If you’re running a Shopify business, you may have noticed that Shopify is now charging for sales tax calculations. This paid service, called Shopify Tax, was recently included on all Shopify accounts to help manage sales tax calculations. So what exactly is this service and how could it impact your Shopify business? I’m here to help clarify what you need to know about the Shopify Tax service and its fees, so you can decide whether it’s a good fit for your Shopify business. Keep reading or click on my video linked below to hear Shopify Tax explained.
What is Shopify Tax?
For starters, let’s take a look at what exactly Shopify Tax is. Shopify Tax is a service provided in Shopify that allows you to set up automatic sales tax collection. To use this service you must first set it up for each state where you have physical or economic nexus in the United States. [If you don’t know what nexus is, click the following link to watch my related video: Economic nexus: What every Shopify seller should know.]
Shopify Tax was free through January 15, 2023. According to Shopify, everyone was automatically upgraded to the new Shopify Tax after that date. This means that after that date, Shopify merchants using Shopify Tax will be subject to fees.
What are the fees for Shopify Tax?
Next, let’s dive into what you need to know about Shopify Tax fees.
- The fees for Shopify Tax only apply to US online orders, not point of sale orders.
- Shopify Tax is free for up to $100,000 of US sales each calendar year.
- After $100,000 of annual US sales, the fees are 0.35% (or 0.25% for Shopify Plus merchants).
- You will only be charged for sales in a state where you have enabled sales tax collection.
- It is also important to note that the fee is capped at $0.99 per transaction and $5,000 per year.
How are Shopify Tax fees calculated?
To see how Shopify Tax fees are calculated, let’s go over two examples provided on Shopify’s website.
Example 1: $30 t-shirt
In the first example, a merchant sells a $30 t-shirt in a state where they collect sales tax. They’ll be charged a transaction fee of $0.10 ($30 x 0.35%), or $0.08 ($30 x 0.25%) if they are using Shopify Plus.
Example 2: $20,000 rug
In another example, a merchant who sells a $20,000 rug in a state where they collect sales tax will be charged a transaction fee of $0.99 because of the cap per transaction fee.
It’s important to note that the fee is calculated based on the total transaction amount including taxes and shipping.
Any fees for Shopify Tax will be reflected on your Shopify subscription invoice.
Should you use Shopify Tax?
Now that you know what Shopify Tax is and how the fees are calculated, let’s explore whether you should use Shopify Tax for your Shopify business.
Yes, you should be using Shopify Tax if the following apply to you:
- You’re not using a 3rd-party service to manage your sales tax.
- You’re concerned about sales taxes.
- You’re are not working with a sales tax professional.
- You’re looking for a higher degree of accuracy and more automation.
No, you should not be using Shopify Tax if either of these apply to you:
- You’re using a 3rd-party service to manage sales taxes.
- You’re working with a sales tax professional who is using something other than Shopify Tax to make your sales tax calculations.
Closing
Now that you’ve heard Shopify Tax explained, hopefully you have clarity on how Shopify now charging for sales tax calculations could impact your Shopify business. So will you be using Shopify Tax to help manage your sales tax calculations? If you do, leave a comment to let me know what you think about it. I’d love to hear from you.
If you are looking for some help and are ready to work with an experienced and reliable Shopify accounting pro, my team and I specialize in helping Shopify sellers set up and streamline their bookkeeping. You can use this link to see how we might be able to work together. I look forward to hearing from you.
Finally, if you want to learn more about Shopify bookkeeping, I encourage you to explore my YouTube channel playlist for Shopify sellers. Also make sure to get a copy of my free Shopify Bookkeeping Blueprint. Then, for an even deeper dive, check out my online course, the Shopify Bookkeeping Method, which shows you how to work on Shopify financials step-by-step using QuickBooks Online and A2X. Lastly, for some additional support, come join my Facebook community where you can connect with other Shopify sellers and professional bookkeepers online.
