Review your US tax liabilities

In the United States, whether you need to charge tax is based on nexus. Nexus is a connection between your business and a state, whether physical or economic. If you have nexus in a particular state, then you probably need to charge sales taxes there. The Manage tax liability page can help you to determine where your store has nexus.

After your store is open and has started to make sales, your sales and locations are automatically monitored to help you determine whether you have nexus in specific states. Your sales into a specific state are compared to that state's sales thresholds to identify where you might have a tax liability.

Before you monitor your tax liabilities in Shopify, review the following considerations.

  • Tax liability can only be displayed for transactions that occur within Shopify, including marketplaces where required by state law. If you make sales outside of Shopify, then they aren't included.
  • Tax liability is displayed for states that have economic nexus tax laws at the state level. States that don't have economic nexus laws aren't included.
  • Some states have local tax filing requirements that are separate from state filing requirements, such as Alaska or Colorado. Nexus is not tracked for local taxes.
  • Tax liability is displayed for states where sales occur during the threshold period for that state. Sales outside the threshold period aren't included.
  • Tax liability is calculated using net sales, not gross sales. Net sales are sales less refunds, shipping, or tax.
  • Sales aren't reflected immediately in your tax liabilities and might take a few days to update. If you cross a sales threshold that indicates you might need to charge and remit taxes in a particular state, then the month that you crossed the threshold is displayed.
  • Tax liability is displayed for physical nexus in your store's current locations. If you had a location in a state but deleted it, then it is not included.

Threshold periods

A state's threshold period is the amount of time that is considered when nexus is calculated. The state tax reference table provides state-by-state information on tax rules, including the period of time that is used to determine nexus. This period varies by state.

List of threshold periods
Threshold period Definition
Previous or current calendar year For states that consider the previous or current calendar year for purposes of determining nexus, the liability tracker first reviews your sales data for the previous year. If your store doesn't meet the threshold for nexus in the previous year, then the current year is reviewed.

If your store doesn't meet the threshold for the previous calendar year and you don't have any sales for the current calendar year, then the state is not displayed until there is at least one sale in the current year.
Twelve-month rolling period For states that consider a twelve-month rolling period for purposes of determining nexus, the liability tracker reviews your sales data from the past twelve months. On the first day of every month, the oldest month is removed from the reviewed period, and the newest month is added.
Previous calendar year For states that consider the previous calendar year for purposes of determining nexus, the liability tracker reviews your sales from the previous year. If your store doesn't meet the threshold for nexus in the previous year, then your sales data is not reviewed again until the current year is over.
Previous four tax quarters For states that consider the previous four calendar quarters for the purposes of determining nexus, the liability tracker reviews your sales for the previous four quarters. In most jurisdictions, the quarters in a year are the following:
  • January, February, and March
  • April, May, and June
  • July, August, and September
  • October, November, and December
On the first day of every new quarter, the oldest quarter is removed from the reviewed period, and the newest quarter is added.

Review your tax liabilities

From your Shopify admin, you can review your tax liabilities by going to Settings > Taxes, and then selecting United States. A preview of your tax liabilities is displayed above the states in which you're registered to collect tax. If your sales into specific states indicate a potential tax liability, then the tax liabilities section displays the state, the reason for the potential liability, and the date of the potential liability. To review more information, view the Manage tax liability page by clicking Show all liabilities.

On the Manage tax liability page, you can view states into which you've made sales. Choose which states to review by using the menu at the top of the page.

  • Action required indicates states where potential tax liability has been identified. States listed here are those where you might have physical nexus from a location, or economic nexus from sales into that state. If there are states listed in the Action required section, then you might need to start charging and remitting tax there.
  • Monitoring required indicates states where you do not have a location and your sales within Shopify, including marketplaces where required by state law, have reached at least 80% of that state's threshold for economic nexus. If there are states listed in the Monitoring required section, then review your sales into that state, taking into account sales that weren't processed by Shopify.
  • No action required indicates states where you do not have a location and your sales within Shopify, including marketplaces where required by state law, are under 80% of that state's threshold for economic nexus.

Address your potential tax liabilities

If a state is listed on the Manage tax liability page as a potential tax liability, then you should carefully review the sales tax laws for that state. Links to state tax authorities are listed in the state tax reference table. If you're not sure whether your store has physical or economic nexus in a state, then consult with a tax professional, or contact that state's tax authority.

If you've determined that you need to charge sales tax in a state, then you can set up tax collection from the Manage tax liability page. Before you begin, ensure that you've registered with the state's tax authority to charge and remit sales tax.

Steps:

  1. On the Manage tax liability page, locate the state, and then click Start collecting taxes.
  2. In Sales tax ID, enter your sales tax ID. If you have applied for a sales tax ID but don't yet have one, then leave this field blank. You can update it when you receive your sales tax ID.
  3. Click Collect sales tax.

Tax liability expiry

Falling below the threshold for nexus in a particular state, whether physical or economic, might not terminate your tax liablity immediately. If you believe that you no longer have nexus in a specific state, then contact the state tax authority before you stop charging tax to your customers there.

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