California Sales Tax Collection in Shopify
Shopify recently updated their default sales tax collection for California as of April 2020.
- Prior to April 2020, Shopify's automatic tax collection service defaulted to calculating tax rates in California to Modified Origin, which means that Shopify didn't calculate the district tax outside of the district where the seller was located.
- The minimum tax collection requirement in California is Modified-Origin.
- By choosing this option, you end up leaving some responsibility on the customer to remit a use tax in addition to the sales tax you charge because Modified Origin sourcing means you won't be collecting the full sales tax rate (state + district) for each item you sell.
Shopify will now default to destination sourcing for California for all new merchants or new registrations. Existing merchants with a physical presence in California will default to modified-origin.
Because Shopify's tax collection didn't support collecting Destination rates before April 2020, Shopify sellers have typically seen an under-collection in the Actual Report for California.
- If your tax sourcing for California is set at modified-origin, you will continue to see under-collection for your Actual Report.
- If you need to update your tax sourcing settings in California, you can now update this in your Shopify account by going to Settings > Taxes > Edit tax sourcing.
- Please consult with a sales tax expert of the state directly for further questions specific to your situation.
Our AutoFile service is based on Destination-based tax collection in California.
- If you're enrolled in AutoFile for California, your sales would be reported with Destination based rates, and the amount you'd pay would be closer to the estimates seen in the Expected Sales Tax Due Report.