Sales tax is where new stores quietly get it wrong. The checkout collects something, it looks plausible, and nobody notices the store is charging tax in states where it isn't registered, or missing states where it should be. Getting this right is less about the software and more about doing three things in the right order: figure out where you owe, register before you collect, then configure the tools to match. If your store is already collecting tax and something looks off, start with what to check on a live store.
Start with nexus, not settings
"Nexus" is just the connection that obligates you to collect sales tax in a state. You can have it two ways: physical (an office, employees, or inventory in a state, including inventory sitting in a marketplace warehouse) and economic (enough sales into a state to cross its threshold, commonly around $100,000 in sales, and in some states 200 transactions, though the exact figure varies by state and several have changed theirs). Before you touch Shopify's tax settings, make a list of the states where you actually have nexus. That list drives everything else.
Register before you collect
Collecting sales tax in a state where you're not registered is its own problem. In most states it's not something you're allowed to do. So once you know your nexus states, register for a sales-tax permit in each before you switch on collection there. This is the step people skip because the software makes collecting feel like flipping a toggle. It isn't.
Native Shopify Tax or Avalara?
Shopify's built-in tax handles rate calculation well for many stores. You'll want Avalara AvaTax when things get more involved: selling across many states, products whose taxability is genuinely tricky, exemption certificates to manage, or returns that Shopify Tax's automated filing doesn't cover. The rule of thumb: native for a simple catalog in a few states; Avalara when the complexity or the filing workload justifies it.
Wiring in AvaTax
Once you add Avalara, the setup that matters:
- Install the Avalara Tax Compliance app in Shopify and confirm your company's home/origin address and your registered states.
- Map product tax codes. Taxability isn't uniform: clothing, food, digital goods, and services are treated differently state to state. Assigning the right tax code per product is what makes calculations correct, not just present.
- Set shipping taxability. Whether shipping is taxable depends on the state; AvaTax handles it if configured, but confirm it against a couple of real orders.
- Test with sample addresses in several states before launch, and check the numbers against what you expect.
Two things new stores miss
Exemption certificates. If you sell wholesale or to resellers, you need to capture and store valid exemption certificates (Avalara has tooling for this). Otherwise you either wrongly charge exempt customers or can't defend the exemption later.
Marketplace facilitator rules. If you also sell on Amazon or Etsy, those marketplaces generally collect and remit sales tax on those orders for you. Don't also collect and remit on them from your own books, or you'll double up. Your Shopify store is the channel you're responsible for.
Then filing
Collecting is half the job; you still have to file and remit on each state's schedule. Shopify Tax can now file returns for eligible US stores, and Avalara Returns does the same for stores on Avalara. Whatever you use, put the filing deadlines on a calendar. Missed returns cost more than the tax.
Already live and not sure it's right?
Most stores don't find out from a checklist. They find out from a symptom: tax charged on orders to a state the store isn't registered in, none on orders to a state it is, a filed return that doesn't match what the checkout collected, or wholesale customers being charged when they shouldn't be. Any one of those usually means the configuration and the registrations have drifted apart.
A first pass, at no cost, looks at the setup as it runs today and changes nothing: which states are switched on, how products are coded, how shipping and exemptions are handled, and where the numbers stop agreeing. You get it in writing, and anything it turns up about what you owe goes to your accountant. The redacted sample is this kind of review: an Avalara account connected to a Shopify store, assessed with no changes made. See the sample (PDF)
If any of that sounds familiar, tell me what you're seeing.
When to get help
A single-state store with a simple catalog is a reasonable DIY. Multi-state, mixed taxability, wholesale exemptions, or moving onto Avalara for filing are where a clean setup pays for itself. That's the wiring I do, along with first passes over setups that are already running, while your accountant makes the calls on where you're registered and what you owe.
Ten Rivers Systems handles technical setup, configuration, and data migration only and does not provide accounting or tax advice. I am not an accountant or tax adviser. How you keep your books and what you owe stays between you and your own professionals.
Common questions
Do I need Avalara for a new Shopify store?
Not always. Shopify's native tax handles rate calculation well for a simple catalog in a few states, and can file returns for eligible stores. Avalara AvaTax earns its keep with multi-state sales, tricky product taxability, wholesale exemption certificates, or returns Shopify Tax's filing doesn't cover.
Can I collect sales tax in a state where I'm not registered?
That one is for your accountant. The setup follows their answer: Shopify and Avalara collect only in the states you switch on, so each state gets switched on once its registration is confirmed.
Should I collect sales tax on my Amazon or Etsy orders too?
That one is for your accountant too. On the setup side, the job is making sure nothing is counted twice: if a marketplace collects tax on its own orders, those orders stay out of what your Shopify and Avalara setup calculates and files.