Do I Need to Charge Sales Tax on Shopify? A Clear Guide

Table of Contents

1. Introduction
2. What is Sales Tax on Shopify?
3. Understanding Nexus: The "Where" of Sales Tax
4. Determining if Your Products are Taxable
5. Setting Up Sales Tax in Your Shopify Admin
6. The Tevello Advantage: Tax Compliance for Digital Learning
7. Managing Compliance for Digital Memberships
8. Best Practices for Long-Term Growth and Tax Health
9. Avoiding the "Success Fee" Trap
10. Practical Scenarios: Nexus in Action
11. Conclusion
12. Frequently Asked Questions

Introduction

Did you know that there are over 11,000 different sales tax jurisdictions in the United States alone? For an e-commerce merchant, that is not just a statistic—it is a potential administrative nightmare. In the early days of the internet, the rules were simple: if you didn’t have a physical store or warehouse in a state, you didn’t collect sales tax. However, the landmark 2018 Supreme Court decision in South Dakota v. Wayfair changed the landscape forever. Now, your tax obligations are often triggered not by where you are, but by where your customers are.

The question of "do I need to charge sales tax on Shopify" is one of the most critical hurdles for any growing business. Miscalculating these obligations can lead to unexpected back taxes, heavy penalties, and a damaged brand reputation. Yet, for merchants looking to scale—especially those diversifying into high-margin digital products like online courses and memberships—understanding these rules is the key to building a sustainable, long-term business.

At Tevello, our mission is to turn any Shopify store into a digital learning powerhouse. We believe that your focus should be on creating world-class content and building a loyal community, not getting lost in the weeds of tax compliance. This post will provide a comprehensive breakdown of when you need to charge sales tax, how to determine your "nexus" in the digital age, and how to configure your Shopify store to handle these complexities automatically. By the end of this guide, you will have a clear roadmap to ensure your store remains compliant while you focus on increasing your Customer Lifetime Value (LTV) through digital expansion.

What is Sales Tax on Shopify?

Sales tax is a "consumption tax" imposed by state and local governments on the sale of goods and services. It is important to remember that as a merchant, you are not actually paying this tax out of your own pocket; rather, you are acting as an agent for the government. You collect the tax from the customer at the point of sale and then remit it to the appropriate tax authority at set intervals.

On Shopify, the platform provides the infrastructure to calculate these taxes, but it does not make the legal determination for you. Unlike "marketplace facilitators" such as Amazon or Etsy, who are legally required to collect and remit tax on behalf of their third-party sellers in most states, Shopify is a software platform. This means the legal responsibility to register, collect, and remit sales tax falls squarely on your shoulders.

Because sales tax is governed at the state level (and often the local city or county level), the rules are far from uniform. Five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—do not have a state-level sales tax, although some local jurisdictions in Alaska do. For the other 45 states and the District of Columbia, you must navigate a web of varying rates and "taxability" rules.

Understanding Nexus: The "Where" of Sales Tax

Before you can determine if you need to charge sales tax, you must determine if you have a "nexus" in a particular state. Nexus is a legal term that describes a business's connection to a tax jurisdiction. If you have nexus, you are required to register for a sales tax permit and collect tax from customers in that state.

Physical Nexus

Physical nexus is the traditional standard. If your business has a physical presence in a state, you almost certainly have nexus there. This includes:

• An office or storefront.
• A warehouse or distribution center (including those owned by third-party logistics providers).
• Employees, contractors, or sales representatives working in the state.
• Inventory stored in the state (even if you don't own the building).
• Attendance at trade shows or craft fairs (temporary nexus).

For many Shopify merchants, physical nexus is straightforward. You have it in the state where you live and operate. However, if you use a fulfillment service that spreads your inventory across multiple states, you might unknowingly be creating physical nexus in dozens of jurisdictions.

Economic Nexus

Economic nexus is the modern standard born from the Wayfair decision. It is based entirely on your sales volume or transaction count within a state, regardless of where your business is physically located. Most states have set a "threshold" for economic nexus—typically $100,000 in gross sales or 200 separate transactions in a calendar year.

For example, if you are a merchant based in Florida but you sell $150,000 worth of products to customers in Illinois, you have established economic nexus in Illinois. You are then legally required to register with the Illinois Department of Revenue and begin charging sales tax to any Illinois resident who buys from your Shopify store.

Because these thresholds vary—some states like Texas only look at revenue ($500,000) while others look at both—monitoring your growth is essential. This is one reason we recommend seeing how the app natively integrates with Shopify, as it ensures that regardless of whether you are selling a physical t-shirt or a digital course, the transaction data is centralized for accurate tax monitoring.

Determining if Your Products are Taxable

Once you know where you have nexus, the next question is: is what you are selling actually taxable? Not all products are treated equally under the law.

Tangible Personal Property

Most physical goods—clothing, electronics, furniture, and home goods—are considered "tangible personal property" and are taxable in almost every state that has a sales tax. However, there are exceptions. Some states exempt groceries, prescription drugs, or certain types of apparel (like in New York or Minnesota where low-cost clothing is tax-free).

Digital Products and Online Courses

This is where many Tevello users find the most confusion. The taxability of digital products—such as ebooks, downloadable PDFs, and online video courses—is a rapidly evolving area of law. Some states view a digital course as a taxable "digital good," while others view it as a non-taxable "professional service" or "educational service."

• Taxable Digital Goods: States like Washington and Pennsylvania generally tax digital products.
• Non-Taxable Services: States like Florida may not tax digital courses if they are considered a service rather than a product.

When you use Tevello to build your digital learning powerhouse, your courses live directly on your Shopify store. This allows you to use Shopify’s advanced tax engine to apply the correct "Product Category" to your digital offerings. By categorizing a product as an "Online Course," Shopify can automatically apply the specific tax laws of the customer’s state to that order. This level of automation is why we suggest install Tevello from the Shopify App Store today to begin building your curriculum safely.

The Bundle Challenge

Consider a merchant selling specialized gardening tools. They might decide to create a "Master Gardener" video course as a high-margin upsell. If they sell the tool (physical) and the course (digital) together as a bundle, they must ensure the tax is calculated correctly for both components. Using a native integration ensures that the checkout remains seamless while the underlying tax logic remains compliant. This strategy is highly effective for generating revenue from both physical and digital goods, as it maximizes the value of every customer visit.

Setting Up Sales Tax in Your Shopify Admin

Shopify has made significant strides in simplifying tax management through its "Shopify Tax" features. Here is the step-by-step process to ensure your store is ready to collect.

1. Register for Sales Tax Permits

Before you flip the switch in Shopify, you must have a valid sales tax permit from the states where you have nexus. It is illegal to collect sales tax from customers without a permit. You can usually apply for these through each state's Department of Revenue website. You will need your Employer Identification Number (EIN) and basic business details.

2. Configure Your Tax Regions

In your Shopify Admin, navigate to Settings > Taxes and duties. Under the "Countries/regions" section, select the United States. Here, you will see a list of states. You should only click "Collect sales tax" for the states where you have registered for a permit. You will be prompted to enter your Sales Tax ID for that state.

3. Set Up Product Categories

Shopify uses "Product Categories" to determine the taxability of an item. For every product in your store—whether it’s a physical item or a digital course hosted via Tevello—ensure you have assigned the correct category. For example, assigning the "Education > Digital Courses" category ensures that if a state does not tax digital learning, your customer won't be charged unnecessarily.

4. Manage Sourcing Rules

Shopify generally defaults to "destination-based" tax sourcing, meaning the tax rate is calculated based on the buyer's address. This is the standard for the vast majority of states. However, some states use "origin-based" sourcing (taxing based on your warehouse location). Shopify Tax handles these nuances automatically as long as your "Locations" are set up correctly in the settings.

The Tevello Advantage: Tax Compliance for Digital Learning

At Tevello, we understand that merchants want to own their customer data and brand experience. This is why we created a solution that keeps customers on your own URL. When you use a third-party course platform, you often run into "fragmented" tax issues—the third party might collect tax on the course, but your Shopify store handles the physical products. This makes your end-of-year accounting a nightmare.

By keeping everything within the Shopify ecosystem, you benefit from a "Native Shopify Integration." This means:

• Seamless Checkout: Customers use the Shopify checkout they already trust.
• Unified Reporting: Your tax reports in Shopify include all sales—physical and digital.
• Consistent Customer Experience: There is no "redirect" to a third-party site, which reduces cart abandonment.

Our commitment to an all-in-one ecosystem allows you to build a community with all the key features for courses and communities without the technical debt of managing multiple tax engines.

If unifying your stack is a priority, start by a simple, all-in-one price for unlimited courses.

Managing Compliance for Digital Memberships

Memberships and recurring subscriptions add another layer of complexity to the "do I need to charge sales tax on Shopify" question. Many states are now looking closely at "Software as a Service" (SaaS) and digital memberships.

If your membership provides access to a "community" or "social feed," it might be taxed differently than if it provides access to "streaming video." Tevello’s community features—including member profiles, directories, and social feeds—are designed to live side-by-side with your courses. When setting up a membership product in Shopify, you should consult with a tax professional to determine the best product category to use to ensure you are meeting state-specific requirements.

The benefit of using a platform like ours is the ability to scale without worrying about "per-user" fees that eat into your margins. When you are comparing plan costs against total course revenue, you’ll find that a flat-rate model provides the stability needed to reinvest in your business's growth.

Consider the example of a fitness brand. They might sell protein powder (physical) and a monthly "VIP Coaching" membership (digital). By using Shopify's native tax settings, they can ensure the powder is taxed as a supplement and the membership is taxed (or not) based on the customer's state laws regarding digital services. This holistic approach is exactly how merchants are unifying a fragmented system into a single Shopify store to streamline their operations.

Best Practices for Long-Term Growth and Tax Health

Staying compliant is not a one-time task; it is an ongoing part of running a successful business. Here are our top recommendations for Shopify merchants:

1. Monitor Your Thresholds

As your store grows, you will inevitably hit economic nexus in new states. Shopify Tax provides a "Nexus Tracker" in the admin dashboard that shows you how close you are to hitting the thresholds in various states. Check this at least once a month.

2. Use Professional Help

While Shopify automates the calculation, it doesn't give legal advice. As you scale, partnering with an e-commerce-focused CPA or using a service like Avalara (which integrates with Shopify Plus) can save you thousands in potential mistakes.

3. Be Transparent with Pricing

Sales tax can sometimes lead to "sticker shock" at checkout. However, we recommend against trying to "hide" tax in your product price unless you only sell in one jurisdiction. Shopify’s checkout clearly breaks down the tax for the customer, which is the standard expectation for online shoppers today.

4. Leverage Success Stories

Don't be intimidated by the complexity. Many successful brands have navigated these waters and thrived. For instance, you can see how one brand sold $112K+ by bundling courses while maintaining a clean, compliant backend. Their success was built on the foundation of using robust tools that work with Shopify, not against it.

5. Prioritize the Customer Experience

Tax is a friction point, but a unified login that reduces customer support friction can offset the "pain" of a few extra dollars at checkout. When customers feel they are getting immense value from your digital community and courses, the sales tax becomes a minor detail in an otherwise excellent brand experience.

Avoiding the "Success Fee" Trap

When choosing how to sell your digital products, be wary of platforms that charge a "transaction fee" or "success fee." Some platforms take 5% to 10% of every sale you make. When you add that to the sales tax you are already collecting, your margins can shrink rapidly.

At Tevello, we believe you should keep what you earn. Our Unlimited Plan is $29.99 per month and we charge 0% transaction fees. This means whether you sell $100 or $100,000 worth of courses this month, your cost for the Tevello platform remains the same. This allows you to maintain a flat-rate plan that supports unlimited members while maintaining predictable overhead.

This predictability is vital for businesses that are migrating over 14,000 members and reducing support tickets. When your costs are fixed, your ability to handle tax compliance and marketing expenses becomes much more manageable.

Practical Scenarios: Nexus in Action

To help clarify "do I need to charge sales tax on Shopify," let's look at a few practical, relatable scenarios:

• The Hobbyist Creator: A merchant in Oregon (no sales tax) creates a digital course on birdwatching using Tevello. Since they only have physical nexus in Oregon and their total sales to other states are under $10,000, they likely do not need to charge sales tax to anyone.
• The Growing Boutique: A clothing brand in Texas also sells "Style Masterclasses." They have physical nexus in Texas. They also use a fulfillment center in California to ship their clothes. They now have physical nexus in both Texas and California and must collect tax in both states for both their clothes and their courses (if the state taxes digital goods).
• The Digital Powerhouse: A creator sells $600,000 worth of online courses across the US. They have hit the economic nexus threshold in nearly every state. Even though they have no offices or employees outside of their home, they must register and collect sales tax in dozens of states.

By using a unified login that reduces customer support friction, these merchants can manage their growing customer base without getting bogged down by the technicalities of where each user is logging in from, as Shopify's native engine handles the tax residency at the moment of purchase.

Conclusion

Navigating the world of US sales tax can feel like a daunting task, but it is a necessary milestone on the path to e-commerce success. The answer to "do I need to charge sales tax on Shopify" depends on your unique "nexus"—both physical and economic. By understanding these triggers and leveraging Shopify's built-in tax tools, you can ensure your business remains compliant while you focus on growth.

At Tevello, we are here to support that growth by providing a robust, native environment for your digital products. Whether you are selling your first course or managing a community of thousands, our platform ensures that your digital offerings live directly alongside your physical stock in a single, high-performance ecosystem. Remember, you keep 100% of your earnings with our 0% transaction fee model, allowing you to reinvest those savings into your community.

To build your community without leaving Shopify, start by reviewing the Shopify App Store listing merchants install from. Our Unlimited Plan provides everything you need—unlimited courses, students, and video hosting—for one predictable price. Take advantage of our 14-day free trial to build your entire curriculum and see how a native integration can transform your business.

Frequently Asked Questions

1. Does Shopify automatically pay my sales tax to the government?

No, Shopify does not remit or file your sales tax for you. Shopify's tools are designed to calculate and collect the tax from your customers during checkout. Once that money is in your bank account, it is your responsibility to file the necessary returns with each state's Department of Revenue and pay the amount owed.

2. If I only sell digital courses through Tevello, do I still need a sales tax permit?

If you have established nexus in a state that taxes digital products or services, yes. Even if you don't sell physical goods, you are still "conducting business" in that state according to their tax laws. Always check the specific digital taxability rules for states where you have high sales volume.

3. How do I know if I have reached the "Economic Nexus" threshold in a state?

Shopify provides a built-in tracker to help you. Go to Settings > Taxes and duties and click on "United States." Shopify will show you a list of states and a progress bar indicating how close you are to reaching that state's specific revenue or transaction threshold.

4. Can I use Tevello for free while I set up my tax settings?

Yes! Tevello offers a 14-day free trial. You can install the app, build your courses, set up your community features, and configure your Shopify tax settings without paying a cent. This gives you the time to ensure your store is fully compliant before you take your first official sale.