Shopify describes itself as a complete solution for ecommerce retailers looking to setup and run a successful online store. Shopify helps organize your products, customize your storefront, accept credit card payments, and track and respond to orders. But what does Shopify provide in terms of collecting and remitting sales taxes?
While Shopify, and other platforms such as Amazon and Etsy, will help you collect sales taxes on your orders, they do not report them on your behalf.
According to the Shopify “Settings” page:
“You’re responsible for reporting sales taxes to your government, so Shopify helps you by generating a tax report. This feature is available on the Professional plan or higher.”
There are really two things to take note of in that statement. First, you’re responsible for reporting. Second, Shopify will generate a report for purposes of reporting what you collected only if you have the Professional plan or higher.
So where does that leave Shopify users (and users of other ecommerce platforms)? Unfortunately, while having Shopify’s report available can be helpful, it doesn’t appear that these reports breakdown the jurisdictional detail of collected taxes. For instance, if you are located in Colorado and are responsible for state sales tax and a home rule jurisdiction it will be up to you to keep track of the amounts charged by both areas. You will also be responsible for reporting for both.
But ecommerce retailers should not despair. Products like Shopify are still incredible tools for purposes of starting and growing an online business. It is up to you to take things one-step further though.
If you don’t want to add the additional tracking to your already busy business life you can always automate the sales tax process. After you connect your ecommerce account(s) to a product, such as Taxify, you can pull in your orders, which will then be subtotaled by state, city, and any special tax districts that may apply. These sorts of products will then report on your behalf according to your payment schedule (e.g. monthly, quarterly, etc.) and will also submit payment from an account you have designated.
Some products even provide services, such as, tax-gap analysis(eliminate the estimation gap between what you collect in sales tax and what you owe to the Department of Revenue), monitoring all of your shipments and configurations and will automatically notify you if anything needs attention, and certificate management (keep all your licenses in one place). Your reports and payments are always available for review or downloading, which can be a lifesaver if an audit occurs.
With products that automate, you don’t have to deal with any spreadsheets or sales tax tables to determine how much sales tax you collected from each zip code. It can seem like a tenuous leap to add costs to your monthly budget, when you are trying to grow, but the cost-benefit of these products are worth it!