US destination and origin states

The tax rates that you should charge will be affected by whether your state is an origin state or a destination state.

Destination states

In a destination state, the sales tax you charge is based on the address of your customer.

  • If you have no nexus in the state of the shipping address, then no tax is charged.

  • If you have nexus in the state of the shipping address, then the zip code of the shipping address is used to determine state, county, and city taxes.

Origin states

In an origin state, the sales tax you charge is based on your location's nexus.

  • If you have no nexus in the state of the shipping address, then no tax is charged.

  • If you have nexus in the state of the shipping address, then the zip code of your store's nexus is used to determine state, county, and city taxes.

Exceptions

California and Alabama operate similarly to each other, in that the sales tax you charge is based on your location's nexus with some particular rules that modify the rates. These states require that you charge tax when your location's nexus shares a city, county or state with your customer's shipping address.

  • If you have no nexus in the state of the shipping address, then no tax is charged.

  • Sales within the same city and county observe all three taxes. State, county, and city taxes are applied to the order.

  • Sales to a different city in the same county pay state and county taxes.

  • Sales to a different county in the same city (in the case of a city that spans multiple counties) pay state and city taxes.

  • Sales to a different county and a different city in the same state pay only state tax.

Remote seller rules

A remote seller is a merchant that isn't physically located in a particular state, but has economic nexus there. Most states have rules determining what defines a remote seller. If you're not sure whether selling in a particular state creates economic nexus for you, then you should consult a tax expert.

If you're a remote seller in an origin state, then you need to charge taxes based on the location of your customer. Remote sellers generally charge taxes on a destination basis, so you can add a presence in your Shopify admin for every zip code in the state where you expect to make sales.

For example, you run an online business based in New York, but you also have economic nexus in Illinois (which is an origin state). This means that you are a remote seller in the state of Illinois. When a customer from Illinois places an order, you charge them Illinois sales tax based on the address of the buyer, since you have nexus in that state.

Ready to start selling with Shopify?

Try it free