Sales Tax on Shopify: How to Set It Up Correctly

Sales tax on Shopify may seem straightforward at first, but it quickly becomes complex with nexus rules, state thresholds, product exemptions, and filing requirements. This guide by NextSky explains everything you need to know, from determining your tax obligations and setting up Shopify correctly to staying compliant as your business grows.

Step 1: Register with your state tax authority

Before configuring Shopify, register with each state's Department of Revenue where you have nexus. You'll typically need your business name, structure, EIN or SSN, and estimated annual sales. Once approved, you'll receive a sales tax ID (also called a seller's permit), you'll need this number inside Shopify.

Step 2: Set up tax collection in Shopify

For U.S. Sellers

Go to Settings > Taxes and duties.
In Manage sales tax collection, click United States.
In Regions you're collecting in, click Collect taxes.
Select the state, enter your Sales Tax ID, and click Collect taxes.

Set up tax collection in Shopify for U.S Seller

Repeat for every state where you have a valid permit. Optionally, click Advanced options to configure whether tax applies to shipping charges (this varies by state).

For Non-U.S. Sellers (EU, Canada, Australia, etc.)

Go to Settings > Taxes and duties.
Click your country or region, then click Collect sales tax (or Collect VAT).
Enter your tax number and click Collect tax.

As of May 13, 2026, Shopify's Basic Tax is no longer available for new stores in Canada, the UK, or the EU. New stores in these regions should use Shopify Tax or manual tax settings.

Step 3: Manage your tax registrations

You can add, edit, or remove registrations at any time from Settings > Taxes and duties. Click the region you want to update, then use the Collect sales tax button for new registrations or the ... menu to edit existing ones.

Step 4: Configure how tax is calculated and displayed

Go to Settings > Taxes and duties > Decide how tax is charged to control these key options:

Include or exclude tax from product prices

Setting	Effect
Prices exclude tax	Tax added at checkout based on customer location (default for U.S. stores)
Prices include tax	Tax built into the listed price — all customers see the same price
Based on customer country	Shopify adjusts automatically per customer location

For example, a French store selling a €20 product at 20% VAT: with "exclude tax," a French customer pays €24; with "include tax," they pay €20 (tax absorbed into the price). Choose the setting that matches your market and any local legal requirements.

Charge a shipping tax: Enable this if your state requires it. Shopify applies each state's default rules, but you can override per region.

Step 5: Set up product tax overrides

Not all products are taxed equally. Children's clothing, groceries, and digital goods often have reduced rates or full exemptions depending on the state.

With Shopify Tax: Assign a tax category to each product (Clothing, Food & Beverages, Software, etc.) from the product page. Shopify Tax applies the correct state-level rate automatically.
With manual settings: Create a collection of affected products (Products > Collections > Create collection), then go to Settings > Taxes and duties, select the region, and click Add a tax override. Choose the collection, set the rate (or 0% for exempt items), and save.

Step 6: Handle tax-exempt customers and products

For customers exempt from sales tax (resellers, non-profits):

Go to Customers > open the customer profile.
Click the three dots next to Customer, select Edit tax details, and then click Don't collect tax.

Handle tax-exempt customers and products

For individual products, go to the product listing and confirm Charge tax on this product is checked (or unchecked for exempt items). Use Shopify's bulk editor to update multiple products at once.

Step 7: File and remit your collected taxes

Collecting tax is only half the job, you must also file returns and remit funds to each state. Filing frequency (monthly, quarterly, or annually) depends on your sales volume and each state's requirements.

Automated filing with Shopify Tax:

Go to Finance > Tax filing and click Set up tax returns.
Select a state, complete the form details, and add a payment method.
Enable two-step verification to activate.

Key deadline: Complete setup by the 20th of the month before your filing is due. Miss that window and you'll need to file manually for that period.

Sales tax compliance for a growing Shopify store is an ongoing process, nexus can change as your sales grow, and state rules continue to evolve. When in doubt, consult a qualified tax professional or a CPA experienced with e-commerce.

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