As a Shopify store owner, understanding the sales tax nexus is essential to staying compliant with tax laws. The sales tax nexus determines whether you are legally required to collect and remit sales tax in a particular state. With Shopify’s automated tax features, managing sales tax can be simplified, but it’s still crucial to know the rules that apply to your business.

What Is the Sales Tax Nexus?

The sales tax nexus is a connection between your business and a state that requires you to collect sales tax from customers in that state. Traditionally, nexus was based on a business’s physical presence, but modern eCommerce laws also consider economic presence as a factor.

Types of Sales Tax Nexus

Physical Nexus – If you have a physical location, warehouse, employees, or inventory in a state, you likely have a sales tax nexus there.

Economic Nexus – Many states require businesses to collect sales tax if they exceed a certain revenue or transaction threshold within that state, even without a physical presence. For example, in most states, if you generate $100,000 in sales or 200 transactions, you establish an economic nexus.

Affiliate Nexus – If you work with affiliates or partners in a state who promote your Shopify store, you may need to collect sales tax there.

Click-Through Nexus – Some states impose nexus if an in-state website refers customers to your store through an affiliate program.

Marketplace Nexus – If you sell through third-party marketplaces like Amazon or eBay, those platforms may handle tax collection for you, but Shopify sales still require independent tax management.

How Shopify Helps with Sales Tax Compliance

Shopify accounting provides built-in tax calculation tools to help you determine where to collect sales tax:

• Shopify automatically applies sales tax rates based on customer location.

• You can enable tax collection in states where you have nexus under Settings > Taxes and Duties in your Shopify dashboard.

• Shopify does not remit taxes on your behalf—you must file tax returns and send payments to state tax agencies.

How to Determine Your Nexus Obligations

Review Your Sales Data – Check where most of your customers are located and whether you meet economic nexus thresholds in those states.

Check State Tax Laws – Each state has different nexus rules and tax rates, so research individual state requirements.

Register for a Sales Tax Permit – Before collecting sales tax, you must register with the tax authorities in states where you have a nexus.

Use Shopify Tax Reports – Shopify’s tax reports help track collected taxes, making it easier to file returns.

Conclusion

The sales tax nexus is a critical factor in Shopify eCommerce operations. Understanding where you have nexus and ensuring proper tax collection and filing can help avoid penalties. Shopify’s automated tax features assist with compliance, but business owners should stay informed about changing tax laws and consider working with a tax professional for accuracy.