Shopify is not a marketplace. It is a platform to help retailers and marketplaces manage their product marketing information, online stores, ecommerce and multichannel retail information. It is typically good for the following industries: beauty, cosmetics, electronics, fashion, food and beverages and home furnishings.
Let’s break it down.
Selling your products on online marketplaces lets you access an audience of customers searching on Amazon, eBay, Etsy and other sales channels.
Shopify, by comparison, rounds up marketplaces you can sell on, offering access to these sales channels for shoppers to view various marketplace products in one place. It can also serve as your unique cart, inventory management tracking system and sales order delivery system for products listed on your own website.
On Shopify, sellers select the marketplaces, or sales channels, where they want their products sold. Not all marketplaces are a good fit for a vendor. Each marketplace varies in who they serve, how and pricing.
Etsy attracts the creative industries. U.S. merchants with one or two unique products but without the inventory management system may prefer to use Fulfillment by Amazon services or sell exclusively through Amazon’s marketplace but ship from their own warehouses. eBay is an online auction house. Pinterest, Houzz, Buzzfeed, Kik and more are alternative marketplaces, all with their own fee structure and audiences.
While Shopify collects sales tax, functionality is limited unless layering on applications from TaxJar with Shopify or Avalara with Shopify+. In both instances, however, vendors need to manage their collections and remittances. Shopify is not the vendor record; they are the assimilator of data, a software platform, but not a marketplace.
Vendors toggle sales tax collection, tell Shopify where to collect from, and file tax returns on their own. Or, the marketplaces they partner with, where states require it, will collect on sales through their own marketplaces. The data will run through Shopify so you know your sales and whether it was through a separate marketplace or your own website.
Unfortunately, Shopify doesn’t generate the reports necessary to accurately file tax returns for all the state and local rates. Nor does it have good tax rules to properly tax items across the nation. There are probably 44,000 unique tax rules across America for food, clothyikng, software, services and other sales.
TaxJar offers a plugin to help vendors navigate linked accounts and autofile but it’s tax decision functionality is somewhat limited to specific industries and vendors. This plugin is available for a reasonable fee through a basic Shopify set up.
Shopify+ is more expensive but comes with an integration to Avalara, which has local rate information as well as 1000s more tax rules. Of course, in either instance, there still needs to be set up and proper maintenance by the end-user, which is not provided by Avalara or Shopify.
The truth is being a retailer, whether through your own stores, cart or through a marketplace, is not easy, because sales tax is not easy. You need a level of expertise to understand the crazy web of tax rules that exist throughout our country. Understand by reading more at Who you are, where you are and how you can comply.
Unsure? Give your TaxOps advisor a call to discuss.
Lets talk tax
Judy Vorndran can be reached at firstname.lastname@example.org.