This made me feel better!
Victor
Shopify Staff
2449 226 522

Hi @jessnava,

My pleasure! Please let me know if you have further questions about this, and have a great end to your week.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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 - Was your question answered? Mark it as an Accepted Solution
 - To learn more visit the Shopify Help Center or the Shopify Blog

jessnava
Tourist
5 0 1
I am having an issue with my images. When they are uploaded to my store they become dull and not as bright as I edit them. Do you know if this can be fixed? Is it a setting?
Victor
Shopify Staff
2449 226 522

Hi @jessnava,

This can happen when the images are displayed on your storefront via your theme, which may compress images to ensure faster loading times on your site. You can read more about compression rates here, which provides guidelines on which image types are the best to use and how your images are compressed depending on the size and quality of the images you are uploading.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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SamadRaza
New Member
4 0 0

Hello Victor, 

Thanks for sharing that. Btw how frequently is this tax database updated? And how are these tax rates calculated? Just want to understand how it works behind the scenes

SamadRaza
New Member
4 0 0

@Victor Does anything get retroactively adjusted? How long does it take for a rate change to be processed?

Victor
Shopify Staff
2449 226 522

Hi @SamadRaza,

 

Thank you for your questions. I cannot provide specific answers on how often our tax database is updated or how it works exactly, but we have a dedicated taxes team who work to ensure that the automated tax system within Shopify is up-to-date and accurate. Taxes charged on orders are based on whatever tax settings were in place at the time the order was placed.

 

Is there a specific tax rate you wanted to know about? Please also be aware that merchants can add tax overrides if they want a different rate than what is provided by default.

Victor | Social Care @ Shopify 
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SamadRaza
New Member
4 0 0

Hello @Victor,
Thanks for writing back. Basically as a merchant, I wanted to know how long does it take for the tax rate to change since we get orders and daily basis and must ensure that they are being taxed correctly. Is there an email that can connect me with someone from the tax team? 

Victor
Shopify Staff
2449 226 522

Hi @SamadRaza,

 

Right, I see. Our tax team do not have a direct email and any tax-related queries must go through our support team first.

 

We recommend merchants always understand their taxes and check their orders regularly. If a discrepancy is found, you can then reach out and our team will investigate if you can provide documentation or evidence that shows the incorrect tax rate is being charged.

 

Please note that we recognize how vital it is that merchants are charging the correct amount of tax and our tax system is updated regularly as a result. You should not anticipate regular issues with outdated or incorrect tax rates.

Victor | Social Care @ Shopify 
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WestarSolutions
Visitor
1 0 0

Issue we have with destination based sales tax and Shopify is that Shopify assesses the tax based on shipping address even if items are picked up.  A customer would have to plug in our shipping address zip code to their delivery info to make it calculate correctly and I have found by experience that a customer will always choose the incorrect zip code (their zip rather than our warehouse where order is pick up from) if it is cheaper, resulting in me (the seller) picking up the cost of the short-paid sales tax.  Why even give the buyer the option to change shipping address if they choose "pick-up" as their delivery choice???  AND, can Shopify please update this to stay compliant with Washington State and other state's destination-based sales tax regulations?  Otherwise your customers will have to keep eating the uncollected sales taxes.