Shopify Taxes, Explained: Nexus, Shopify Tax, and the 100,000 Dollar Line
Shopify Tax calculates sales tax rates automatically, but you are responsible for registering in each state where you have nexus, collecting the tax, and remitting it. Economic nexus usually starts at 100,000 dollars in sales or 200 transactions in a state, and the thresholds and rules vary by state.
Sales tax is the part of running a Shopify store that nobody budgets for and everybody gets wrong once. The store is live, the orders are coming in, and then a letter arrives from a state the merchant has never visited, saying they owe tax on sales they already spent. That letter is not a scam. It is economic nexus, and it has applied to online sellers since the Supreme Court decided South Dakota v. Wayfair in 2018.
Nexus: the line you crossed without noticing
Nexus is the connection between your business and a state that gives the state the right to require you to collect sales tax. Before Wayfair, nexus usually meant a physical presence: a store, a warehouse, an employee. After Wayfair, states can require collection based on economic activity alone, and most of them set the threshold at 100,000 dollars in sales or 200 transactions in the state per year. The exact threshold varies: some states use 100,000 dollars only, some use 200 transactions only, and a few use both.
The trap is that the threshold counts sales, not profit, and it counts all sales into the state, including sales through other channels. A merchant doing 60,000 dollars on Shopify and 50,000 dollars on another platform has crossed the 100,000 dollar line in a state, even though neither channel did it alone. The count also resets annually, and the registration obligation usually starts the year after you cross the threshold, though some states require it sooner.
Physical nexus still exists alongside economic nexus. A warehouse, a fulfillment center, an employee, or inventory stored in a state all create nexus, and a third-party fulfillment service can create it for you in states where your inventory sits. Our inventory locations guide covers where your stock actually lives, because that is the question that decides which states you owe tax in.
What Shopify Tax does, and what it does not do
Shopify Tax is Shopify's built-in tax engine. It calculates sales tax rates automatically based on the buyer's location, the product, and the tax rules for that jurisdiction, and it uses rooftop-accurate rates, which means the rate is calculated for the buyer's exact address rather than a zip code average. It also handles product tax codes, so a clothing item and a digital download are taxed differently where the law says they should be.
What it does not do is register you, file for you, or remit for you. Shopify Tax calculates the tax. You collect it, and you are responsible for registering with each state's tax authority, filing returns, and remitting the money. Shopify is not a marketplace facilitator for your store, which is the distinction that confuses people: when you sell on a marketplace like Amazon or Etsy, the marketplace collects and remits. When you sell on your own Shopify store, you do.
The setup sequence matters. First, determine where you have nexus, using Shopify's tax reports and a nexus tool. Second, register with each state's tax authority and enter your registration numbers in Shopify. Third, set up your tax settings: your business address, your tax registrations, and your product tax codes. Fourth, file and remit on each state's schedule, which can be monthly, quarterly, or annually depending on volume. Shopify Markets complicates this further for international sales, because duties and import taxes are a separate system from US sales tax.
The mistakes that cost real money
The first mistake is not charging tax at all. A store that never sets up tax collection is not saving money. It is accumulating a liability, because the state will eventually assess the tax, plus penalties and interest, on sales that already happened. The second mistake is charging tax in a state where you are not registered. Collecting tax without a registration number is itself a violation in many states, and the money has nowhere legal to go.
The third mistake is treating the threshold as a single number. The 100,000 dollar or 200 transaction line is a starting point, not a rule, and it varies by state, by year, and by what counts as a sale. Some states exclude marketplace sales from the count. Some count gross sales, some count taxable sales. A nexus study, which a tax professional or a tool like Avalara or TaxJar can produce, is the only way to know your actual obligations, and it costs far less than a back-tax assessment.
The fourth mistake is forgetting that tax rules change. States adjust thresholds, add new categories, and change filing schedules, and Shopify updates its tax engine to match, but it does not update your registrations or your filings. Check your nexus annually, and check it again after any big change: a new warehouse, a new fulfillment partner, a jump in sales. Point of sale adds another nexus wrinkle, because a pop-up or a market stall in another state can create physical nexus in a day.
Frequently asked questions
What is economic nexus for Shopify sellers?
Economic nexus is the obligation to collect sales tax in a state based on sales volume alone, without a physical presence. Most states set the threshold at 100,000 dollars in sales or 200 transactions per year, though the exact threshold varies by state.
Does Shopify collect and remit sales tax for me?
No. Shopify Tax calculates the tax rate automatically, but you are responsible for registering in each state where you have nexus, collecting the tax, filing returns, and remitting the money. Shopify is not a marketplace facilitator for your own store.
What is the 100,000 dollar sales tax threshold?
It is the economic nexus threshold most states use: 100,000 dollars in sales into the state per year, or 200 transactions, depending on the state. The count is sales, not profit, and it includes sales through all your channels, not just Shopify.
Do I need to charge sales tax if I only sell in my own state?
You need to charge tax in your own state if your state has a sales tax and your products are taxable, and you need to register first. You also need to charge tax in any other state where you have economic or physical nexus.