Shopify 2025 Sales Tax Compliance for Remote Vendors

Remote vendors that source their supplies across borders are well aware of the challenges in establishing a proper tax compliance framework that can keep pace with the rapid changes occurring frequently in the e-commerce and platform economy ecosystems. 

To reach out to their potential customers across borders, online retailers, in most cases, leverage the services of one or more digital marketplaces. E-commerce marketplaces offer a vast variety of services that ease business scaling for online merchants. In brief, the e-commerce marketplace facilitates connectivity between online merchants and customers worldwide. 

This doesn’t mean that an e-commerce marketplace is established upon some default model that is followed blindly. It’s not the case. There is a wide variety of very different e-commerce platforms that can provide one or more services for online merchants. 

There are e-commerce platforms that provide end-to-end solutions for some online vendors. From establishing the connection between the third-party supplier and customer, through warehousing, shipment of the product, issuance of the invoice, and sales tax compliance for the supplier. 

However, there are also e-commerce platforms whose primary function is to connect third-party suppliers with customers worldwide. Many online retailers, when they enter the world of e-commerce, are guided by the vision that e-commerce platforms are responsible for tax compliance, considering that they are intermediaries in the sales transaction. 

When they move forward and delve deeply into the platform model’s terms and conditions and sales tax rules in the jurisdictions where they make their supplies, they quickly come to the conclusion that this is far from reality. 

In today’s article, we are going to review the business model of one of the most popular e-commerce platforms, Shopify, and its responsibilities when it comes to sales tax compliance of the online merchants that are registered users of the platform. 

Marketplace Facilitator for Sales Tax 

Is Shopify a marketplace facilitator? 

Let’s first explain, following the prevailing tax rules in the US, what a marketplace facilitator is and what requirements must be met for an e-commerce marketplace operator to become one. Marketplace facilitators, as digital platform operators, establish a framework for third-party merchants to sell their products on their platform. 

In addition to this primary functionality, registered users can access a range of other services, including payment processing, inventory management, logistics, customer support, and tax compliance services. After the Supreme Court decides on the paramount importance of South Dakota vs. Wayfair and the introduction of the concept of economic nexus as a trigger for mandatory sales tax collection, the regulatory tax landscape for remote vendors and e-commerce marketplaces undergoes extensive changes. 

To enhance the sales tax collection from e-commerce suppliers, the U.S. states have introduced an abundance of sales tax provisions that make marketplace facilitators responsible for sales tax collection and remittance. Marketplace facilitators are viewed through the lens of state sales tax regulations as suppliers of third-party supplies, and they bear the full scope of sales tax responsibility for all sellers that make sales via the marketplace channels. 

For most online merchants, the most notable marketplace facilitators are Amazon, Etsy, eBay, and  Walmart. 

When do marketplace facilitators become responsible for sales tax collection? 

Marketplace facilitators are responsible for registering, collecting, and reporting sales tax on each third-party transaction facilitated by the platform, from the moment the platform reaches the sales tax threshold in each U.S. state. From that moment on, the marketplace facilitator is responsible for the full scope of sales tax collection for every online vendor that uses the platform for its supplies. 

However, to be seen from the “eyes” of regulators as a marketplace facilitator, the e-commerce platform should meet some conditions. The requirements differ from jurisdiction to jurisdiction, as in the case of Amazon. Amazon processes payments from buyers to third-party suppliers, offers inventory management and shipping services, provides full customer support, and enhances the connection quality between merchants and customers. 

Shopify doesn’t offer most of these services. Shopify is an e-commerce platform that enables users to utilize various tools to build their online stores. Merchants have full control over the products they want to sell. Shopify doesn’t operate a logistics network or offer comprehensive customer service. 

The primary service of the Shopify platform is to provide its users with a variety of e-tools that help them build a storefront, offering both physical and digital products. Taking all of this into consideration, it is safe to conclude that the Shopify platform isn’t a marketplace facilitator. 

Online vendors or online digital sellers should be aware that the Shopify platform isn’t a marketplace facilitator, and that the obligation for registering, charging, and remitting of sales tax is exclusively the responsibility of the third-party supplier. It is essential to note that this obligation applies to all sales processed through the Shopify platform. 

The users of the Shopify platform can use one or more of the platform’s tax add-on services to ease their compliance duties. The most popular add-on service is the Shopify tax app, which, if used, will reduce the tax calculations for sales within the U.S. This app, when used, provides Shopify users with assistance for proper tax calculations for their supplies within the U.S. 

However, it’s essential to mention that the Shopify tax app only calculates sales tax for sales within the U.S., based on the inputs shared previously by the user. Still, it cannot register the user for sales tax in the states where it becomes mandatory to do so. The Shopify tax app cannot submit tax declarations or remit owed tax to specific revenue administrations. 

When it comes to tax registration, Shopify has put in place integrations with different third-party service providers that can cover the full scope of sales tax compliance requirements. 

To reiterate, the Shopify e-commerce platform can collect sales tax on behalf of its users, but it does not provide sales tax registration or remittance services. This is in full alignment with the fact that the Shopify platform isn’t a marketplace facilitator. 

With the introduction of the new business model, the U.S. state tax compliance Shopify marketplace has and its triggers for its registered users have become much more challenging. 

Shopify Shop App – Marketplace Facilitator 

As previously explained, the Shopify e-commerce platform isn’t a marketplace facilitator under U.S. sales tax laws. However, the Shopify Shop app fulfills conditions that make it a marketplace facilitator following sales tax laws. 

Shopify’s Shop app enables customers to use a search function on its interface and search for specific products from various online merchants. The app itself promotes products from specific sellers. 

Shopify Shop app is also integrated with Shopify Pay, the payment processing service. Additionally, the App provides the possibility for customers to track their purchases and communicate with sellers. Taking into account all of these additional features that the Shopify Shop app has in comparison to exclusive usage of the Shopify platform services, the Shop app is treated as a marketplace facilitator. 

Starting January 1, 2025, the Shopify Shop app is required to collect, remit, and file sales tax on behalf of its registered users. Users who use the Shop app for sales aren’t obliged to collect, remit, and file returns for these platform sales. 

This practically means that Shopify is already automatically calculating, collecting, and remitting sales tax on orders processed through the Shop app, no matter if the remote vendor has or hasn’t a nexus in a U.S. state. When the customer acquires something through the Shop app, the app acts as a marketplace facilitator. 

Regarding direct orders, which are processed without using the Shopify Shop app, nothing should be different. The sales tax compliance should remain solely the responsibility of the seller. These sales, even when processed with the Shopify payment service, remain outside the scope of the marketplace facilitator laws. 

 Shopify marketplace facilitator tax services are limited in scope. Online vendors should consider that these supplies may be subject to sales tax registration purposes. 

The online vendor is responsible for charging, collecting, and remitting sales tax for these sales in every US state where the vendor has reached the threshold. 

To ease up with Shopify Shop app sales tax registration, the platform promotes different third-party service providers that have practical experience in managing sales tax compliance duties for remote vendors that have the obligation to register in one or more jurisdictions. 

Sales Tax Compliance for Shopify Shop App Seller 

Challenges 

Let’s examine potential scenarios and various sales tax compliance challenges faced by online vendors. 

1. An online vendor that exclusively makes its sales through the Shopify Shop app 

Shopify shop app acts as a marketplace facilitator, and as such, it’s responsible for the proper collection and remittance of sales tax to all revenue administrations. However, online vendors should bear in mind that in many US states, these marketplace sales are used to calculate the economic nexus of remote vendors. 

The remote vendors that make their supplies only through the Shopify Shop app sales tax registration remain responsible for their sales tax registration when the sales threshold is reached. 

2. An online vendor that makes its sales through the Shopify Shop App and also directly uses the Shopify payment service

Here, the situation gets more complicated. For orders that are processed via the Shop app, the app is a marketplace facilitator, and it takes care of the collection and remittance of tax; on the other hand, for orders that are processed directly through the online shop of the Shopify seller, the vendor may have an obligation to manage sales tax responsibility properly. 

This depends on one side from customized settings chosen on the platform itself, terms and conditions, and types of services used by the Shopify vendor. Shopify marketplace facilitator tax services are primarily focused on helping online vendors track their marketplace sales that may impact sales tax registration or return submission.

3. Shopify vendor and sales tax declarations 

As mentioned above, in some US states, marketplace sales are used to calculate the sales tax threshold for remote vendors. In cases where the remote vendor reaches the threshold, it must register for sales tax, even though the collection and remittance of sales tax remain the responsibility of the marketplace. 

In some US states, online vendors are obliged to issue sales tax returns even when the total is 0. Some US states require US vendors to include validated marketplace sales tax report data as an attachment document with the individual sales tax returns. 

Numerous Shopify facilitator economic nexus advisory service providers have specialized knowledge concerning the workaround of the platform, on which Shopify sellers can count on to reduce the risks of being non-compliant. 

U.S. Shopify sales tax compliance consulting 

With the new rules that come into effect on January 1, 2025, the Shopify Shop app is “seen” by the laws of the U.S. sales tax regulations as the marketplace facilitator. Online vendors that make their suppliers directly through their Shopify online store or through the Shopify Shop app have additional requirements that vary from state to state. 

We have a team of tax advisors with extensive practical experience working with Shopify sellers. We continuously follow the development of Shopify’s sales tax requirements for remote vendors and are happy to assist you in resolving any sales tax inquiries related to your Shopify sales. 

Shopify Shop channel tax collection support