If you’re just starting out with dropshipping, one of the first confusing questions is: do I need to charge tax on Shopify when dropshipping? You’re not alone—this is something every new seller struggles with. The short answer is yes, in some cases you do, but it depends on where your customers live and where your business is registered.
When I launched my first Shopify store, I didn’t know the difference between sales tax and income tax, let alone how to charge it. I ended up learning the hard way after a few customer questions and a late-night scramble to fix my tax settings. Don’t worry though—I’ll save you the headache by breaking it all down here.
Keynotes You’ll Learn in This Blog
- When and why you might need to charge sales tax in dropshipping
- How Shopify’s tax system works for store owners
- The difference between charging tax in the U.S. and globally
- How to set up taxes on Shopify in a few clicks
- Tips for staying compliant without stressing over details
When dropshipping on Shopify, do I have to charge tax?
The big question: do I need to charge tax on Shopify when dropshipping? The answer depends on something called tax nexus—basically where your business has a presence.
- If you’re in the U.S., you typically need to collect sales tax in states where you have nexus.
- If you’re outside the U.S., rules vary depending on your country and where your customers are.
- Shopify makes it easier by allowing you to automate tax collection for different regions.
I learned this firsthand when I sold to customers in California. Since I was registered there, I had to start charging sales tax right away. It wasn’t optional—it was law. For more details on Shopify-specific compliance, you can also check our guide on Shopify Tax.
A friend of mine’s experience with Shopify taxes
This happened to a buddy of mine not too long ago. She began dropshipping to consumers in other U.S. states without properly establishing tax arrangements. At first, everything seemed fine. She was making sales and thought she was saving her clients money by not charging them tax.
But a few months later, her state’s tax office sent her a letter reminding her that she should have been collecting sales tax. She had to go back and change her Shopify settings, and she even had to pay some fines. She said that was one of the most distressing things that happened to her when she first started dropshipping.
She said that using a service like PlugBooks may have saved her a lot of trouble if she had thought about it. PlugBooks not only automatically maintains track of your sales and taxes, but it also keeps your records clean for reporting. She could have been working on building her store instead of trying to correct mistakes.
Do I Need to Charge Sales Tax on Shopify?
Another common question is do I need to charge sales tax on Shopify itself? Shopify doesn’t force you to charge tax, but if your state or country requires it, you must. Otherwise, you could face penalties.
Think of it like this: you’re not paying sales tax out of your own pocket—you’re just collecting it on behalf of your state or country. Shopify is simply the tool that helps you do it smoothly. If you’re handling multiple services and reports, our Shopify Billing guide also explains how taxes can show up in your financial records.
How to Charge Sales Tax on Shopify
Once you know you’re required to collect it, the next step is learning how to charge sales tax on Shopify. Luckily, it’s straightforward:
- Go to your Shopify admin dashboard.
- Click Settings → Taxes and Duties.
- Add your business’s region.
- Enable automatic tax collection where required.
I remember the relief of seeing Shopify calculate taxes automatically at checkout. No more manual calculations—Shopify does the heavy lifting. To simplify even further, you can integrate tax automation tools like Avalara with Shopify, which syncs directly with your store.
How to Set Up Taxes on Shopify
If you’re wondering how to set up taxes on Shopify for the first time, don’t overthink it. Shopify’s system is built to help beginners. You just need to:
- Register for sales tax in your state (if required).
- Enter your sales tax ID in Shopify.
- Check the box to charge taxes on products.
That’s it—your customers will see the right tax amount when they checkout, and you won’t need to guess. If you’re running a dropshipping model, don’t forget to review our Shopify Dropshipping resources for extra compliance tips.
Why Tax Compliance Matters in Dropshipping
It might be tempting to skip taxes in the beginning, but trust me, it’s not worth the risk. Tax authorities don’t play around, and getting caught later can be way more expensive. Setting it up right from the start makes your business look more professional and keeps you out of trouble. If you issue payouts to contractors or influencers, our Shopify 1099 guide explains how to handle reporting too.
PlugBooks Can Help You Stay Tax-Ready
Managing dropshipping is already a lot—taxes shouldn’t add more stress. That’s where PlugBooks comes in. We help Shopify sellers automate their bookkeeping, sales tax tracking, and reporting.
Our pricing starts at just $49/month, making it affordable for new and growing stores. Plus, if you need custom support, you can easily contact us here. With PlugBooks, you can focus on selling while we handle the messy tax and accounting side.
FAQs
1. Do I need to charge tax on Shopify when dropshipping internationally?
Yes, if your country requires VAT, GST, or other taxes, you’ll need to set them up in Shopify.
2. Can Shopify automatically calculate taxes for my customers?
Yes! Shopify has built-in features that automatically calculate taxes based on the customer’s location.
3. What happens if I don’t collect sales tax on Shopify?
You may face fines or penalties depending on your region’s tax laws.
4. Do I need a tax ID to set up taxes on Shopify?
In most cases, yes—you need a sales tax permit or tax ID from your local authority.
5. Is sales tax included in Shopify’s fees?
No, Shopify doesn’t collect tax for you. It only provides the tools to charge your customers.
6. What if I’m just starting and haven’t registered my business yet?
If you don’t have a sales tax permit yet, you shouldn’t collect tax. Register first, then enable it in Shopify.