Shopify Sales Tax Report Decoded: Everything You Need to Know

Understanding sales tax compliance as a Shopify store owner is extremely important. It not only ensures legal adherence but also prevents potential financial penalties. Also, keeping up with sales tax requirements is crucial due to the ever-changing tax rates and diverse jurisdictional regulations. 

Let’s walk through finding and understanding your Shopify sales tax report step by step. By the end, you’ll feel confident managing your taxes, not overwhelmed by paperwork.

Understanding Sales Tax

Sales tax refers to the percentage of the sale price of goods and services collected by sellers on behalf of the government. It’s crucial for e-commerce because failing to comply can result in hefty fines and legal trouble.

In the United States, sales tax laws vary from state to state; some charge it, some don’t, and the rates can differ widely. Internationally, it’s even more complex, with different countries having their own value-added tax systems. 

Laws and Nexus

The term nexus refers to a business entity’s presence, either physically or economically, within a given state or country.

Nexus will dictate whether a business must collect sales tax within a state. For instance, if you sell from California but hold your inventory in New York, you have nexus in both locations and will have to charge taxes in both states.

This is particularly important for Shopify store owners. Shopify automates a lot of the process, but understanding where you have nexus and making sure you’re compliant in those jurisdictions is momentous. Failure to do so could mean you’re on the hook for uncollected taxes, plus penalties. 

Understanding Sales Tax Report, Tax Finances Report, and Sales Financial Report

As a newcomer to Shopify, you’ll encounter various terms that can be confusing. It’s common to mix up terms like sales tax report, tax finances report, and sales finances report.

Let’s clear that up for you:

Sales Tax Report

The sales tax report in Shopify specifically details the sales taxes collected and owed across different jurisdictions. It provides a summarized overview of sales and tax data. In the United States, this report can be viewed at different levels—country, jurisdiction, and even transaction specifics.

By default, the United States Shopify sales tax report offers a state-level overview. For a more detailed breakdown of sales and taxes within a specific state, simply click on that state to access the jurisdictional view.

To view the sales report, follow these steps:

1. In your Shopify admin, navigate to Analytics > Reports.
2. Select the United States sales tax report.
3. Optionally, you can refine your results by adding filters, adjusting the report date range, or choosing specific columns.
4. If needed, click Export to download the report as a CSV file.

Tax Finances Report

The tax report shows the sales taxes applied to your transactions for the selected period. Each item details the type of tax (such as county or state), its rate, and the total tax amount collected.

The report identifies the country and region based on where the sales were delivered, including details for origin-based tax jurisdictions (where the seller is located).

To determine the location, it uses the shipping address. If the shipping address isn’t available, it defaults to the billing address, and if that’s also unavailable, it uses the point-of-sale address.

Different components of the Shopify tax finances report, with their definitions:

source: Shopify

Sales and Finance Report

The Sales Finance report provides the essential figures needed for bookkeeping, including net sales. It outlines all sales and returns made by your store within the chosen timeframe, sorted by date.

In cases where an order includes multiple products, each product appears as an individual sale or return in the report, along with any shipping charges. To view detailed information about a specific order, simply click on its order number.

The finance report includes the following details for each sale or return:

• Date
• Order
• Product
• Gross Sales
• Discount
• Returns and Return Fees
• Net Sales
• Taxes
• Shipping
• Total Sales

Setting Up Sales Tax in Shopify

Setting up sales tax in Shopify might seem daunting, but with a clear roadmap, it can be straightforward and even automated.

Let’s walk through each step to ensure you’re collecting the right amount of tax and staying compliant with all relevant laws:

Accessing Sales Tax Settings

1.  Log In to Shopify Admin

• Start by logging into your Shopify admin dashboard.

2.  Go to the Settings Option

• In the lower-left corner of your dashboard, you’ll see a gear icon labeled “Settings.” Click on it.

3.  Find Taxes

• In the settings menu, locate and click on “Taxes and duties.” This is where you can manage your sales tax settings.

Configuring Sales Tax

1.  Set Up Tax Regions

• Under “Taxes and Duties,” you’ll see different sections for various regions. Click on “United States” or the relevant country/region for your business.

2.  Add Tax Rates

• You will have to configure the tax rates for each state or province in which you have a nexus. After selecting “Add tax rate,” enter the correct percentage according to your community’s legislation.

3.  Include or Exclude Tax in Prices

• Decide whether your product prices will include tax or if tax will be added at checkout. This setting can be adjusted in the same “Taxes and duties” section.

4.  Shipping Taxes

• Make sure that you configure tax settings for shipping rates. Some jurisdictions require taxes on shipping charges as well.

5.  Tax Overrides and Exemptions

• If you have specific products that are exempt from sales tax or have special rates, you can set up tax overrides. Click on “Tax overrides” and specify the product and the applicable rate.

Automating Sales Tax Collection

Shopify automates tax calculations based on customer location. Ensure you have “Calculate taxes automatically” enabled in your tax settings for each region.

Shopify regularly updates its tax rate database to reflect the latest changes in tax laws, ensuring continuous compliance without requiring manual updates.

For B2B transactions involving tax-exempt customers, you can manage these exemptions by correctly tagging customer profiles in your customer settings.

Using Third-Party Tools for Automated Sales Tax Management

While Shopify’s built-in tax tools are pretty robust, several third-party apps can provide additional features and automation:

1. TaxJar

TaxJar offers a sales tax automation solution that enables customers to calculate, file, and remit taxes. Fortunately, it can be easily integrated with Shopify to receive live tax rate updates and figures on the data.

Major advantages of TaxJar include the ability to file taxes automatically, produce tax reports, and get multi-channel support.

2. Avalara

Avalara is a cloud-based sales tax management software. It has an impressive range of tax management solutions, including real-time rate calculations, exemption certificate management, and automatic filing, similar to what TaxJar offers. It is useful in the case of organizations with different and often diverse tax demands in multiple jurisdictions.

3. Taxify by Sovos

Taxify is an award-winning sales tax filing software with a data import flexibility feature. It offers automated tax calculations and filing services. It also integrates with Shopify to streamline sales tax management and ensure compliance.

The best features of Taxify by Sovos include automated returns, accurate rate calculation, and jurisdiction management.

Tracking Down Your Shopify Sales Tax Report

Here’s how to access, customize, and export your Shopify sales tax report:

• Access Shopify Admin Area> Analytics > Reports

This will bring up a list of different report types available to you. Scroll through the list until you find the “Sales finance report” section. Under this, click on “Taxes” to access your detailed sales tax report.

Must-Know Shopify Sales Report Categories

Understanding the different categories in your Shopify sales tax report will help you make sense of the data:

1. Date Range: The data is chosen for a certain date range, so the report generated will reflect this date range. You can change this to view daily, weekly, or monthly, as per your requirements.
2. Sales by Tax Jurisdiction: This section partitions total sales and tax garnered by sales across the state, county, or city. By this section, you will be in a position to identify your sales and identify where you have to pay taxes.
3. Tax Collected: This part of the report details the total amount of sales tax collected for each jurisdiction. Therefore, it helps you see exactly how much tax you need to remit.
4. Taxable and Non-Taxable Sales: In this category, distinctions between taxed and untaxed sales are made to provide clarity on tax obligations.

Filtering and Customizing Shopify Sales Tax Report

Here’s how you can customize your Shopify sales tax report:

1. Use the date range filter to select the period you want to review. This can help you focus on specific tax filing periods.
2. Next, apply filters to narrow down the data. You can choose specific filters based on product, sales channels, or locations to get more in-depth insights.
3. Again, through Shopify, you can modify how you would like the reports to be displayed. By selecting “Customize Report,” one can add or remove various columns, interchange their positions, and modify the report.
4. After customizing a report, save it for easy access later. This is particularly useful if you regularly need to review the same data.

Exporting Shopify Sales Tax Report

To export your Shopify sales tax report, follow these simple steps:

1. Locate the “Export” button at the top right corner of the report. Click on it.
2. Choose your preferred format: CSV or Excel. CSV files are versatile and compatible with most accounting software.
3. After selecting your format, download the exported Shopify sales tax report to your computer.

Understanding Your Shopify Sales Tax Report

Take a look at a Shopify sales tax report in action. This snapshot shows you how taxes are tracked across a certain jurisdiction (in this case, California). 

Source

Key Components of the Shopify Sales Tax Report

As you can see in the image above, a Shopify sales tax report has several sections.

These sections and their descriptions are given below:

Section	Description
Date Range	Specifies the timeframe for the data displayed in the report. Can be adjusted to daily, weekly, monthly, or custom periods.
Sales by Tax Jurisdiction	Breaks down sales and taxes collected by each jurisdiction (state, county, city). It helps identify where sales are coming from and where taxes are owed.
Tax Collected	Details the total amount of sales tax collected for each jurisdiction, showing your tax liabilities.
Taxable Sales	Lists sales that were subject to tax, giving a clear picture of taxable transactions.
Non-Taxable Sales	Lists sales that were exempt from tax, showing transactions not subject to sales tax.
Shipping Taxes	Indicates whether taxes were applied to shipping charges, as required by some jurisdictions.
Tax Overrides	Shows any special tax rates or exemptions applied to specific products or orders.
Order Details	By clicking on an order number, view detailed information about that specific sale or return, including individual product and shipping charges.

Common Issues & Resolutions in Shopify Sales Tax Report

Managing sales tax can be tricky and it’s not uncommon to encounter some issues in your sales tax reports.

Here are some common problems that you can face while generating your Shopify sales tax report and how to troubleshoot them:

1. Missing Tax Data: Check if the product or region is marked as tax-exempt and ensure tax settings are correctly configured.
2. Incorrect Tax Rates: Verify and update the tax rates in your Shopify tax settings to reflect current rates.
3. Double Taxation: Review your tax rules to make sure no overlapping tax settings are causing double charges.
4. Transactions Missing from Report: Confirm the date range is correct and that all sales channels are included in the report settings.
5. Incorrect Jurisdiction Allocation: In such a case, make sure that shipping addresses are accurate and that your Shopify settings use the correct address for tax determination.
6. Unfiled Tax Returns: Regularly review your tax reports and consider using tools like TaxJar or Avalara to automate filing and payments.
7. Export Errors: Double-check export settings, select the correct format, and try exporting a smaller date range if issues persist.

Here are region-specific details for your reference:

Region	Tax Type	Key Details
United States	State and Local Taxes	Complex tax laws with varying rates for states, countries, and cities. Ensure collection and reporting based on customer location and nexus.
European Union	Value-Added Tax (VAT)	VAT is applied uniformly but rates vary. Shopify helps calculate VAT; register for VAT in each country where goods are sold.
Canada	Goods and Services Tax (GST)/ Harmonized Sales Tax (HST)/ Provincial Sales Tax (PST)	A mix of federal GST, HST in some provinces, and PST in others. Set up accurate tax rates for each province.
United Kingdom	VAT	A standard VAT rate for most goods and services. Post-Brexit compliance is needed for sales to EU countries.
Australia	Goods and Services Tax (GST)	GST applies to most products. Shopify can auto-calculate GST.
Asia	Varied (e.g., Consumption Tax in Japan, GST in India)	There are diverse tax systems with different rules in each country. R

State and Local Sales Tax Requirements for the United States

Each of the U.S. states and localities can have its own set of rules and deadlines, making compliance a complex task. 

Here’s what you need to know about filing sales tax returns and the importance of compliance:

Filing Deadlines

The most common sales tax filing deadlines in the United States are:

• Monthly Filings: Typically due on the 20th of the following month.
• Quarterly Filings: Generally due on the last day of the month following the end of the quarter (e.g., April 30 for Q1).
• Annual Filings: Often due by January 31 of the following year.

Filing Sales Tax Returns in the United States

Follow these steps to file sales tax returns using information from your Shopify sales tax reports:

1. Log in to your Shopify admin and navigate to Analytics > Reports. Select the United States sales tax report and adjust the date range as needed.
2. Check the report for accuracy, ensuring all transactions and tax rates are correct. Look for any anomalies or missing data.
3. Use the report to determine the total tax collected for each state and locality.
4. Visit the tax authority website for each state or locality where you have a filing obligation. Most U.S. states provide online portals for sales tax filing.
5. Enter the data from your Shopify report into the appropriate fields on the tax authority’s website. Double-check your entries for accuracy before submitting.
6. Follow the instructions to pay the tax owed. Many states allow electronic payments directly through their filing portal.

Read Also: 10 Best Shopify Analytics apps for your store

Penalties for Non-Compliance With Sales Tax Regulations

If you have a Shopify store, or any e-commerce business for that matter, and you fail to comply with sales tax regulations in the United States, it can lead to significant consequences. Such as:

• Fines and Penalties: Failure to file a tax return within the specified period and or inaccurate filing can attract severe penalties and fines from the States. 
• Interest Charges: Some taxes may attract interest on amounts that remain unpaid and, therefore, result in the accumulation of a higher balance. 
• Legal Action: Failure and refusal to pay will eventually lead to legal mechanisms such as placing legal liens on the business assets.

Filing Sales Tax: Tips and Best Practices

Here are some important tips and best practices to keep in mind when dealing with Shopify sales tax:

1.  Stay Updated on Tax Laws

Tax laws are dynamic and fluctuate, which means that your sales tax liability can be affected. It is important to stay updated on such changes to prevent noncompliance and consequent penalties. One can always subscribe for tax news updates or get regular updates on tax laws from various services available in the market.

2.  Conduct Regular Audits

Conduct regular audits of your sales tax reports to maintain accuracy. With regular audits, you can catch errors early, maintain accurate records, and corroborate that you’re collecting and remitting the correct amounts.

3.  Consult with Tax Professionals

Engage tax professionals for advice, especially when dealing with complex tax issues or multi-state operations. They can provide expert guidance and help navigate intricate tax laws. This way, you can ensure compliance while optimizing your tax strategy.

4.  Utilize Shopify Support

Sales tax is just one of the many complexities you may face as a Shopify store owner. Thus, you can always rely on Shopify’s available resources. Shopify provides a wealth of information and tools, including guides and customer support, to help you manage your sales tax obligations efficiently.

Final Words

Sales tax for your Shopify store needs to be well managed, both legally and financially. It is very important to set up and configure your settings properly to minimize common issues such as penalties for not filing timely or for not calculating taxes correctly.

Performing periodic surveys and professional consultations from tax advisors can also help increase the accuracy and adherence level in sales tax reports.

While these steps may initially seem daunting, Shopify provides robust resources and tools to simplify sales tax management, making the process more efficient and manageable.

FAQs

1. What is a Shopify sales tax report?

It’s a detailed document outlining the sales taxes collected and owed by a Shopify store to help Shopify store owners track tax liabilities and ensure compliance with sales tax regulations.

2. How to generate a sales tax report in Shopify?

Log in to your Shopify account. Go to Admin dashboard > Analytics > Reports. Under “Finance,” select “Sales Finance Report” for detailed tax information.

3. What is included in a Shopify sales tax report?

There are multiple categories in a Shopify sales tax report. These include total sales, taxable sales, collected taxes, tax jurisdictions, and applied tax rates.

4. How to configure sales tax settings in Shopify?

To configure sales tax settings on the Shopify platform, go to Settings > Taxes and Duties. Set up tax rates for regions, enable automatic calculations, and configure overrides for a particular location or product.

5. Can Shopify automatically calculate sales tax for my store?

Yes, Shopify can automatically calculate sales tax for your store if you enable this feature in the “Taxes and Duties” settings for accurate calculations at checkout.

6. How to handle sales tax for international orders in Shopify?

You can configure tax settings for each country under the “Taxes and Duties” section to maintain compliance with local sales tax laws.

7. What are some third-party apps that can help with sales tax reporting in Shopify?

Third-party apps like TaxJar, Taxify by Sovos, and Avalara in the Shopify App Store assist with tax reporting and compliance.

8. How often should I update my sales tax settings in Shopify?

It’s recommended that you update your sales tax settings in Shopify whenever tax rates change or when your business expands into new jurisdictions. Regular updates help ensure accurate tax calculations and compliance with current regulations.

9. Does Shopify file taxes for your store?

No, Shopify does not file taxes for your store. You must file your sales tax returns with the appropriate tax authorities.