US tax nexus
If there is a nexus, or connection, between your business and a state, then you probably need to charge sales taxes there.
Traditionally, a nexus occurs when you have a physical presence in a state, such as a store or warehouse. Some states have a broader definition of nexus, and can include any of the following:
- Solicitation of sales
- Fulfillment services
- Presence of inventory
- Presence of employees
In June 2018, the United States Supreme Court ruled that states can also require online sellers to collect sales tax based on the volume or value of transactions into a state, also known as economic nexus. For information about how this ruling might affect your business, refer to the Shopify blog post South Dakota v Wayfair: Economic Nexus, Sales Tax & Ecommerce.
If you're not sure where you have a nexus, then consult with a tax expert.
Set up taxes for your nexus
You can set up taxes to handle nexus in various ways, depending on your store's location and Shopify plan:
Destination and origin states
If you have a nexus in the United States and use automatic taxes, then your tax settings depend on the type of state where you're located:
- If the state is a destination state, then add a physical presence using the zip code for that nexus. The taxes are calculated based on where the buyer is.
- If the state is an origin state, then add a physical presence using the zip code for that nexus. The taxes for sales made within the state are calculated based on where your nexus is located.
- In states where only a single tax rate applies, add a physical presence that uses any zip code for that state. You can then add a tax override to a collection that contains applicable products, if needed. Refer to Tax overrides and exemptions to learn more about creating overrides.
If your store is on Shopify Plus, then you can add Avalara AvaTax as a paid addition to your plan. You can use Avalara to create a tax jurisdiction for the states where you have economic nexus.