Hopefully there are some fellow NJ clothing retailers that can provide their experience with collecting sales tax.
NJ is a destination state, so the sales tax you charge is based on the address of the customer.
- If you have no nexus in the state of the shipping address, then no tax is charged.
- If you have nexus in the state of the shipping address, then the customer's location is used to determine taxes.
As I understand it, since I have nexus in NJ, the only state I must collect sales tax is NJ?
Since my products are tax exempt, I can setup a tax override for NJ and set it to 0%?
Now, the confusing part for me is that if someone in FL makes a purchase (where clothing is not tax exempt), they don't pay a sales tax because I don't have nexus there?
In effect, I won't be collecting sales tax from any of my US customers. Hope that made sense.
Thank you for getting in touch. Shopify cannot provide you with direct tax advice, and we would always recommend you speak to a tax professional if you are unsure of your obligations, but from you've said I believe you have the right idea.
Generally, you are required to charge taxes to customers in the US if you are deemed to have a tax nexus in the state they are based in. This could be a physical nexus, such as having an office or employees in a state, or an economic nexus, which would apply if your business earns a certain amount of revenue from customers or receives over a number of orders from within a state. Destination or origin-based states determines whether the customer or the merchant's location is used to calculate the amount of tax charged, if indeed you are required to collect taxes from customers within a state.
If you are solely based in New Jersey, and have no tax nexus in any other state, then you likely will not need to collect taxes from US-based customers in any of the other 49 states. In terms of the clothing tax rules, Shopify does have built-in overrides for the sales of clothing products in the states of New York, Massachussets, and Rhode Island, but not for New Jersey. If you believe that your products are tax-exempt for sales in New Jersey, then yes, you can add a tax override for the state and set the tax rate to 0% for the products in question.
I hope this has helped clear things up, but please let me know if you have more questions on this topic.