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.
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 or 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 wanting automated return filing in one place. 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:
- Connect AvaTax to 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, Etsy, or similar, 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. Avalara Returns can automate that, which is often the real reason a growing store moves off native tax. Whatever you use, put the filing deadlines on a calendar. Missed returns cost more than the tax.
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 we do, while your accountant makes the calls on where you're registered and what you owe.
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. Avalara AvaTax earns its keep with multi-state sales, tricky product taxability, wholesale exemption certificates, or automated return filing.
Can I collect sales tax in a state where I'm not registered?
In most states, no. Register for a sales-tax permit in each state where you have nexus before switching on collection there. The software makes collecting feel like a toggle; the registration step is still on you.
Should I collect sales tax on my Amazon or Etsy orders too?
Generally no. Marketplace facilitator rules mean those marketplaces collect and remit on their orders for you. Your own Shopify store is the channel you're responsible for. Double-collecting is its own mess.
This is general guidance on configuration, not tax advice. Where you have nexus and what you owe are decisions for you and your tax professional.