How taxes work in Shopify
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 automatically calculate and collect the right tax rate for each customer based on their location. You control whether taxes are included in your prices or added at checkout. For US stores, Shopify Tax offers automatic rate calculations. You are responsible for remitting (sending) collected taxes to the government — Shopify collects the money but does not file returns for you.
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 determine which tax rate to apply. When a customer enters their address at checkout, Shopify looks up the applicable rate automatically.
For US stores, Shopify offers Shopify Tax — a built-in service that handles state and county sales tax calculations. For stores outside the US, Shopify uses default rates that you can review and adjust.
Setting up taxes in your store
Go to Settings. From your Shopify admin, click Settings in the bottom-left corner.
Open Taxes and duties. Click Taxes and duties from the settings menu.
Review your regions. Shopify lists the regions where you are registered to collect tax. Click a region to configure it.
Enable automatic tax calculation. For most stores, this is already on. If not, enable it for each region where you need to collect tax.
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.
Common in the UK, EU, and Australia. Required in many countries.
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.
You can set this globally or per region in Settings → Taxes and duties.
Charging taxes on shipping
In some US states, shipping charges are taxable. Shopify can apply tax to shipping automatically. Go to Settings → Taxes and duties and look for the option to charge taxes on shipping rates.
Check with your accountant whether this applies in your state or country.
Tax-exempt products and customers
Not all products are taxable. Common exemptions include:
- Certain food items
- Prescription medicines
- Clothing in some US states
- Digital products (rules vary widely)
To mark a product as tax-exempt, open the product in Shopify, scroll down to the Shipping section, and uncheck This product requires shipping if it's digital — or uncheck Charge taxes on this product in the product's tax settings.
You can also mark specific customers as tax-exempt. This is useful for wholesale buyers or registered businesses. Find the customer record in Shopify, click Edit, and check the Tax exempt checkbox.
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 Tax (available in Settings) helps you track your nexus exposure across states and calculates rates automatically.
VAT for UK and EU stores
If your store is in the UK or EU, you likely need to charge VAT (Value Added Tax). Shopify supports VAT collection natively.
For UK stores, enter your VAT registration number in Settings → Taxes and duties → United Kingdom.
For EU stores, Shopify supports the EU's One Stop Shop (OSS) scheme, which simplifies cross-border VAT for digital goods and some physical goods sold to EU customers.
Common questions
Related guides
- Setting up shipping zones & rates
- Understanding the Shopify cart & checkout
- Payment providers (Shopify Payments, PayPal, etc.)
- Shopify plans & billing
Need a hand?
Learn more
Setting up shipping zones & rates
Learn how to create shipping zones and set the rates your customers see at checkout in your Shopify store.
Payment providers (Shopify Payments, PayPal, etc.)
Understand how payment providers work in Shopify, including Shopify Payments, PayPal, and third-party options — plus the honest truth about transaction fees.