Xendoo U • Small Business Learning Center

Is Shopify Fulfillment Network a Sales Tax Help or Hindrance?

3 min read

Xendoo U • Small Business Learning Center

Is Shopify Fulfillment Network a Sales Tax Help or Hindrance?

3 min read

Home | Xendoo-U | Is Shopify Fulfillment Network a Sales Tax Help or Hindrance?

In June of 2019, Shopify launched its own shipping network, thus making it easier for sellers to fulfill their orders. More recently, it purchased 6 River Systems Inc. — which specializes in AI and robotics — to make the network even more efficient.

Now, merchants using the Shopify platform don’t have to do their own fulfillment, or outsource that function to a third-party service. The benefits have been obvious: reducing shipping costs, speeding up order fulfillment and retaining ownership of customer relationships and data. Sellers can even choose a packaging option that matches their company’s branding.

 

Does It Change Where You Need to Collect Sales Tax?

The short answer is probably yes. For one thing, the old rules about “physical nexus” in a state — such as a brick-and-mortar location, employee or stored inventory — are still in effect. With your merchandise now being shipped from any of Shopify’s Fulfillment Network centers in various states around the country, you will trigger physical nexus in those states, instead of just your home state if you were doing your own fulfillment before. So you will need to stay aware of where your inventory is being stored. Another complication is the new “economic nexus” rules which more than 40 states have set up following the 2018 Supreme Court ruling in the case of South Dakota v. Wayfair. That ruling gave states the right to collect sales tax from any business with economic activity in the state — such as selling and shipping orders there. If you’re a very small business with minimal annual revenues and/or number of transactions within a state, you may be exempt from this. Most — but not all — states have thresholds that must be crossed before you need to collect sales tax on those purchases. In Florida, for example, the minimums are 200 separate retail transactions or $100,000 of retail sales of personal property or taxable services that are delivered within the state.

 

Does It Change Who Collects and Remits Sales Tax?

For now, the answer is probably no. You may have heard about “marketplace facilitator laws” which some states have created to ease the sales tax accounting burden on small e-commerce businesses. These laws assign responsibility to the marketplaces — such as Amazon’s FBA — to collect and remit state sales tax on behalf of their third-party sellers. However, currently Shopify sellers don’t operate as third-party sellers. They are independent retailers who manage their own branding and marketing, and own direct relationships with their customers. Therefore, for the time being marketplace facilitator laws don’t apply to them, or to Shopify. It’s entirely possible that states will change their determination of Shopify as a marketplace of third-party sellers. We’ll have to wait and see what happens.

 

Help Is at Hand

Need someone to guide you through the sales tax jungle? Xendoo’s e-commerce experts, using top-flight professional accounting software, will keep you up to date with the latest regulation changes with regard to Shopify Fulfillment Network. Even better, we’ll set you free from all the paperwork — from sales tax permit registration to remittances to records maintenance. Best of all, our flat monthly rate packages are easily affordable by small businesses. Find out for yourself with a one month free trial.

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