Tracking US Sales Tax Nexus for a Shopify Store: What to Watch

Economic nexus means a US state can require you to collect its sales tax once your sales into that state pass a threshold the state has set, wherever your business is based. Tracking it comes down to keeping a running total of sales and order counts for each state and comparing those totals with each state's current rule. This guide explains the idea in general terms, what to record, how to build the report from Shopify, and when to bring in a tax adviser. It is not tax advice.

What does economic nexus mean?

It means that selling enough into a state can create an obligation there, without an office, a warehouse or staff in it.

Since the Wayfair decision in 2018, a state can require a seller to collect sales tax once the seller's sales into the state pass its economic nexus threshold. The threshold is set state by state.

Three general points are enough to plan around:

• Every state decides for itself. There is no single national figure. Each state writes its own rule.
• Rules change. States revise their thresholds and how they measure them. A list you saved two years ago may be out of date.
• Sales are not the only route. This guide deals with nexus created by sales volume. Other facts about your business can matter too, and an adviser will ask about them.

We do not list thresholds here, because any printed figure ages. Take current ones from each state's tax authority or your adviser.

Why does it catch growing stores by surprise?

Because it builds up quietly, one ordinary order at a time, and nothing in a sales dashboard flags it.

Shopify calculates tax on each order for the places where you have told it you collect. Deciding where you should be registered is your responsibility, and that decision depends on the running totals this guide is about.

What should you track for each state?

Keep both value and volume, by destination, on a schedule.

1. Sales into each state. Use Shopify's definitions and keep gross sales, net sales and total sales side by side, because your adviser will tell you which basis a given state's rule uses. Our guide to gross sales, net sales and total sales explains the three.
2. Order count into each state. Record the number of orders as well as their value. If a rule you are checked against is expressed in transactions, you will have the figure ready.
3. Period. Keep monthly figures so that totals can be added up over whichever period a rule measures. Do not store only a year-to-date number, because you cannot rebuild a different period from it.
4. Every channel. Include online store, point of sale, draft orders and any marketplace or social channel, and keep channel as a column. How sales through marketplaces are treated is a question for your adviser, and they will want to see them separately.

Ask your adviser which address the totals should be built on. The shipping address shows where goods were delivered, and it is the usual starting point for the report.

How do you build the report from Shopify?

Group orders by shipping state and month, then add them up. You can do it by hand or have a tool keep it current.

By hand:

1. Export orders for the period with order date, shipping state, sales channel, the sales lines and tax charged.
2. Pivot by state and month, showing order count and sales.
3. Add a running total for each state over the period your adviser specifies.
4. Put each state's current threshold in a column beside it, with the date you last checked it.

Here is how to read it, using made-up proportions and no real threshold. Say your adviser confirms the figure that applies to you in one state, and at the end of September your running total into that state stands at 75% of it, with roughly another 10% added each month. At that pace you reach 85% in October, 95% in November and cross in December. That gives you about three months to prepare instead of finding out in the spring.

The manual version only gets done when someone remembers. Our guide to exporting and scheduling Shopify reports covers ways to make the export routine.

Marka Metrics includes sales tax by US state and jurisdiction with a nexus tracker on its Growth and Pro plans. It keeps tax in view from your Shopify orders; it is not a tax filing and it does not give tax advice.

When should you speak to a tax adviser?

Before you cross a threshold, not after. A useful rule is to raise it as soon as any state passes a share of its threshold that you set in advance, so there is time to act.

Speak to one in particular when:

• a state's running total is approaching its threshold, or you think it may already have passed;
• you start using a warehouse, fulfilment service or staff in a new state;
• you add a marketplace or wholesale channel;
• you find you may have crossed a threshold in a past period.

Take the report with you: sales and order counts by state, month and channel.

If you also sell to Europe or the United Kingdom, VAT follows a different logic, covered in our guide to VAT reporting for Shopify stores selling to the EU and UK. The wider context for all of this is in the guide to what Shopify's built-in analytics show and leave out.

A short checklist

1. Report sales and order counts by shipping state every month.
2. Keep monthly rows so totals can be summed over any period.
3. Include every sales channel, with channel as a column.
4. Get current thresholds from the state or your adviser, and date them.
5. Set an internal alert level below each threshold.
6. Speak to an adviser before crossing, and bring the report.

Nexus is manageable when it is a line you watch each month. If you want sales tax by state and a nexus tracker drawn from your Shopify orders, see Marka Metrics, and keep your adviser in the loop.