Marketplace Sales Tax in Shopify for Merchants

Table of Contents

1. Introduction
2. The Evolution of E-commerce Sales Tax
3. Understanding Shopify’s Role in 2025
4. Defining Nexus: Physical vs. Economic
5. Sales Tax Sourcing: Origin vs. Destination
6. Taxability of Digital Products and Services
7. Managing Marketplace Tax in Your Shopify Admin
8. Building a "Learning Powerhouse" with Tevello
9. Transparency in Pricing and Costs
10. Case Study: The Power of the Hybrid Model
11. Steps to Ensure Sales Tax Compliance
12. Why Recurring Revenue is the Ultimate Tax Strategy
13. Common Pitfalls to Avoid
14. Conclusion
15. Frequently Asked Questions

Introduction

Did you know that in 2024, the average e-commerce merchant spends nearly ten hours every month navigating the complexities of tax compliance? For a business owner, those are ten hours that could be spent developing new products, engaging with customers, or refining a marketing strategy. As the digital economy grows, tax authorities have become increasingly focused on capturing revenue from online sales, leading to a complex web of "Marketplace Facilitator" laws. If you have ever looked at your Shopify payout and wondered why a portion of the tax was withheld automatically, or if you are confused about your obligations when selling digital courses versus physical goods, you are not alone.

The purpose of this blog post is to demystify what is marketplace sales tax in shopify and provide a clear roadmap for merchants to stay compliant while scaling their businesses. We will cover the evolution of sales tax laws, the difference between physical and economic nexus, and the specific changes Shopify implemented in early 2025 regarding the Shop App. Furthermore, we will explore how diversifying into digital products—such as online courses and memberships—can actually simplify parts of your business model while increasing your margins.

At Tevello, our mission is to turn any Shopify store into a digital learning powerhouse. We believe that merchants should have full control over their brand and their data, which is why we built a solution that integrates natively with the Shopify ecosystem. By the end of this article, you will understand how to manage your tax obligations effectively and how leveraging digital content can help you build a more stable, recurring revenue stream without the logistical headaches of physical inventory.

The Evolution of E-commerce Sales Tax

To understand what is marketplace sales tax in shopify today, we must first look at how the rules changed. For decades, the "physical presence" rule governed sales tax. If a business didn't have a warehouse, office, or employees in a state, they weren't required to collect sales tax from customers in that state. This was the "Quill Corp. v. North Dakota" era, which largely favored the early growth of online retailers.

However, as e-commerce began to dominate the retail landscape, states argued they were losing billions in tax revenue. This led to the landmark 2018 Supreme Court case, "South Dakota v. Wayfair." The court ruled that states could require out-of-state sellers to collect sales tax if they had a "significant presence" in the state, even if that presence was purely economic. This birthed the concept of "Economic Nexus," and shortly after, states began passing "Marketplace Facilitator" laws.

What is a Marketplace Facilitator?

A marketplace facilitator is a platform that contracts with third-party sellers to promote and facilitate the sale of those sellers' products. Think of platforms like Amazon, Etsy, or the Shopify Shop App. Under facilitator laws, the platform itself—rather than the individual merchant—is often responsible for calculating, collecting, and remitting sales tax to the state. This shift was designed to make tax collection more efficient for state governments. Instead of chasing thousands of small sellers, the state only has to collect from a few large "facilitators."

Understanding Shopify’s Role in 2025

A major point of confusion for many merchants is when Shopify acts as a facilitator and when it acts simply as a software provider. As of January 1, 2025, Shopify began automatically collecting and remitting marketplace facilitator taxes for all orders made specifically through the Shop App (the Shop sales channel) that are shipped within or to the United States.

It is critical to distinguish between your "Online Store" (your website) and the "Shop App."

• The Shop App: When a customer buys your product through the Shop App, Shopify is the marketplace facilitator. They handle the tax, and you will see these amounts deducted from your payouts for clarity.
• Your Online Store: For orders placed directly on your custom domain (e.g., yourstore.com), you are still the seller of record. While Shopify provides the tools to calculate these taxes, you are generally responsible for remitting them to the state unless you are using specific automated filing services.

By checking merchant feedback and app-store performance signals, you can see how other sellers manage these multi-channel complexities. Many find that having a unified system where all products—both physical and digital—are managed in one place is the only way to maintain sanity as they grow.

Defining Nexus: Physical vs. Economic

Before you can determine your tax liability, you must know where you have "nexus." Nexus is a legal term for a connection between a business and a taxing jurisdiction.

Physical Nexus

Physical nexus is the traditional way of establishing a tax obligation. You likely have physical nexus if you have:

• An office or place of business.
• Inventory stored in a warehouse (including third-party logistics or fulfillment centers).
• Employees, contractors, or sales representatives living in the state.
• Attendance at trade shows or craft fairs where you sell products.

Economic Nexus

Economic nexus is triggered once you exceed a certain threshold of sales or transactions in a state. These thresholds vary wildly. For example, in Illinois, the threshold is currently $100,000 in sales or 200 separate transactions. However, starting in 2026, the transaction count will be removed, leaving only the revenue threshold. In contrast, Texas only triggers economic nexus once you exceed $500,000 in gross revenue.

Tracking these thresholds manually is nearly impossible for a growing business. This is why we recommend seeing how the app natively integrates with Shopify to ensure your sales data is always accurate and ready for reporting. If you are selling digital products through Tevello, these sales contribute to your nexus thresholds just like physical goods do.

Sales Tax Sourcing: Origin vs. Destination

Once you establish nexus, you must determine which rate to charge. This depends on whether a state uses "Origin" or "Destination" sourcing.

1. Destination Sourcing: This is the most common model. The tax rate is determined by the location where the customer receives the product. If a customer in New York City buys a course from a creator in California, the New York City tax rate applies.
2. Origin Sourcing: A handful of states (like Arizona and part of Texas for in-state sales) use origin sourcing. Here, the tax rate is based on where the seller is located.

Understanding these nuances is vital for maintaining healthy margins. If you aren't calculating taxes correctly, those costs come out of your pocket, not the customer's. If unifying your stack is a priority, start by a simple, all-in-one price for unlimited courses. This allows you to focus on your tax strategy without worrying about fluctuating software costs.

Taxability of Digital Products and Services

For the modern Shopify merchant, the "product" isn't always something that fits in a box. Many creators are moving toward digital-first models. But how does tax apply to an online course or a community membership?

The taxability of digital goods is one of the fastest-changing areas of tax law. Some states, like Minnesota, treat digital products similarly to tangible goods and tax them at the standard rate. Other states may exempt them entirely or have specific rules for "automated" vs. "live" instruction.

The Benefits of Digital Products

Selling digital content via Tevello offers a significant advantage in the "What is marketplace sales tax in Shopify" conversation. Because digital products have no shipping address, the tax calculation is often simpler (based on the billing address), and you avoid the "physical nexus" issues created by storing inventory in multiple states.

Consider a merchant who sells premium coffee beans. They have to deal with physical nexus in every state where their 3PL (Third Party Logistics) has a warehouse. By adding a "Home Roasting Masterclass" using Tevello, they create a high-margin product that requires no storage, no shipping, and contributes to examples of successful content monetization on Shopify. Digital products allow you to scale your revenue without proportionally increasing your tax complexity or overhead.

Managing Marketplace Tax in Your Shopify Admin

Shopify has made great strides in helping merchants manage these obligations. Within your admin settings, under "Taxes and Duties," you can see exactly where you have established nexus based on your sales data.

Tracking the Shop App Deductions

Since Shopify acts as a facilitator for the Shop App, you will see "Marketplace Facilitator Tax" entries in your payouts. It is important to ensure your bookkeeping software (like QuickBooks or Xero) is configured to handle these debits correctly. You don't want to report the tax Shopify collected as your own revenue, nor do you want to pay it twice.

To see how other successful merchants have navigated these integrations while scaling, you can see how merchants are earning six figures by combining physical goods with robust digital ecosystems.

Building a "Learning Powerhouse" with Tevello

At Tevello, we recognize that the future of e-commerce is hybrid. Our platform allows you to host unlimited courses and students, providing a seamless experience for your customers. One of the technical advantages of using Tevello is that we stay "native" to Shopify. This means when a customer buys a course, they use the Shopify checkout they already trust. This is the same checkout that calculates the marketplace sales tax we have been discussing.

By keeping customers on your own URL, you maintain full control of the branding and the data. Unlike third-party course platforms that might redirect your users and complicate your tax reporting with their own facilitator rules, Tevello keeps everything under your Shopify roof. This is how brands are unifying a fragmented system into a single Shopify store, reducing customer support friction and simplifying back-end accounting.

Transparency in Pricing and Costs

When you are dealing with the complexities of state taxes and marketplace fees, the last thing you need is a software provider that takes a percentage of your hard-earned revenue. Many course platforms charge "success fees" or transaction fees on top of what Shopify takes.

We believe in predictable pricing without hidden transaction fees. Our Unlimited Plan is a flat $29.99 per month. Period. This plan includes:

• Unlimited courses and students.
• Unlimited video hosting and bandwidth.
• Fully integrated community features (social feeds, member directories).
• Drip content and quizzes to enhance the learning experience.

By securing a fixed cost structure for digital products, you can accurately forecast your margins and ensure that your tax obligations don't eat into your profits. You keep 100% of your earnings (minus what you owe the government, of course).

Case Study: The Power of the Hybrid Model

Let's look at a practical scenario. Imagine a brand that sells crochet kits. Physically shipping yarn and needles is a low-margin, high-logistics business. However, by using Tevello to offer premium crochet patterns and video tutorials, the brand can significantly increase its Customer Lifetime Value (LTV).

You can see how one brand sold $112K+ by bundling courses alongside their physical products. For this merchant, the digital component required zero shipping, zero warehouse space, and zero physical nexus concerns. They were able to use strategies for selling over 4,000 digital courses natively to create a buffer of high-margin income that supported the expansion of their physical product line.

Steps to Ensure Sales Tax Compliance

While we are experts in e-commerce technology, we always recommend consulting with a tax professional. However, here is a general checklist to help you manage your marketplace sales tax in Shopify:

1. Audit Your Nexus: Review your "Taxes and Duties" section in Shopify to see where you have exceeded economic thresholds.
2. Register for Permits: Once you have nexus in a state, you must register for a sales tax permit before you start collecting tax. It is illegal in most states to collect tax without a permit.
3. Configure Shopify Tax: Ensure your product categories are correctly assigned. Shopify Tax can suggest categories for you, ensuring that a digital course is taxed as a digital service and a T-shirt is taxed as apparel.
4. Keep Detailed Records: Even if Shopify is collecting tax for your Shop App orders, you are still responsible for reporting those "exempt" sales on your state tax returns.
5. Monitor Changes: Laws regarding digital products and services change frequently. Using a platform that integrates natively with Shopify ensures that you are always using the latest tax calculation engine.

Brands that have migrated to this unified approach often find that they spend significantly less time on manual data entry. For example, migrating over 14,000 members and reducing support tickets was possible because all customer data, orders, and tax records were consolidated into one source of truth.

Why Recurring Revenue is the Ultimate Tax Strategy

While it might seem counterintuitive, increasing your revenue through memberships and recurring subscriptions (supported by Tevello) can make your tax planning more predictable. When you have a stable base of subscribers, your nexus thresholds become easier to forecast. You aren't guessing if a viral physical product will suddenly drop 50,000 orders in a state where you aren't registered.

A membership community also fosters brand loyalty. Instead of a one-time transaction where the tax is a hurdle, you are building a long-term relationship. Shopify’s system handles the recurring tax calculations automatically, and because Tevello is native, those subscription payments flow through the same reliable pipes as your standard orders.

Common Pitfalls to Avoid

As you navigate what is marketplace sales tax in shopify, watch out for these common mistakes:

• Assuming Digital is Always Tax-Free: Many merchants think that because there is no physical "item," there is no tax. This is increasingly false. Always verify the status of "Digital Goods and Services" in your target states.
• Ignoring Local Taxes: Some states allow cities and counties to levy their own taxes on top of the state rate. Shopify handles this well, but only if your address settings are precise.
• Failing to Account for Facilitator Withholdings: If you don't realize Shopify has already collected tax on a Shop App order, you might accidentally remit that tax again, essentially paying double.
• Not Using a 14-Day Free Trial: You shouldn't have to pay for a tool while you are still figuring out your setup. We encourage you to install Tevello from the Shopify App Store today and use the trial period to build your curriculum and test your tax settings.

Conclusion

Navigating the world of marketplace sales tax can feel like a full-time job, but it is a necessary part of building a professional, sustainable e-commerce business. By understanding the distinction between your online store and the Shop App, staying on top of your nexus thresholds, and diversifying your revenue with digital products, you can turn tax compliance from a headache into a streamlined part of your operations.

At Tevello, we are here to support your journey from a simple shop to a comprehensive learning powerhouse. Whether you are selling a single masterclass or building a massive subscription community, our Unlimited Plan provides the robust tools you need without the burden of transaction fees or complicated pricing tiers. You deserve to own your brand, your data, and your profits.

To build your community without leaving Shopify, start by reviewing the Shopify App Store listing merchants install from. Install the app today to start your 14-day free trial, and remember—with Tevello, you keep 100% of what you earn because we charge 0% transaction fees.

Frequently Asked Questions

Does Tevello charge extra taxes on top of Shopify?

No, Tevello does not charge or collect taxes independently. Because Tevello is a native Shopify integration, all transactions happen through the Shopify checkout. This means any sales tax or marketplace facilitator tax is handled by Shopify’s existing tax engine based on the rules you have configured in your Shopify admin.

How do I report sales tax for my online courses?

When you sell a course via Tevello, the sale appears in your Shopify "Orders" and "Finance" reports. You can export these reports to see the total tax collected per state. If the sale happened through the Shop App, Shopify will show the tax as "Marketplace Facilitator Tax" collected and remitted by them. For all other sales, you will use these reports to file your returns with the appropriate state authorities.

Are digital courses taxable in all US states?

Taxability varies by state. Some states classify online courses as taxable "Digital Goods" or "Information Services," while others consider them non-taxable "Professional Services" if there is a significant human element involved (like live coaching). It is important to use Shopify’s product categories to accurately tag your courses so the correct tax rate is applied automatically.

Can I sell both physical products and digital courses together?

Absolutely! This is one of the primary reasons merchants choose Tevello. You can create "bundles" where a customer buys a physical kit and automatically gets access to a digital course. In this case, Shopify will calculate the tax based on the components of the bundle, ensuring you remain compliant across different product types.