In a bid to simplify the process of tax management in the United States, Shopify has launched a new offering called Shopify Tax. The new product allows merchants to control sales tax insights and collection from their Shopify admin itself. Sales tax in the US is quite complicated as rates and regulation varies across 46 states and over 11,000 jurisdictions.
By easing tax compliance process, Shopify Tax allows business owners to focus more on things that matter and spend less time managing sales tax. Shopify Tax comes with three primary features:
- It tracks state-level tax liabilities by overseeing current sales tax obligations.
- It collects the correct amount at the right time by activating collection at checkout with product and all updates are automatic.
- Once the products are categorised, Shopify applies regulatory changes and rate as and when required.
Shopify’s VP Product Kaz Nejatian took to Twitter to inform about Shopify Tax. “Managing sales tax is a headache for most entrepreneurs.That’s why we made Shopify Tax. The easiest way to give business owners a path to tax compliance, no matter their size. A huge win for our merchants,” he tweeted.
Managing sales tax is a headache for most entrepreneurs.
— Kaz Nejatian (@CanadaKaz) October 13, 2022
That’s why we made Shopify Tax. The easiest way to give business owners a path to tax compliance, no matter their size. A huge win for our merchants. https://t.co/BSgj8OvEMA
He said that the team has been working on Shopify Tax for around two years. Labelling it as “the best tax calculation product in commerce”, Nejatian said that Shopify will next add tax filing to it.
“Shopify Tax is built on top of our new Tax Platform. Next year (and before anyone has to pay for Shopify Tax), we will have multiple new tax engines on this platform, including the free legacy tax product at Shopify. Merchants will have multiple options, paid and free,” he wrote in another tweet.
Shopify Tax is built on top of our new Tax Platform.
— Kaz Nejatian (@CanadaKaz) October 14, 2022
Next year (and before anyone has to pay for Shopify Tax), we will have multiple new tax engines on this platform, including the free legacy tax product at Shopify.
Merchants will have multiple options, paid and free.
WHY IS SHOPIFY TAX AN IMPORTANT PRODUCT?
As merchants expand and grow their business, they are liable to collect sales tax, hence, they have to:
- Track sales in each state and also register with each state as per requirement.
- Examine state requirements to understand when to begin collection.
- Collect right amount according to tax rules applicable to your store and your customer’s address.
- Stay alert for sudden regulatory changes.
- Remit right amount at the right time and to the right jurisdiction.
- Managing tax compliance across 46 states.
SHOPIFY TAX’s FEATURES
- Sales Tax Insights: Merchants will get a state-by-state overview of current sales tax obligations to know where they are liable. Merchants can prepare accordingly as sales tax insights also let them know where they are approaching tax thresholds.
- Tax Rates With Rooftop Precision: Taxes are usually calculated at zip code or city level which does not account for all local taxes. This simply means that merchants might be over-or under-collecting tax. Shopify Tax helps apply right taxes at the right time as calculations are done with rooftop precision or say buyer’s precise address. It takes into account specific tax rules of customers so that merchants don’t have to.
- Product Categorization: Tax in each state varies according to the product sold. By categorising products, business owners can make sure that they are collecting right rates. Shopify recommends the right product category and makes sure that merchant apply the correct tax rates. Recommendations made are based on the product descriptions, though you can review and modify the category as per choice. Access to product categorization and sales tax insights is included in Shopify subscription, irrespective of sale.
- Automatic Updates: Shopify Tax will automatically apply rate and regulatory changes as and when they pop up so that merchants do not have to wade through endless tax changes.
- Delivering Valuable Information: Shopify Tax makes sure that merchants are regularly notified of the significant changes taking place around the tax world that can possibly impact the business.
- Seamless Third-party Integrations: Shopify Tax joins hands with merchants’ e-commerce tax apps and allows them to customize end-to-end compliance solution best suited for their business.
Our long-term goal is to build a truly end-to-end solution for your business. Today, we’re starting out by focusing on two areas: knowing where you’re liable and calculating and collecting tax.
Vibhor Chhabra, Head, Tax Products, Shopify
HOW SHOPIFY TAX PRICING WORKS
Shopify won’t charge for this latest product for your first $100,000 in the US sales each calendar year. Business owners whose stores don’t exceed this figure will never have to pay for sales tax collection. However, if your business surpasses $100,000 in US sales in a calendar year, you will be eligible to pay a nominal a 0.35 percent fee per order in jurisdictions where taxes are collected. Shopify Plus merchants will be charged a 0.25 percent fee.
FREE FOR THE REMAINDER OF 2022
Vibhor Chhabra, head of tax products at Shopify, says Shopify Tax is free for merchants till the end 2022, irrespective of the amount of sale. “Our long-term goal is to build a truly end-to-end solution for your business. Today, we’re starting out by focusing on two areas: knowing where you’re liable and calculating and collecting tax. Why start here? At Shopify, we actively monitor the most common and pressing requests we get from merchants like you,” he said in a blog post.
“This information helps us decide what to build next and learn about whether our products or alternatives are meeting your needs. These two areas consistently appeared at the top of those lists. Additionally, these solutions provide a universal benefit for all merchants regardless of size, industry, or tax expertise,” he added. Next, Shopify plans to provide “advanced reporting that provides a detailed breakdown of how much you sold, and collected, in a format that makes tax-filing a breeze!” Chhabra said further.
HOW TO USE SHOPIFY TAX TO COLLECT SALES TAX?
Merchants can access Shopify Tax through your store’s admin. For that they need to follow three steps:
First, registration with the state authority is mandatory after which tax collection can be turned on where there is nexus. Usually, merchants will be liable when they start selling products where they have a physical presence.
Properly categorize products so that Shopify can properly apply product-specific tax rates
As business grows, merchants should review sales tax insights to see if they are liable to pay tax in any additional states. In case of a tax obligation, activate tax collection. Remember, it is important to register with the state before starting tax collection.
Meanwhile, merchants should not forget that as they set up tax collection with the e-commerce giant, it is their responsibility to contact a tax professional or local tax authorities to check if they are collection correct rates from customers. Also ensure that taxes are filed and remitted correctly.
WHAT NEEDS TO BE DONE IF YOU ARE ALREADY USING SHOPIFY FOR TAX?
If you are already using Shopify for tax, then no need to worry or make any changes to avail the benefits of Shopify Tax as the store will get automatically upgraded. However, make sure to review your product categorisation so that you charge the right rate at checkout.
You also need to check sales tax insights and activate collection in applicable states. Meanwhile, do not forget to register with the authorised state agency and file your taxes. Apart from these, Shopify Tax will be responsibly handle updates and inform regarding the changes affecting your business.
