Understanding Shopify Sales Tax Collection – A Comprehensive Guide

When it comes to running an online business, one of the most important things you need to consider is sales tax collection. As an e-commerce platform, Shopify supports its merchants by offering a sales tax collection feature that automates the entire process. This feature ensures that you comply with the relevant tax laws and regulations while avoiding costly mistakes. In this article, we’ll take a closer look at how shopify sales tax collection works, and what you need to know to get started.

What is Shopify Sales Tax Collection?

Shopify Sales Tax Collection is a built-in feature that automatically calculates and collects applicable sales tax rates on behalf of Shopify stores. This feature is free, and it is available to all Shopify merchants regardless of their plan type. When a customer checks out, the sales tax rate is calculated based on their shipping address and the tax rules set by the merchant’s state or province.

How to Set up Sales Tax Collection

To set up sales tax collection for your Shopify store, go to the “Settings” page on your dashboard, then select “Taxes.” Here, you can enable Shopify to calculate taxes for you, specify the region your business is located in, and add tax rates for any other states or provinces where you have a tax obligation. You can also set up tax overrides for specific products or collections and assign tax exemptions to specific customers.

Tax Rules You Need to Know

Sales tax rules can vary by state or province, making it crucial for merchants to understand the tax obligations in each jurisdiction they do business in. Some states have a flat sales tax rate, while others have a mixed rate that includes both state and local sales tax. Some states do not charge sales tax at all. It’s important to research all the tax rules that apply to your business before setting up sales tax collection on Shopify.

Benefits of Using Shopify Sales Tax Collection

The main advantage of using Shopify’s sales tax collection feature is that it saves merchants time and effort. Instead of manually calculating and collecting taxes for each transaction, Shopify handles everything automatically. Merchants can also be assured that they are in compliance with the relevant tax laws and regulations. Additionally, Shopify provides merchants with tax reports that can be used for accounting and tax purposes.

Common Mistakes to Avoid

While the sales tax collection feature on Shopify is reliable, there are some common mistakes that merchants should avoid. One of the most significant is failing to collect sales tax in the right states or provinces. Merchants should make sure that they have set up tax rates in all regions where they have a tax obligation. Another mistake is overlooking tax exemptions or overrides. Merchants should ensure that any customers who qualify for tax exemptions are not paying sales tax.


Setting up Shopify Sales Tax Collection is crucial for any merchant running an online store. It ensures that you are in compliance with all relevant tax laws while reducing the risk of costly mistakes. By using Shopify’s sales tax collection feature, merchants can save themselves time and effort while also providing their customers with a hassle-free checkout experience. Remember to research all the tax rules that apply to your business and avoid common mistakes, and you’ll be well on your way to running a successful Shopify store.

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