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Understand how Shopify handles sales tax, VAT, and other taxes — and what you need to configure for your store.

Taxes on online sales can feel overwhelming, but Shopify does a lot of the heavy lifting for you. This guide explains how tax collection works in Shopify and what you need to set up.

Quick summary

Shopify can calculate the tax on each order automatically, based on where the order is going. You control whether taxes are included in your prices or added at checkout. Shopify Tax, Shopify's built-in tax service for stores in the US, EU, UK and Canada, works out the rates for you. Filing and paying the tax you collect is your responsibility: Shopify doesn't file or remit tax for you unless you use Shopify Tax with automated filing.

This is not tax advice

Tax laws vary by country, state, and product type. This guide explains how Shopify's tax settings work — not what your legal obligations are. Please consult a tax professional or accountant for advice specific to your business.

How Shopify calculates taxes

Shopify uses the customer's shipping address to work out which tax rate applies. When a customer enters their address at checkout, Shopify applies the rate for that location, based on where you've set up tax collection.

Shopify Tax is the built-in tax service for stores in the US, EU, UK and Canada. It calculates rates automatically; in the US, it works them out from the full street address rather than just the ZIP code. In Norway, Switzerland, Australia, New Zealand and Singapore, you use Shopify's Basic Tax service. In most other places, you set and manage rates yourself with Manual Tax. Shopify updates its default rates regularly, but you still need to confirm they're right for your business.

Setting up taxes in your store

Go to Settings. From your Shopify admin, click Settings.

Open Taxes and duties. Click Taxes and duties from the settings menu.

Review your tax regions. Click a country or region to set up tax collection there. You may be asked for your tax registration number.

Collect only where you're registered. Register with the tax authority first, then start collecting in that state or country. Shopify then applies the rates for the places you've registered in.

Decide on tax-inclusive pricing. Choose whether your listed prices already include tax (tax-inclusive) or whether tax is added on top at checkout (tax-exclusive). See below.

Save your settings.

Tax-inclusive vs tax-exclusive pricing

This is one of the most important decisions for your store:

Tax-inclusive pricing

The price shown on the product page already includes tax. Customers see no surprise at checkout.

Expected in countries such as the UK, where you need to include tax in displayed prices for most goods.

Example: Product listed at £20.00. Tax is already inside that £20.

Tax-exclusive pricing

Tax is calculated and added at checkout on top of the product price.

Common in the United States.

Example: Product listed at $20.00. Tax added at checkout makes the total $21.60.

Set this for your whole store in Settings → Taxes and duties, using the Include sales tax in product price and shipping rate setting. If you sell internationally, you can also set tax inclusion for each market you sell to.

Charging taxes on shipping

Whether shipping is taxable depends on where you sell. In the US, Canada, the EU, the UK, Australia, New Zealand, Norway and Switzerland, Shopify taxes shipping where applicable, regardless of the shipping tax setting. For other countries, go to Settings → Taxes and duties and, in Global settings, select Charge tax on shipping rates.

Check with your accountant whether this applies in your state or country.

Tax-exempt products and customers

Not all products are taxed at the full rate. Depending on where you sell, examples include:

Some food items and children's clothing (in the UK, these can be VAT-exempt or taxed at a reduced rate)
Some clothing in certain US states
Digital products, which follow their own rules in many places

To stop charging tax on a product, open the product in Shopify, go to the Price section, open the tax option, and deselect Charge tax on this product. Then click Save. If you use Shopify Tax, set each product's product category instead: Shopify Tax uses it to apply exemptions and reduced rates. (The Physical product setting in the Shipping section is for shipping, not tax. Turn it off for digital products so no shipping is charged.)

You can also mark specific customers as tax-exempt. This is useful for wholesale buyers or registered businesses. Open the customer in Customers, open the menu in the Customer section, and click Manage tax settings. Select Don't collect tax (or Collect tax unless exemptions apply to pick specific exemptions), then click Save. The customer must check out with the same email address as their customer account. If your prices include tax, an exempt customer still pays the full listed price.

US sales tax: what you need to know

In the United States, sales tax is complicated. Each state sets its own rules, and some states require you to collect tax once you cross a sales threshold (called economic nexus). These thresholds vary by state.

Economic nexus rules

Even if your business is based in one state, you may be required to collect tax in another state once you sell enough there. Shopify Tax can calculate the right rates, but you still need to know where you have a collection obligation. Talk to a US tax accountant if you are unsure.

Shopify monitors your sales to help flag states where you may have new tax obligations, and Shopify Tax adds tax liability insights. You still need to register with each state before you start collecting tax there.

VAT for UK and EU stores

If you sell in the UK or EU, you may need to charge VAT (value-added tax). Shopify has built-in VAT collection.

For UK stores, go to Settings → Taxes and duties, click United Kingdom in the Tax regions section, and then click Collect VAT. Enter your VAT number and click Collect VAT again.

For EU stores, Shopify supports the EU's One-Stop Shop (OSS) scheme. It's for businesses based in the EU that charge VAT at the customer's country rate on sales to other EU countries. You can use OSS only if your store uses Shopify Tax or Basic Tax.

Common questions

Does Shopify file my tax returns for me?

Only if you set that up. Shopify doesn't file or remit your taxes unless you use Shopify Tax and turn on automated filing, which covers all US states that collect sales tax. Otherwise, you are responsible for filing returns and paying the tax you collect to the relevant government authority. Shopify's tax reports can help, and so can an accountant.

Why is tax not being charged at checkout?

The most common reasons: tax collection isn't set up for the customer's country or state, the product has Charge tax on this product turned off, or the customer is set as tax-exempt. For UK orders, Shopify also suggests checking that one of your shipping zones includes the UK. Start with Settings → Taxes and duties.

Can I show tax-inclusive prices in some countries and tax-exclusive in others?

Yes. You set tax inclusion for each market you sell to. For example, you can show tax-inclusive prices to UK customers and tax-exclusive prices to US customers.

What is a duty? Is that the same as tax?

Duties (also called import duties or tariffs) are fees charged when goods cross international borders. They are different from sales tax. If your store meets Shopify's requirements (for example, HS codes on your products), you can turn on duty and import tax collection in Settings → Taxes and duties. Customers then pay these at checkout, instead of paying the carrier on delivery.

Need a hand?

If you're stuck, email support@chykalophia.com and we'll help. Include your website address and a screenshot if you can.

How taxes work in Shopify