Sales tax for Shopify with Paul Rafelson - a podcast by Michael Veazey

Sales tax and Shopify/ non Amazon e-commerce with Paul Rafelson

What about sales tax for Shopify or other e-commerce business owners?

The Amazon marketplace vs. Shopify

Sales tax for Shopify business owners (or any similar system) is a different situation to that for sellers on marketplaces.



Amazon tries to play both sides of the fence with - they want to avoid bad things like sales tax by saying “sold by Joe Seller”,  but they want to keep the customer relationship and branding.



Otherwise, you could claim your shop in New York City, for example, is “just a marketplace” for Chinese goods. This wouldn’t fly with NYC tax authorities.

Apple’s App Store is NOT a “marketplace” from a legal perspective

A recent legal ruling found that Apple’s App Store is NOT a “marketplace” but effectively Apple was using it as a retailer.



“Markup” or “commission” is the same thing according to the court. If a company acts as a retailer, it will be treated as a retailer. 

Selling direct to consumer

Sales tax for Shopify or similar stores DOES become an issue for you. Because you're selling direct you to the consumer,  you don’t have The marketplace agreement with Amazon kicking in.



The only defence against sales tax for Shopify business owners then is “it’s too burdensome”.



Eg 200 items sold in South Dakota - $20 about $4000 sales per state x 40 states - maybe $180,000 sales totally.



If you’re doing $100K in South Dakota, it might be fairer - but you’re probably doing some pretty big numbers anyway if you manage to achieve that.

Example: If you’re doing $50,000 sales total in Shopify

20% of states probably make up 80% of sales



Probably: CA, FL, TX, NY, MA.



So most of your sales tax liability from your Shopify store can probably be dealt with in a few states.



If it costs you more to register than you have to pay, you may well be able to use the “burdensome” defence. 



Jeff Schick is a multi-million dollar seller AND a lawyer shared his Taxjar bill for filing in Washington state.



Washington (State) has another tax “business and occupation tax” - is a small % tax that you pay not the consumer.  He owed the state $30 but his Taxjar bill was $500.

If you take a position under the constitution that it’s burdensome, you’re not breaking the law.

200 unit test

States are starting to get rid of this test.  Many tax law specialists find it absurd.



It’s problematic when states are unclear whether Amazon sales count towards overall sales thresholds.



Eg $200K Amazon sales in a state plus $500 of your own bills.



You can fight a state or pay a bill IF you get a bill. Plus penalty and interest. Say $100.



Paul’s very general position on this is that you may be better off waiting to actually get a bill before you worry about paying it or registering. 

Is this tax evasion to not pay sales tax for shopify slales?

In 2016, a state passed a law saying they should pay sales taxes. Wayfair took a position they weren’t going to pay it.  They lost - but, importantly,  it wasn’t tax evasion, because they had a legal defence. 



Anything which happens at the Supreme Court is normally a constitutional issue and thus a legally defensible position.



States passing laws that affect interstate commerce are basically unconstitutional. The laws have to be reasonable.



Normally the companies who take these positions are huge companies.  When a Shopify seller can click one button and comply with all laws, there’s no reasonable defence. But that’s not the case at the moment. [In other words, for a small business to have to comply with expensive and difficult tax process is “burdensome”].

Further episodes of Amazing FBA Amazon and ECommerce Podcast, for Amazon Private Label Sellers, Shopify, Magento or Woocommerce business owners, and other e-commerce sellers and digital entrepreneurs.

Further podcasts by Michael Veazey

Website of Michael Veazey