Tax across states, countries and marketplaces

Every rule in this post is a variation on the same sentence: tax follows the buyer, and you can only collect where you are registered. Hold those two clauses together and most of the confusion resolves.

The first clause is why a single price cannot be right everywhere. A customer in Oregon pays no state sales tax; a customer twenty miles away in Washington does, at a rate that depends on their address rather than their state. A customer in Ireland pays Irish VAT; the same order to Germany is German VAT. The order is identical and the tax is not.

The second clause is why you cannot simply "charge tax everywhere to be safe". Collecting a tax you are not registered to collect is not caution, it is money you have taken from a customer and have no mechanism to remit. It is a worse position than under-collecting, because under-collection is a debt and over-collection is a liability with a customer’s name on it.

So the operational question is never "what is the rate". It is "where am I registered, where should I be, and can I prove which of those each order belongs to".

There is no national sales tax in the US. There are state taxes, and beneath them county, city and district rates, which is why a correct US rate is calculated from a full address rather than a postcode.

Whether you must collect at all comes down to nexus — a connection to the state sufficient to create an obligation. Physical nexus is the old rule: an office, a warehouse, staff, inventory. Note the last one, because it catches people: Shopify’s documentation points out that using a third-party logistics provider can create physical nexus in the states where that provider has fulfilment centres. You did not choose the state. You still have the nexus.

Economic nexus is the newer rule, which followed the Supreme Court’s 2018 decision in *South Dakota v. Wayfair* removing the physical-presence requirement. Sell enough into a state and you must register there regardless of where you sit. Shopify’s own US tax reference shows thresholds commonly falling somewhere between $100,000 and $500,000 of sales in a defined period, but the specifics genuinely differ per state — the amount, the measurement window, whether a transaction count also triggers it, and what counts towards the total. Do not generalise from one state to another, and do not take a figure from a blog post, including this one. Shopify publishes the current per-state detail in its tax reference and maintains tax liability insights in the admin that tell you when you are approaching a threshold.

The second US-specific trap is product taxability. Clothing, food and digital goods are taxed differently by state, and the mechanism for getting this right on Shopify is product categorisation — assigning products to a tax category so the rate reflects what the item is, not just where it is going. A store that has never touched product categories is charging the general rate on everything, which will be wrong in both directions.

VAT is simpler in structure and stricter in practice. The destination country’s rate applies, invoicing requirements are real, and the registration question has been given a formal answer instead of being left to case law.

Selling from inside the EU. There is a single EU-wide distance selling threshold of €10,000 a year, measured across sales to all other member states combined. Below it you may charge your home rate. Above it you charge the destination rate — and rather than registering for VAT in each country you sell to, the One-Stop Shop scheme lets you register once and file a single return covering cross-border sales. One caveat worth internalising: an OSS registration covers cross-border orders only, not domestic sales in that country, which still need a local registration.

Selling into the EU from outside. The Import One-Stop Shop applies to consignments valued at €150 or less. Shopify’s description is the clearest version: with IOSS "you can choose to collect VAT on orders equal to or less than €150 EUR at checkout so that your customers don’t pay taxes upon delivery". Above €150, normal import rules apply and the customer meets the bill at the border unless you have arranged delivered-duty-paid shipping.

Selling into the UK from outside. The UK threshold is £135 per consignment. At or below it, HMRC’s guidance is that the seller must "charge and account for VAT at the point of sale" — unless it is a business-to-business sale and the customer has supplied their UK VAT registration number, in which case the reverse charge applies and the buyer accounts for it. Above £135, "normal VAT and customs rules will apply on importation".

That B2B carve-out is worth a line of its own, because it is a checkout requirement disguised as a tax rule. If you sell to UK businesses, the checkout needs somewhere to capture and validate a VAT number, and the order record needs to remember that it was given one.

Sell through a marketplace and the platform generally becomes the collector. Shopify states this plainly for its own Shop channel: the channel "collects, remits, and files taxes" on those orders "independently of your nexus status and store tax settings". The same principle — marketplace facilitator rules — is why Amazon, eBay and others handle tax on the sales they intermediate.

This is good news operationally and bad news for reconciliation, and the second part is the one that causes arguments in January.

Your gross merchandise value now includes orders whose tax you never touched. Shopify excludes marketplace sales from the data it uses to assess your nexus, which is correct and means your platform revenue figure and your nexus figure are deliberately different numbers. Meanwhile your accounting system receives orders from two sources with two tax treatments, and unless the import tags them, nobody downstream can tell which is which.

The fix is boring and has to be decided before the first import, not after the first audit: every order arriving in the accounting system carries a channel identifier and a flag for who collected the tax. It is one field. Retrofitting it across two years of history is a project.

The advice most merchants get here is to buy Avalara or Vertex, and for most merchants that advice is premature.

Shopify Tax calculates for the United States, European Union, United Kingdom and Canada, handles product categorisation, offers VAT invoicing and VAT validation at checkout for EU and UK merchants, and surfaces tax liability and nexus tracking in the admin. Its pricing is published on Shopify’s own pricing page — free below an annual threshold of global sales, then a small percentage of US orders with a per-order cap — and you should read that page rather than any third party’s summary of it, because the figures change. For a store with a handful of registrations and no ERP acting as the book of record, that is generally enough, and the money saved is better spent on getting the order data right.

A dedicated engine earns its cost at a specific point, and the signs are unambiguous: you hold registrations in more jurisdictions than a person can track, you need exemption certificate management with expiry handling, you sell through several channels that must roll into one filing, or your ERP — not Shopify — is the system of record and needs the rate at the point the document is created. Any one of those is a real reason. "We are growing" is not.

Be equally sceptical of the reverse. A tax engine does not make you compliant; it makes a correct calculation available. Registrations, filings and the decision about where you have nexus remain yours, and Shopify is explicit that it does not remit or file your taxes unless you use Shopify Tax with automated filing turned on.

Three things, in this order, and none of them requires a project.

First, list your registrations — every jurisdiction, with the type, the effective date and who files it. Most merchants cannot produce this list in under an hour, and producing it is often the moment a gap is found.

Second, check your tax liability insights in the Shopify admin against that list. The gaps in either direction are your backlog: places you are approaching a threshold, and places you registered years ago and still file nil returns for.

Third, check that one order from each regime — a domestic order, a cross-border order and a marketplace order — arrives in your accounting system with its tax broken out and its origin identifiable. If any of the three does not, the reporting problem is already there and is simply not visible yet.

Wiring that trail through Shopify, an ERP and an accounting system is the kind of work our [integration engagements](/services/integrate) exist for, and it is markedly cheaper to design before the second country than to repair after the first audit. One closing caveat, meant seriously: this is an engineer’s account of the mechanics, not tax advice. Thresholds, schemes and rates change, and the person who should confirm your position is an accountant who will put their name to it.

• Shopify integrations and data
• Duties at checkout, and the post-purchase surprise
• Shopify Markets or a store per country?