Intro:

Are you running a Shopify business? Then you may have noticed that Shopify is now charging for sales tax calculations. This paid service is called Shopify Tax, and it 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.

What is Shopify Tax?

Shopify Tax is a service provided by Shopify that allows you to set up automatic sales tax collection. In order to use this service you must first set it up for each state where you have NEXUS (physical or economic) in the United States. If you don’t know what nexus is or would like to know more about it, then click the following link to for more information: Sales tax nexus resources

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?

Here is a summary of the Shopify Tax fees.

• The fees for Shopify Tax only apply to US online orders, not point of sale orders.

• Shopify Tax does not charge a fee (i.e., free) up to $100,000 in US sales each calendar year.

• After $100,000 in annual US sales, the fees are 0.35%. For Shopify Plus merchants, the fees are 0.25%.

• 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?

Here are a couple of examples to show how Shopify Tax fees are calculated.

Example 1: $30 lamp

Your sell a $30 lamp in a state where you collect sales tax. You will be charged a transaction fee of $0.10 ($30 x 0.35%), or $0.08 ($30 x 0.25%) if you are using Shopify Plus.

Example 2: $1,000 boat

You sell a $1,000 boat in a state where you collect sales tax. You will be charged a transaction fee of $0.99. This is due to the cap per transaction fee.

• Calculation: $1,000 x 0.35% = $3.50, this is greater than $0.99, so you will only be charged the capped amount.

It’s important to note that the fee is calculated based on the TOTAL transaction amount including taxes and shipping.

All fees for Shopify Tax will be reflected on your Shopify subscription invoice.

Should you use Shopify Tax?

Now that you have an understanding on what Shopify Tax is and how the fees are calculated, let’s see if you should use Shopify Tax for your Shopify business.

Yes, you should be using Shopify Tax if:

• 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:

• 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.

Outro:

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 are looking for some help and are ready to work with an experienced professional, we specialize in helping Shopify sellers set up and streamline their bookkeeping. You can click on the "Let's Chat" button at the top of the page to schedule a consultation.

If you are looking for some help and are ready to work with an experienced professional, then click on the "Let's Chat" button to schedule a consultation.

Richard is the Founder & CEO of LeapFrog Bookkeepers.