Shopify, Stripe & TaxJar: Your Simple Sales Tax Setup Guide

May 30, 2024 | Compliance, E-Commerce

This is your step-by-step guide to sales tax setup on the major e-commerce platforms. 

For each platform, you’ll need to know:

  • In which states your business has sales tax nexus
  • Your sales tax registration number for each nexus state
  • The date you started or will start collecting sales tax in each state
  • If you’re selling any tax exempt products, such as SaaS software, digital goods, groceries, or clothing

Need more sales tax education before you start collecting? Read our Sales Tax Concepts, Explained guide.

How to Set Up Sales Tax Collection on Shopify

Shopify makes sales tax collection simple, but it’s easy to speed through the onboarding process and miss important steps. You’ll need to set up sales tax collection in your nexus states and then make sure you have set any product sales tax exemptions.

Step 1: How to set up sales tax collection for all your nexus states on Shopify: 

  1. In your Shopify admin, go to Settings > Taxes and duties.
  2. In the Manage sales tax collection section, click United States.
  3. In the Regions you’re collecting in section, click Collect sales tax.
  4. Select a state or region in which you are registered.
  5. In Sales tax ID, enter your sales tax ID. If you have applied for a sales tax ID but don’t yet have one, then leave this field blank. You can update it when you receive your sales tax ID.
  6. Optional: If your business is located in a state where tax laws regarding shipping vary, then you can choose whether you want to charge tax on shipping.
  7. Click Advanced options.
  8. Under Shipping tax, choose whether you want to apply shipping tax.
  9. Click Collect sales tax.
  10. Optional: Add more regions and account numbers by clicking Collect sales tax.

You can delete or change your registrations or account numbers by clicking the “…” button next to the state name and account number in the Regions you’re collecting in section.

Step 2: How to set up product sales tax exemptions on Shopify:

  1. Login to your Shopify account
  2. From Shopify’s admin page, choose Settings > Taxes & Duties
  3. In the Manage sales tax collection section, choose United States
  4. In the Categorize products for tax purposes section, choose Manage categories.
  5. From here, you can set product sales tax exemptions individually, in bulk or by uploading a .csv file
  6. To set product tax exemptions for each of your individual SKUs, go to the Product categories page
  7. Click the checkbox next to each of your SKUs that has a sales tax exemption
  8. Shopify will suggest product categories. Evaluate each to make sure it’s correct. If it is, approve the suggested category
  9. If the suggested category is incorrect, in the Product category box, type a description of the product. Shopify will suggest more product categories. Choose the correct one 

Shopify Sales Tax Pro Tip 1: If you only sell a few products that are tax exempt in some states, we recommend categorizing your products individually. If most of your productions have sales tax exemptions in some states, we recommend doing this in bulk. 

Shopify Sales Tax Pro Tip 2: When adding a new SKU, always remember to set up sales tax exemptions.

Learn more about Shopify tax settings here.

FAQ: Do I need to set up sales tax on shipping charges in Shopify?

According to Shopify’s help center, they automatically apply sales tax to shipping charges in the US states where shipping is taxable. We still recommend double checking your first few orders to each state to ensure that shipping tax has been correctly applied. 

How to Set Up Sales Tax Collection on Stripe

You’ll need to set up sales tax collection and add your nexus states in Stripe.

Step 1: How to start collecting sales tax on Stripe:

  1. Sign in to your Stripe dashboard
  2. Choose “Settings” at the top right of the page
  3. On the Settings page, choose “Tax”
  4. Under the “Business Information” header, choose your Origin Address. This is generally the state from where your products ship.
  5. Under the “Products and Prices” header, select a preset tax code. (You can change tax information on individual items later.) The three most popular options are:
    1. “General – Services” – Choose this if you sell services 
    2. “General – Tangible Goods” – Choose this if you sell products
  6. You can also get more granular, choosing from various Digital Products and Physical Products, such as audiobooks or clothing & footwear. If you mainly sell digital goods or only sell one type of product (ex:  cloth face masks), it’s useful to go ahead and choose that option here. Note: Most sellers will need to choose from the “Services” or “Tangible Goods” options above and then set up specific sales tax collection in the following steps.
  7. Under the “Include tax in prices” header, we suggest choosing “Automatic – Use currency to determine if tax is included or excluded.” 
  8. Under the “Options to integrate tax” header, choose how you’d like to collect tax. For e-commerce sellers, you’ll most want to choose:
    1. Stripe hosted integrations – This works with Stripe Checkout, and require adding a line of code to your e-commerce website
    2. Stripe Tax API – This allows you to create custom checkout flows upswing Stripe payment APIs or any non-Stripe payment processors. It requires a custom integration.
  9. Under Threshold Monitoring, and API transactions, enable “Include Tax API transactions” if you want Stripe to monitor for potential economic nexus

Step 2: How to add a nexus state in Stripe:

  1. While signed in to Stripe, go to the tax dashboard
  2. Click +Add registration and select the country and the applicable state or province
  3. Add the date to start tax collection as provided by your local tax authority (i.e. the date you told the state your nexus started when you registered for your sales tax permit)
  4. Save your changes

Learn more about setting up sales tax on Stripe here.

How to Set Up Sales Tax Collection with the TaxJar API

  1. Login to your TaxJar account
  2. Click “Account” at the top right
  3. From the dropdown, choose “State settings” 
  4. Click the “Add state with nexus” option
  5. On the left side of the screen, you’ll choose your “State” from the dropdown menu
  6. Next, choose your filing frequency in that state on the radial menu
  7. Enter your State Registered Business Name
  8. Enter your State Tax ID (i.e. “sales tax number”)
  9. Enter the date nexus began in that state in the “Nexus Established” field
  10. From there, the new state will appear in the middle of the screen under the “Your States with Nexus” header
  11. From there, click the state you just added
  12. Under the “Advanced Calculation Settings” header you’ll see that the “Calculate tax with TaxJar’s API” setting is listed as “Disabled” and grayed out
  13. To turn on API Tax Calculation, click “Edit” in that field 
  14. This will take you to the “Edit [State] settings” page
  15. In the “New API calculations” field, choose “Enabled” from the dropdown menu
  16. Click “Save changes”
  17. This will take you back to your “State settings” page where the state you just enabled should show a “Y” under the “API Enabled” header

Learn more about setting up state settings at TaxJar support.