Does Shopify Report Sales Tax to States for You?

Introduction
Understanding Consumption Taxes: Sales Tax, VAT, and GST
The Critical Distinction: Collection vs. Remittance
Does Shopify Report Sales Tax? The Marketplace Facilitator Rule
Understanding Tax Nexus: When Are You Liable?
Practical Scenario: Scaling with Physical and Digital Goods
How to Set Up Tax Collection in Shopify
The Cost of Shopify Tax
Why Reporting Matters: The Risk of Non-Compliance
Automating the Reporting Process
Creating a Professional Tax Receipt
The Tevello Advantage: Owning the Brand Experience
Diversifying Revenue for Long-Term Stability
Summary Checklist for Shopify Sales Tax
Conclusion
Frequently Asked Questions

Introduction

Did you know that there are more than 11,000 different tax jurisdictions in the United States alone? For a merchant trying to scale a business, that number represents a dizzying labyrinth of rules, rates, and filing deadlines. The complexity of navigating sales tax is often the single greatest source of anxiety for e-commerce entrepreneurs. As your store grows and your products reach customers in different states—and even different countries—the question of compliance moves from a "later" problem to an "urgent" one. Specifically, many merchants find themselves asking: does Shopify report sales tax to states automatically, or is that burden left entirely on the business owner?

The purpose of this post is to demystify the relationship between Shopify and state tax authorities. We will explore the critical differences between collecting tax and remitting it, explain the concept of "nexus," and discuss how modern digital products can simplify your revenue streams while still requiring careful tax management. We will also look at how our mission at Tevello—to turn any Shopify store into a digital learning powerhouse—integrates with your existing store infrastructure to keep your data, your brand, and your tax records in one unified place.

While Shopify provides robust tools to help you calculate and collect the correct amounts at checkout, it is vital to understand that the platform is not a "marketplace facilitator" in the same way Amazon or eBay might be. Consequently, the ultimate responsibility for reporting and remitting those taxes to the state rests with you. By the end of this guide, you will have a clear roadmap for managing your tax obligations, ensuring your store remains compliant while you focus on growth and community engagement.

Understanding Consumption Taxes: Sales Tax, VAT, and GST

Before we dive into the specifics of Shopify's reporting capabilities, we must understand the three primary types of consumption taxes you are likely to encounter. While the end goal for the government is the same—to collect a percentage of the sale—the mechanics for the merchant can differ significantly.

The Basics of U.S. Sales Tax

In the United States, sales tax is a simple, one-time charge at the point of purchase. It is governed at the state and local levels, meaning there is no national sales tax. This creates a fragmented system where a customer in New York might pay a different rate than a customer in Texas, even for the same product. As a merchant, you act as the middleman; you collect the tax from the consumer and hold it in trust until it is time to pay the state.

Value-Added Tax (VAT)

Commonly found in the UK and European Union, VAT is a multi-stage tax. It is charged at every point in the supply chain where value is added to a product. The unique aspect for business owners is the "input tax" credit. While you pay VAT on materials or services you buy to run your business, you can often deduct those costs from the VAT you collect from your customers. This ensures that only the final consumer bears the ultimate cost of the tax.

Goods and Services Tax (GST)

GST is similar to VAT in that it is often applied throughout the supply chain, but it is typically a flat-rate percentage. Countries like Australia, Canada, and India use this system. Like VAT, businesses usually receive credits for GST paid on business inputs, and the end-user pays the final tax amount.

Regardless of the acronym—Sales Tax, VAT, or GST—the principle remains: the customer pays, and you, the merchant, are responsible for getting that money to the right government agency. When you use Tevello to offer digital courses, these taxes still apply, though the rates for digital services can sometimes differ from physical goods. Our goal is to ensure your digital products that live directly alongside physical stock are handled with the same level of professional oversight as your inventory.

The Critical Distinction: Collection vs. Remittance

The most common misconception among new Shopify merchants is that "collecting" tax is the same as "reporting" or "remitting" tax. It is not.

Collection is the act of adding a tax line item to your customer’s invoice and receiving that money during the checkout process. Shopify is excellent at this. Once configured, Shopify’s engine uses the customer’s shipping address to determine the exact tax rate and adds it to the order total.

Remittance and Reporting, however, involve filing a formal tax return with a state’s Department of Revenue and physically sending them the money you collected. This is the part Shopify does not do for you. Unlike marketplace facilitators (which we will discuss shortly), Shopify is an independent platform. We believe merchants should own their customer data and brand experience, which is why Shopify gives you the tools to manage your own store—but that independence comes with the responsibility of handling your own filings.

If you are reviewing the Shopify App Store listing merchants install from, you will notice that many successful apps are designed to bridge the gap between Shopify's data and the state's tax portal.

Does Shopify Report Sales Tax? The Marketplace Facilitator Rule

To understand why Shopify doesn't automatically report your taxes, we have to look at "Marketplace Facilitator" laws.

A marketplace facilitator is a platform that hosts third-party sellers and handles the entire transaction, often including payment processing, fulfillment, and customer service. Because platforms like Amazon, Etsy, and eBay control the "marketplace," many states have passed laws requiring these platforms to collect and remit sales tax on behalf of their sellers. In those cases, the seller often doesn't have to worry about reporting sales made through those platforms.

Shopify, however, is not a marketplace. When you build a store on Shopify, it is your store. You own the URL, you own the customer list, and you choose the payment gateway. Shopify provides the software, but they are not the "facilitator" of a multi-merchant marketplace. Because of this distinction, Shopify is not legally required (or allowed) to remit taxes on your behalf. You are the "seller of record."

This distinction is actually a major advantage for your brand. It means you aren't competing for attention on a generic marketplace. By keeping customers on your own site, you build long-term loyalty. If unifying your stack is a priority, start by a simple, all-in-one price for unlimited courses.

Understanding Tax Nexus: When Are You Liable?

You aren't required to collect tax in every single state—only in states where you have "nexus." Nexus is a legal term for a "significant connection" to a state. If you have nexus in a state, you must register for a tax ID, collect tax from customers in that state, and report those sales.

Physical Nexus

This is the traditional form of nexus. If you have an office, a warehouse, an employee, or even just a significant amount of inventory (like in a fulfillment center) located in a state, you have physical nexus there. For example, if you sell physical art supplies and store your inventory in a warehouse in Georgia, you likely have physical nexus in Georgia.

Economic Nexus

In 2018, the Supreme Court case South Dakota v. Wayfair changed everything for e-commerce. It allowed states to charge sales tax even if a business has no physical presence there, provided they hit a certain "economic" threshold.

Common Thresholds: Many states use a benchmark of $100,000 in annual sales or 200 separate transactions within that state.
Variation: Some states have higher thresholds (like $500,000 in California or Texas), while others have eliminated the transaction count requirement entirely.

As you grow, it is vital to monitor these thresholds. Shopify Tax provides "Liability Insights" that help you track how close you are to hitting these numbers. For a merchant who has all the key features for courses and communities enabled, these digital sales count toward your economic nexus totals just as much as physical products do.

Practical Scenario: Scaling with Physical and Digital Goods

Let's look at how this works in a real-world business environment. Imagine a merchant named Sarah who sells high-end gardening tools on her Shopify store. Sarah's business is based in Oregon (a state with no sales tax), but she ships her tools all over the country.

Initially, Sarah only has to worry about physical nexus in Oregon. However, as her brand grows, she decides to diversify her revenue. She uses Tevello to create a premium video course called "Mastering the Urban Harvest."

The Advantage: This course has a high profit margin and requires no shipping or physical inventory.
The Tax Impact: Because she is now selling to thousands of students across the U.S., she suddenly hits the 200-transaction threshold in Illinois and New York.
The Responsibility: Even though Shopify calculates the tax for these new Illinois and New York students at checkout, Sarah must now register with those states and file regular reports.

By generating revenue from both physical and digital goods, Sarah has increased her brand's value significantly, but she must ensure her tax reporting keeps pace with her success.

How to Set Up Tax Collection in Shopify

To ensure you are at least collecting the right amount of money (even if you still have to report it yourself), you need to configure your Shopify settings correctly.

Navigate to Taxes and Duties: In your Shopify admin, go to Settings > Taxes and Duties.
Select Your Region: Click on the United States (or your primary country).
Manage Sales Tax Collection: You must manually tell Shopify which states you want to collect tax in. You will typically need to provide your Sales Tax ID for that state.
Shopify Tax: For U.S. merchants, "Shopify Tax" is the default service. It offers more precision by calculating taxes based on the specific rooftop address of the customer rather than just the zip code.
Product Categorization: Ensure your products are categorized correctly. This is especially important for digital products. Digital courses may be tax-exempt in some states and taxable in others.

While setting this up, it’s worth seeing how the app natively integrates with Shopify to ensure that your digital offerings are automatically included in these tax calculations.

The Cost of Shopify Tax

Transparency is a core value for us, and we believe merchants should understand the costs of their infrastructure. Shopify Tax is free for your first $100,000 in U.S. sales each year. After that, they charge a calculation fee.

The Standard Plan: 0.35% calculation fee.
The Plus Plan: 0.25% calculation fee.
Caps: There are per-order and per-state caps to ensure your costs remain predictable.

This is a "calculation fee," not a "remittance fee." You are paying for the accuracy of the tax engine, but you are still responsible for the filing. If you want to keep your other business costs equally predictable, we offer a flat-rate plan that supports unlimited members for $29.99 per month, ensuring your educational platform doesn't have fluctuating "success fees" that eat into your margins.

Why Reporting Matters: The Risk of Non-Compliance

It can be tempting to focus solely on sales and ignore the paperwork of tax reporting, but the risks are substantial. State governments are increasingly aggressive in enforcing economic nexus laws.

Back Taxes and Interest: If a state determines you had nexus two years ago but never registered, they will demand all the tax you should have collected, plus interest and penalties.
Audits: An audit can be a grueling process that takes weeks of your time. Having clean reports from Shopify makes this significantly easier.
Personal Liability: In many jurisdictions, sales tax is considered a "trust tax." If the business fails to pay, the state can sometimes pursue the business owners personally for the debt.

One way to mitigate these risks is to build a highly profitable, stable business model. We have seen how one brand sold $112K+ by bundling courses with their existing products, providing the cash flow needed to hire professional tax help and automate their compliance.

Automating the Reporting Process

Since Shopify doesn't report to the states for you, how do you handle the 11,000 jurisdictions without losing your mind? The answer is automation through third-party apps.

Tools like Numeral, Avalara, or TaxJar integrate directly with your Shopify store. They pull your sales data, categorize it by state and local jurisdiction, and—for an extra fee—can actually "Auto-File" your returns. These services will:

Connect to your Shopify store.
Monitor your nexus thresholds.
Prepare your tax returns.
Withdraw the tax money from your bank account and pay the state.

Using an automation tool alongside a native Shopify solution allows you to focus on retention strategies that drive repeat digital purchases rather than spending your weekends in spreadsheets.

Creating a Professional Tax Receipt

A vital part of the compliance puzzle is the tax receipt. This is the document you provide to the customer to prove they paid the tax. In B2B (business-to-business) transactions, your customers will need these receipts to claim tax deductions.

A proper tax receipt should include:

Your legal business name and address.
The customer’s name and address.
Your tax registration number (VAT/GST/Sales Tax ID).
A breakdown of the tax charged per jurisdiction.
The date and a unique invoice number.

Shopify’s native notification system handles this for physical products. When you add a digital learning component, it is essential that the experience remains seamless. Our "Native Shopify Integration" ensures that when a student buys a course, they use the same Shopify checkout and receive the same professional tax receipts they would for any other product in your store.

The Tevello Advantage: Owning the Brand Experience

At Tevello, our mission is to "turn any Shopify store into a digital learning powerhouse." We believe that the best way to grow a brand is to keep your customers on your own URL. When you use third-party "hosted" course platforms, you often lose control over the checkout process, which can make tax reporting a nightmare. You end up with two different sets of reports: one from Shopify for physical goods and one from a third party for digital goods.

By keeping everything in a "Native Shopify Integration," you ensure:

Unified Reporting: All your sales—physical and digital—show up in one Shopify Tax report.
Customer Trust: Customers never leave your site, which increases conversion rates and brand loyalty.
Simplified Support: A single login for your customers reduces friction and support tickets.

Many merchants are generating over €243,000 by upselling existing customers through these integrated methods. When your data is unified, your path to compliance is much clearer.

Diversifying Revenue for Long-Term Stability

The goal of navigating these tax hurdles is to build a sustainable, long-term business. While physical products are the foundation for many, digital products offer a level of stability that is hard to match.

Recurring Revenue: Memberships provide predictable monthly income.
High Margins: Once a course is created, the cost to deliver it to the 1,000th student is virtually zero.
No Logistics: You don't have to worry about shipping delays, damaged goods, or rising postage costs.

When you are securing a fixed cost structure for digital products, you can more easily project your future earnings and set aside the necessary funds for tax obligations. We offer the Unlimited Plan for just $29.99 a month with 0% transaction fees because we want our merchants to keep 100% of what they earn.

Summary Checklist for Shopify Sales Tax

If you are feeling overwhelmed, take it one step at a time. Here is the path to compliance:

Identify where you have physical nexus: (Where are you, your staff, and your inventory?).
Monitor economic nexus: Check Shopify’s "Liability Insights" regularly.
Register with the state: Once you hit a threshold, apply for a Sales Tax ID with that state’s Department of Revenue.
Enable collection in Shopify: Enter your Tax ID in the "Taxes and Duties" settings.
Collect Tax: Ensure Shopify is adding the correct tax to every order.
Report and Remit: Use an app or a CPA to file your monthly, quarterly, or annual returns.

By following this process, you protect your business from future audits and ensure you are operating as a professional, scalable brand.

Conclusion

To answer the central question: No, Shopify does not report or remit sales tax to states for you. While the platform provides the sophisticated "Shopify Tax" engine to calculate and collect these funds, you remain the responsible party for filing returns and paying the state authorities. This distinction is a natural part of owning your own brand and independent store.

By centralizing your physical and digital products within the Shopify ecosystem, you simplify your administrative burden. Instead of juggling multiple platforms with different tax reporting styles, you can have one unified dashboard. This allows you to focus on what matters most: delivering value to your community and growing your revenue streams. At Tevello, we are committed to providing an all-in-one ecosystem where physical products, digital courses, and community engagement live side-by-side. Our $29.99/month Unlimited plan includes everything you need—unlimited courses, video hosting, and community features—with absolutely no hidden transaction fees.

To build your community without leaving Shopify, start by reviewing the Shopify App Store listing merchants install from.

Install Tevello today to start your 14-day free trial. You can build your entire curriculum and set up your community before you ever pay a cent. Experience the power of a native Shopify solution and turn your store into a digital learning powerhouse today. You can install Tevello from the Shopify App Store today and begin your journey toward a more diversified and profitable business.

Frequently Asked Questions

Does Shopify automatically send the tax I collect to the government?

No. Shopify is not a marketplace facilitator. While it provides the tools to calculate and collect sales tax from your customers at checkout, you are responsible for filing tax returns and remitting the collected funds to the appropriate state or local tax authorities.

Do I need to pay sales tax on digital courses sold through Shopify?

The taxability of digital courses varies significantly by state. Some states consider digital products taxable, while others do not. You should check the specific laws of each state where you have nexus. Using a native solution like Tevello ensures that your digital sales are tracked in the same Shopify tax reports as your physical goods, making it easier to determine your liability.

How do I know if I have reached the "Economic Nexus" threshold?

Shopify Tax includes a "Liability Insights" feature that monitors your sales volume and transaction count in every U.S. state. It will notify you when you are approaching or have exceeded the legal thresholds (commonly $100,000 in sales or 200 transactions), signaling that you need to register for a tax ID in that state.

Can I use third-party apps to automate my tax reporting on Shopify?

Yes, many merchants use third-party tax automation apps to bridge the gap between Shopify's collection and the state's remittance requirements. These apps can automatically pull your sales data, prepare your tax returns, and even file them on your behalf for an additional fee. This is a popular option for scaling businesses that want to avoid the manual labor of filing in multiple jurisdictions.