When you sell online, it’s very important to manage regional and international taxes efficiently. You should know when to apply and when to exempt customers from taxes and should have a system in place to automate the entire process.
Having a tax system on your website is not only essential for streamlined cash flows but also essential in helping you comply with legal regulations. This is where a Shopify Tax Exemption app can help you out.
Using an app will save you precious time by automatically assigning the right amount of taxes to the right products, ensuring there are no errors. In the US alone, there are more than 12,000 tax jurisdictions, so it’s not practical to manage taxes manually anymore.
If you are not convinced and want to explore the benefits of using an app on your store, we have a complete guide to help you out. In this article, we will explore the various types of taxes, when to exempt taxes, and why you should have a tax-exempt app on your store.
Taxes You May Encounter as a Store Owner
As a store owner, you’ll deal with various taxes based on your location and the regions where you sell. These include sales tax, VAT, import duties, and others.
Import Duty: A tax collected by customs on goods sold across borders. It raises government revenue and makes imported goods more expensive to encourage domestic purchases. Examples include trade tariffs and excise duties.
Import Tax: A tax also levied by customs, often matching local sales tax or VAT, applied when imported goods enter a country, regardless of their origin.
Tax rates vary widely; for instance, Delaware has no sales tax, while Florida applies 6%. Duties and taxes will impact the total cost of your shipment, so it’s important you are aware of them early on. You can then factor them into your pricing strategy to ensure your business remains profitable.
When Should Taxes Be Exempted?
Before you look into a tax exemption app, it’s important to know when taxes are likely exempted. Below are some common examples of institutes, durations, and products that are exempted from taxes in many countries:
- Nonprofit Exemptions: In some states, nonprofits can make tax-free purchases if they meet specific criteria and hold valid certificates (e.g., Virginia).
- Wholesale and Reseller Exemptions: Tax exemptions apply when goods are purchased for resale or distribution, not for final consumption (e.g., Colorado).
- Sales Tax Holidays: States may suspend sales tax on select items, like school supplies or clothing, during specific periods (e.g., back-to-school season in New Mexico).
- Product Exemptions: Essential goods like groceries often have reduced or no tax in many states (e.g., New York).
What is a Shopify Tax Exempt App & How Does it Work?
Tax exemption apps allow you to control where taxes are applied and where they are exempted. As taxes vary by region and by product, you can use an app to automatically assign the right taxes to the right product in each country.
Most apps work by allowing users to fill out a form or add their tax IDs to apply for exemptions. E.g., if you are using a Shopify VAT Exemption app, you can add a VAT field where users can add their EU VAT ID.
You can then choose to manually approve each request or set up auto-approvals based on your preferred settings. Shopify tax-exempt apps streamline tax submissions, automate approvals, and ensure your store remains compliant with ease.
10 Benefits of Using a Shopify Tax-Exempt App
Let’s explore some major reasons why using a Shopify tax-exempt app is a smart move for your business, along with examples for better understanding:
1. Stay Compliant With Regional Laws
Tax laws are tricky and vary from place to place. Setting up tax exemptions ensures you follow the rules and avoid penalties, fines, or legal trouble. A Shopify Tax Exempt app ensures your store adheres to tax regulations by automating exemption processes for eligible customers and products, minimizing the chances of errors.
2. Offer Money Savings
By honoring tax exemptions, your store provides significant cost savings to eligible customers. This encourages them to make larger purchases or choose your store over competitors. You can allow users to apply for exemptions or auto-exempt desired customers as you like.
3. Show Compliance with International Laws
For stores selling internationally, managing duty and import taxes can become messy. E.g., to manage EU VAT taxes, you can consider a Shopify VAT exemption app. Using an app ensures your store complies with EU VAT rules by validating customer VAT IDs and automatically applying for exemptions.
4. Attract More Customers
Certain organizations and individuals actively seek tax-exempted purchases to reduce costs. By accommodating tax-exempted customers, you open your doors to groups like non-profits and resellers.
Recognizing and honoring tax exemptions shows you care about your customers’ needs. A smooth, hassle-free checkout process builds trust and loyalty, encouraging repeat business and positive reviews.
5. Simplify the Checkout Process
Nobody likes a complicated checkout process. Tax exemption apps automate the process by quickly accepting submissions and granting exempted status to customers so they can checkout and leave quickly. This enhances the user experience and also reduces the chances of cart abandonment.
6. Meet Contractual Obligations
Some businesses work with customers under specific contracts that require honoring their tax exemption. An app ensures you meet these agreements without error by auto-approving such customers, saving them time and helping you meet your contractual obligations.
7. Streamline Accounting and Reporting
Tax exemptions can complicate financial reporting. With an app, tax exemptions are automatically applied, making your financial reports cleaner and easier to manage. A Shopify app can generate accurate reports separating taxable and tax-exempt sales. This saves your accounting team time and stress.
8. Reduce Audit Risks
Setting up tax exemptions correctly minimizes discrepancies in your records and reduces the chance of mistakes. Accurate tax management shows your business is organized and responsible.
9. Boost Your Brand’s Reputation
A well-organized and compliant tax system reflects your professionalism. Customers notice when a business is compliant, reliable, and easy to work with. An app helps you build a trustworthy and professional image, encouraging long-term relationships.
10. Avoid Refund Hassles and Overcharges
Mistakes in tax calculation often lead to overcharges and refund requests, consuming time and resources. If you accidentally charge taxes to a tax-exempted customer, you might have to process refunds later. Using an app prevents overcharging, saving you the time and effort of handling refund requests.
Conclusion
In this article, we covered the benefits of using a Shopify tax-exempt app and why every store should consider having one. As you sell online, managing local and international taxes for thousands of products can be very draining.
An app helps to automate the lengthy process by streamlining tax applications and exempting customers where necessary. You can allow customers to apply for exemption and approve their requests within minutes, saving time on both sides.
If you are interested in learning more about Shopify apps and how they can transform your store, we encourage you to visit Addify.
Frequently Asked Questions
Q1. Can Shopify Automatically Handle Exemptions?
Ans. Yes, with the help of apps like the Shopify Tax Exempt App, you can automate tax exemptions for eligible products and customers.
Q2. What Happens if I Don’t Comply with Tax Laws?
Ans. Non-compliance can lead to penalties, audits, or legal issues. Always consult a tax professional for guidance regarding tax matters.
Q3. Can I Sell Internationally Without Charging VAT?
Ans. Yes, Shopify VAT exemptions are possible for eligible B2B customers. Use apps to validate VAT IDs and apply exemptions correctly.
Q4. How to remove the tax included in Shopify?Ans: You can easily remove taxes on your shopify store by using a tax-exempt app. Using an app will automate the process and allow you to remove taxes from desired products and customers without any manual effort.
