Table of Contents
- Introduction
- The Core Question: Does Shopify Withhold Sales Tax?
- Understanding Consumption Taxes: Sales Tax, VAT, and GST
- The Concept of Nexus: Why You Owe Tax
- How Shopify Tax Simplifies the Process
- Digital Products and the "Digital Nexus"
- Practical Scenarios: Compliance in Action
- What Shopify Doesn't Do: The Remittance Gap
- Maximizing Value While Managing Costs
- Setting Realistic Business Expectations
- Step-by-Step: Setting Up Tax Collection in Shopify
- Why "Native" Matters for Tax and Growth
- Conclusion
- FAQ
Introduction
Imagine you have just surpassed your first $100,000 in sales. The champagne is flowing, and your Shopify dashboard is glowing with success. Then, a notification from a tax authority arrives in your inbox. Suddenly, the celebration stops. You find yourself staring at complex spreadsheets, wondering if you have been collecting the right amount of tax from customers in Ohio, or if you should have been remitting payments to California months ago. This is the reality for many growing e-commerce merchants who find that the "creative" side of their business is frequently interrupted by the "compliance" side.
The question of whether Shopify withholds sales tax is one of the most common points of confusion for online entrepreneurs. In the world of Amazon and eBay, tax is often handled for you. But Shopify is a different animal. Our mission at Tevello is to turn any Shopify store into a digital learning powerhouse, and part of that empowerment involves helping you understand the financial landscape of your business. We believe merchants should own their customer data and brand experience, and that ownership comes with the responsibility of managing your tax obligations.
In this article, we will provide a deep dive into how Shopify handles sales tax. We will explore the critical differences between an e-commerce platform and a marketplace facilitator, break down the nuances of "Nexus," and explain the 2025 updates regarding the Shop sales channel. Furthermore, we will discuss how moving into digital products and courses can help diversify your revenue while staying within a unified login that reduces customer support friction. By the end of this guide, you will have a clear understanding of your tax responsibilities and how to leverage the right tools to keep your business compliant.
The Core Question: Does Shopify Withhold Sales Tax?
To answer this directly: In most cases, Shopify does not withhold or remit sales tax for you. Shopify is primarily an e-commerce platform, not a marketplace facilitator. This distinction is the single most important concept to grasp when setting up your store’s finances.
When you sell on a marketplace like Amazon, eBay, or Etsy, those companies are legally classified as "marketplace facilitators." Under the prevailing laws in most U.S. states, these facilitators are required to calculate, collect, and remit sales tax on behalf of their third-party sellers. Because the marketplace controls the checkout, the logistics, and the customer relationship, the government holds them responsible for the tax.
Shopify is different. Shopify provides the infrastructure for you to build your own store on your own URL. Because you have full control over your products, your marketing, and your customer data, the burden of tax compliance remains with you. While Shopify provides incredibly robust tools to help you calculate and collect tax at checkout, it does not take that money and send it to the government. You are responsible for registering with the appropriate states, filing the returns, and paying the tax owed.
The 2025 Exception: The Shop Sales Channel
As of January 1, 2025, there is a notable exception to this rule. Shopify has begun collecting and withholding sales taxes for orders placed specifically through the Shop sales channel that are shipped to or within the United States. In this specific context, Shopify acts as a marketplace facilitator for the Shop app ecosystem.
If a customer finds your product through the Shop app and completes their purchase there, Shopify will remit those taxes through the Marketplace Facilitator Tax protocols. However, this applies only to US-registered sellers and only to sales made through that specific channel. For the vast majority of sales occurring on your primary online store, the traditional rules still apply: you must manage the remittance yourself.
Understanding Consumption Taxes: Sales Tax, VAT, and GST
Before we look at the technical settings in Shopify, it is important to understand what you are actually collecting. Consumption taxes are applied to the purchase of goods and services, but they vary significantly depending on where your customer is located.
US Sales Tax
In the United States, sales tax is a one-time tax charged at the point of purchase. There is no national sales tax; instead, it is determined at the state and local levels. This creates a patchwork of over 11,000 different tax jurisdictions. Because local cities and counties can add their own percentages on top of state rates, the total tax can change from one street block to the next.
Value-Added Tax (VAT)
Common in the European Union and the UK, VAT is a multi-stage tax. It is charged at every point in the supply chain where value is added. As a merchant, you might pay "input VAT" when you buy materials or services. When you sell your product, you charge "output VAT" to the customer. Usually, you can deduct the VAT you paid from the VAT you collected, remitting only the difference to the government.
Goods and Services Tax (GST)
GST is used in countries like Australia, Canada, and India. It is similar to VAT in that it is often levied at every step of the supply chain, though the specific rules for credits and refunds vary by country.
Whether you are selling physical goods or digital courses, your customers expect a professional checkout experience that applies these taxes correctly. At Tevello, we prioritize a Native Shopify Integration because it ensures that all tax calculations handled by Shopify—whether for a physical t-shirt or a digital masterclass—are applied seamlessly at the point of sale.
The Concept of Nexus: Why You Owe Tax
You aren't required to collect sales tax in every single state just because you have an online store. You only owe tax in states where you have "Nexus." Nexus is a legal term describing a connection between your business and a state that is significant enough for the state to require you to collect taxes.
Physical Nexus
Physical nexus is the traditional way of defining a business presence. You have physical nexus if you have:
- An office or storefront in the state.
- A warehouse where inventory is stored (including third-party warehouses like Amazon FBA).
- Employees, contractors, or sales representatives living in the state.
- Physical assets like delivery trucks.
Economic Nexus
In 2018, the Supreme Court ruling in South Dakota v. Wayfair changed everything. States can now require businesses to collect sales tax even if they have no physical presence in the state, provided they meet certain "Economic Nexus" thresholds.
Most states have a threshold of $100,000 in annual sales or 200 separate transactions in that state. Once you cross either of these markers, you are legally obligated to register for a sales tax permit in that state and begin collecting tax. This is where many digital creators find success—and a headache. If you are generating revenue from both physical and digital goods, those totals combined count toward your nexus thresholds.
How Shopify Tax Simplifies the Process
To help merchants navigate this complexity, Shopify introduced "Shopify Tax." This feature is designed to take the guesswork out of calculation, although it still stops short of remitting the money for you.
Liability Insights
One of the most valuable features of Shopify Tax is the liability insights dashboard. It monitors your sales across the United States and alerts you when you are approaching or have crossed a nexus threshold in a specific state. This prevents you from being blindsided by tax obligations you didn't know you had.
Precision Calculation
Shopify Tax uses "rooftop-level" precision. Instead of just looking at a zip code (which can cover multiple tax jurisdictions), it looks at the exact delivery address to apply the correct state, county, and local taxes. It also understands product-specific taxability. For example, some states tax clothing differently than digital software or online courses.
The Cost of Compliance
Shopify Tax is free for your first $100,000 in US sales each calendar year. Once you exceed that, Shopify charges a calculation fee:
- Standard Plans: 0.35% per order (capped at $0.99).
- Shopify Plus: 0.25% per order (capped at $0.99).
While this is a small price to pay for accuracy, it is another reason why merchants look for predictable pricing without hidden transaction fees in their other tools. At Tevello, we don't believe in taking a percentage of your success, which is why we charge 0% transaction fees on your course sales.
Digital Products and the "Digital Nexus"
For merchants transitioning from physical goods to digital products—such as selling online courses or memberships—the tax rules can feel even more opaque. Many states have updated their laws to include "digital goods" in their sales tax definitions.
If you are a merchant selling coffee beans, you might eventually hit a plateau because of shipping costs and inventory limits. By creating a "Barista Basics" video course, you create a high-margin upsell that requires no shipping boxes. However, you must ensure your Shopify tax settings are configured to recognize that "digital goods" are being sold.
If unifying your stack is a priority, start by a simple, all-in-one price for unlimited courses.
When you sell digital products through Tevello, the transaction happens entirely within the Shopify checkout. This means if a customer in New Jersey buys your $200 course, Shopify will check if you have nexus in New Jersey, calculate the appropriate tax for a "digital service," and add it to the total. This unified login that reduces customer support friction ensures that the customer never feels like they are leaving your site to go to a third-party course platform, and it ensures your tax reporting remains in one central location.
Practical Scenarios: Compliance in Action
Let’s look at how two different types of merchants handle the "does Shopify withhold sales tax" dilemma in the real world.
Scenario 1: The Craft Educator
Consider a brand like Crochetmilie. They have seen massive success, specifically how one brand sold $112K+ by bundling courses. In this case, the merchant is selling both physical crochet kits (shipped from their home state) and digital patterns/courses (delivered via Tevello).
Because they sell a high volume of low-cost digital items, they quickly hit the "200 transactions" threshold in several states, even if they haven't hit the $100,000 revenue mark. Using Shopify Tax, they can see exactly which states they have established nexus in. They must then go to those states' websites, register for a tax ID, and enter that ID into their Shopify admin. From that point forward, Shopify collects the tax, and at the end of the quarter, the merchant uses Shopify’s tax reports to file their returns manually or through a third-party automation tool.
Scenario 2: The Large-Scale Community
A merchant like Charles Dowding, who focuses on organic gardening, faced the challenge of migrating over 14,000 members and reducing support tickets. When dealing with thousands of members globally, tax becomes a massive undertaking.
By solving login issues by moving to a native platform, they ensured that every single membership renewal was processed through Shopify. This meant their tax liability was tracked in one place. They didn't have to worry about a separate community platform collecting tax in a way that didn't talk to their main store. They maintained a clear audit trail, which is essential when you reach that scale of operation.
What Shopify Doesn't Do: The Remittance Gap
It is worth repeating: Shopify does not remit your taxes. This is the "Remittance Gap." Even with the most expensive Shopify plan and the best tax calculation tools enabled, the following tasks remain on your to-do list:
- Registration: You must apply for sales tax permits in every state where you have nexus. You cannot legally collect tax without a permit.
- Filing: You must file tax returns on a regular basis (monthly, quarterly, or annually), even if you collected $0 in tax for that period. These are called "zero-filing" returns.
- Payment: You must physically (or electronically) send the collected tax money to the state's Department of Revenue.
- Audit Support: If a state audits you, Shopify will provide the data, but they will not defend you or provide a CPA to handle the audit.
For many merchants, this is where they choose to integrate third-party tax automation software. These tools sync with Shopify to pull your sales data and then handle the actual filing and remittance for you.
Maximizing Value While Managing Costs
As your business grows, every dollar spent on software and fees is a dollar taken away from your marketing or product development. This is why we are transparent about our simple pricing. We reject the complicated tier structures found in many other Shopify apps.
We offer The Unlimited Plan at $29.99 per month.
When you choose this flat-rate plan that supports unlimited members, you gain access to:
- Unlimited courses and students.
- Unlimited video hosting and bandwidth.
- Community features (profiles, member directories, social feeds).
- Drip content scheduling and quizzes.
- A 14-day free trial.
By keeping your overhead low with Tevello, you can allocate more budget toward necessary expenses like tax automation or professional accounting services. This balance is key to increasing your Customer Lifetime Value (LTV) and building a sustainable, recurring revenue model.
Setting Realistic Business Expectations
We often see "gurus" suggesting that you can launch a course and make six figures in your first week without any effort. At Tevello, we prefer to set realistic expectations. Building a digital learning powerhouse takes work. It requires creating high-quality content, engaging with your community, and—yes—staying on top of your tax obligations.
However, the benefits of the business model are undeniable. By adding digital products to your Shopify store, you:
- Diversify Revenue Streams: You aren't reliant solely on physical inventory.
- Increase Profit Margins: Digital products have negligible marginal costs after the initial creation.
- Build Brand Loyalty: A community-led store creates "super-fans" who are more likely to buy your physical products.
Tevello is a robust tool designed to amplify your existing efforts. Whether you are keeping customers at home on the brand website or using all the key features for courses and communities to drive engagement, we provide the infrastructure so you can focus on the big picture.
Step-by-Step: Setting Up Tax Collection in Shopify
If you have determined that you have nexus in a state and are ready to start collecting, follow these steps:
- Access Settings: Open your Shopify admin and navigate to Settings > Taxes and Duties.
- Manage Regions: In the "Manage Sales Tax Collection" section, click on United States.
- Collect Sales Tax: Click the button to "Collect Sales Tax."
- Enter Tax ID: Select the state where you are registered and enter your Sales Tax ID. If you have applied for one but haven't received it yet, you can leave it blank for now, but remember to update it as soon as possible.
- Review Overrides: If you sell products that are tax-exempt in certain states (like some digital goods or groceries), you may need to set up "Tax Overrides" to ensure customers aren't charged incorrectly.
Remember, Shopify will only start charging tax once you have explicitly enabled it for a specific region. It will not "back-tax" orders that were placed before you enabled the setting.
Why "Native" Matters for Tax and Growth
There are many platforms out there that allow you to sell courses, but most of them require you to send your customers to a different website (e.g., yourstore.teachable.com). This is a mistake for several reasons, but especially regarding taxes and data.
When you use a non-native platform:
- Data Fragmentation: Your sales tax data is split between two different systems, making filing twice as hard.
- Customer Friction: Customers have to create two different logins, leading to more support tickets.
- Branding Loss: You lose the opportunity to upsell physical products during the course checkout.
By choosing a Native Shopify Integration, you keep everything under one roof. Your Shopify tax reports will include your course sales, your physical product sales, and your membership dues. This holistic view of your business is essential for accurate financial planning and tax compliance.
Conclusion
Understanding "does Shopify withhold sales tax" is a vital milestone in your journey as a professional merchant. While Shopify provides the tools to help you stay compliant, the responsibility for remitting those taxes ultimately lies with you. By using Shopify Tax to track your nexus and leveraging a native solution like Tevello to manage your digital products, you can build a scalable, legally sound business.
Don't let the complexity of taxes hold you back from diversifying into high-margin digital content. We invite you to start your 14-day free trial and build your first course now. You can build your entire curriculum, set up your community, and test the customer experience before paying a cent. Best of all, with our 0% transaction fee policy, you keep 100% of what you earn, giving you the financial flexibility to invest back into your brand's growth.
To build your community without leaving Shopify, start by reviewing the Shopify App Store listing merchants install from.
FAQ
Does Shopify automatically pay the sales tax it collects to the government?
No, Shopify does not remit sales tax for you. While it can automatically calculate and collect the tax from your customers during checkout, you are responsible for filing tax returns and sending the collected funds to the appropriate state or local tax authorities. The only exception is for sales made through the Shop sales channel, where Shopify may act as a marketplace facilitator.
What happens if I don't collect sales tax on my Shopify courses?
If you have economic or physical nexus in a state and fail to collect sales tax, you may be held liable for the unpaid taxes out of your own pocket. Tax authorities can also impose significant penalties and interest charges. It is critical to monitor your nexus thresholds and register for tax permits as soon as you meet the requirements.
Do I need to pay sales tax on digital products like online courses?
Taxability for digital products varies by state. Some states consider online courses to be taxable "digital goods" or "automated services," while others may view them as non-taxable educational services. You should consult with a tax professional or use the Shopify Tax "Product Category" feature to determine the specific taxability of your courses in the states where you have nexus.
How does Tevello help with my Shopify tax reporting?
Tevello is built natively for Shopify, meaning every course or membership purchase is processed directly through the Shopify checkout. Because of this, all your digital sales appear in your standard Shopify tax reports alongside your physical product sales. This eliminates the need to merge data from multiple platforms, making it much easier to see your total revenue and tax liabilities in one place.
