Tax compliance is the most boring chapter of running a Shopify store, and the most expensive one to get wrong. A short guide to getting it set up correctly the first time — without becoming a tax expert.
The TL;DR
If you sell:
- Only digitally and to one country: simple, follow Shopify’s setup wizard.
- Physically in one country: register where you have nexus, configure Shopify, done.
- Internationally: complicated; you almost certainly need help.
This article is the version for the second case (physical, one country, growing into more).
What “nexus” means and why it matters
Nexus is the legal connection between your business and a tax jurisdiction. If you have nexus, you have to collect and remit sales tax there.
You have nexus where:
- You’re physically located (your home/HQ)
- You have inventory (your warehouse, including FBA, including 3PLs)
- You have employees or contractors (if they create economic presence)
- You exceed an “economic nexus” threshold — usually $100k revenue or 200 transactions/year per state in the US
Most US Shopify stores eventually hit economic nexus in multiple states. You can’t ignore this — you’ll owe back taxes plus penalties.
Step-by-step setup for a US-based store
1. Identify where you currently have nexus
- Your HQ state (almost always)
- States where you store inventory (3PL, FBA fulfilment centres)
- States where you exceed the economic threshold
Shopify’s “Manage tax liability” report (Shopify Tax) shows you where you’re crossing thresholds in real-time. Use it.
2. Register in those states
For each state with nexus, register for a sales tax permit with that state’s Department of Revenue. Free or low-cost; takes 1–4 weeks.
Don’t try to use Shopify Tax until you’re registered. Collecting sales tax without a permit is illegal in most states.
3. Enable Shopify Tax
Settings → Taxes and duties. Enable Shopify Tax (free up to $100k US sales/year). Add the states you’re registered in.
Shopify automatically calculates the correct rate based on the customer’s address (this is harder than it sounds — rates vary by city, county, sometimes neighbourhood). Pre-Shopify-Tax stores used “rate tables” which were wrong about 5% of the time. Shopify Tax fixes this.
4. Configure tax overrides if needed
Some products are exempt or differently taxed:
- Clothing in some states (PA, MN, NJ all have clothing exemptions up to a limit)
- Food in most states
- Digital products in some states
Add overrides per product or per collection. Shopify’s tax engine handles most of this automatically if you use the right product category.
5. File and remit
Shopify collects tax. You still have to file and remit to each state. Frequency depends on volume — monthly, quarterly, or annually.
Two approaches:
- DIY — file directly on each state’s Department of Revenue website. Free, painful with many states.
- Automate via TaxJar / Avalara — they pull data from Shopify, file returns automatically. ~$19–$199/mo depending on volume.
If you’re filing in 3+ states, the automation tool pays back in saved time and avoided errors.
International selling
If you sell to customers outside the US (or are based outside the US), the rules multiply:
- EU — VAT, OSS / IOSS schemes, country-specific thresholds
- UK — VAT registration above £85k threshold for UK sellers; if you sell in to the UK from outside, register for VAT regardless of volume above £0
- Canada — GST/HST + PST in some provinces
- Australia — GST above AUD 75,000 threshold
- EU sellers selling US — need to register in US states once you exceed economic nexus there
Shopify Tax handles US + Canada cleanly. For EU/UK, use Avalara, Quaderno, or TaxJar’s international add-on. Don’t fake it with manual rates.
Common mistakes that cost money
- Not registering before collecting. Big fines.
- Forgetting Amazon FBA / 3PL inventory creates nexus. This is the mistake we see most often. Your fulfilment partner storing your goods in 6 states means you have nexus in 6 states.
- Using Shopify Tax but never filing. You’re collecting tax that you owe to the state. Not filing is fraud.
- Forgetting marketplace facilitator laws. Some platforms (Amazon, Etsy) collect sales tax on your behalf. Don’t double-collect on your Shopify store for the same orders.
- Running B2B without tax exemption certificates. B2B buyers often have resale certificates that exempt them from sales tax. Collect the certificates and configure exemption in Shopify.
When to hire someone
If any of these are true:
- You sell in more than 5 states
- You sell internationally
- You have a complex catalogue with mixed taxability (some food, some clothing, some digital)
- You’re audited or about to be
Hire a sales tax specialist or use Avalara/TaxJar’s full-service offering. The cost is real ($300–$2,000/month) but lower than the cost of a single audit.
The honest version
Most stores under $500k revenue can run Shopify Tax + DIY filing in 1–3 states cleanly. Most stores above $1M need automation. Most stores in regulated categories (alcohol, CBD, tobacco) need a specialist regardless of revenue.
Tax isn’t sexy. It’s the most boring, least Instagram-able part of running a Shopify store. It’s also the one that takes you down faster than anything else if you ignore it. Do it once, do it right, automate the rest.