Introduction
Shopify POS is now used by over 100,000 retail sellers, from boutique stores to farmers’ markets. But many don’t realize they’re responsible for collecting, filing, and remitting sales tax—accurately and on time.
Proven Tip:
Enable automated location-based tax settings and reconcile your collected sales tax every month. It keeps you state-compliant and audit-ready.
Proven Tip: Enable Location-Based Tax Settings and Reconcile Monthly
Shopify POS offers a sales tax automation engine, but if you’re not using it properly, you could:
- Undercollect tax at checkout
- Miss local tax rates (e.g., city/county)
- Fail to register in new states where you now have nexus
- Owe back taxes + interest for non-compliance
Use Shopify’s built-in tax features and verify settings with your CPA. For added control, use tools like TaxJar, Avalara, or Quaderno.
IRC Tax Code Relevance
Though sales tax is regulated at the state level, your IRS income reporting and deduction accuracy depends on proper reconciliation:
- IRC §6001 – Requires proper books and recordkeeping (including tax collected from customers)
- IRC §162 – Allows deduction of sales tax paid as part of COGS or expenses when not reimbursed
- IRC §6050W – Your sales platforms may report gross receipts via Form 1099-K, which may include tax collected—requires reconciliation
Relevant IRS Forms
| Form | Purpose |
|---|---|
| Form 1040 Schedule C | Report gross sales, net of sales tax |
| Form 1120 or 1120-S | Report total income and taxes collected by C Corps and S Corps |
| Form 1099-K | Reports total gross revenue, including sales tax, from platforms |
| State Sales Tax Return | Monthly/quarterly filing required per state rules |
| Form 4562 | Deduct capitalized POS system expenses (hardware/software) if applicable |
Example: $12,000 Saved by Correcting POS Sales Tax Settings
A boutique clothing store in Texas using Shopify POS was unknowingly undercharging local sales tax (8.25% instead of 8.75%) for 10 months in 2024. After a routine audit, they were assessed for $6,500 in back taxes, $2,400 in interest, and $3,100 in penalties.
Their CPA stepped in and helped them:
- Register correctly with the Texas Comptroller
- Update tax settings by zip code
- Implement monthly sales tax reconciliation
In 2025, they avoided additional fines and recovered over $12,000 through corrected reporting and accurate tax filings.
Step-by-Step Guide to Handling Sales Tax with Shopify POS in 2025
Step 1: Register in Every State Where You Have Nexus
Physical stores, local inventory, and delivery can all trigger nexus.
Step 2: Turn on Automatic Tax Calculation in Shopify
Navigate to your Shopify Tax Settings, add each location, and review local rates.
Step 3: Review and Reconcile Monthly
Use Shopify reports to compare:
- Sales tax collected
- Sales tax owed per state
- Sales tax paid (if any)
Step 4: File State Sales Tax Returns
Most states require monthly or quarterly returns. File and remit payment by the due date.
Step 5: Match Sales Tax Against Your IRS Filings
Ensure gross sales on Form 1099-K include sales tax and that you remove it before calculating taxable income.
Conclusion
Using Shopify POS without proper sales tax setup is risky. In 2025, states are enforcing audits more aggressively, especially for small retailers. Set it up once, reconcile monthly, and protect your business from penalties and interest.
Call to Action
Need help setting up Shopify tax settings, tracking multi-state compliance, or reconciling 1099-K forms?
Email Anshul Goyal, CPA EA FCA at anshul@kkca.io to schedule a retail tax compliance review.
Disclaimer
This blog is for educational purposes only and is not a substitute for legal or tax advice. Please consult a qualified CPA or tax professional for specific guidance.
FAQs
1. Does Shopify POS automatically handle all sales tax?
Not entirely. You must input accurate store locations, register in the correct states, and verify rates manually or with your CPA.
2. What happens if I undercharge sales tax?
You could still be responsible for paying the full amount to the state, even if you didn’t collect it from the customer.
3. Is sales tax reported to the IRS?
Indirectly. Sales tax may be included in Form 1099-K totals. You must subtract it from income when filing your taxes.
4. Can I deduct my POS software and hardware?
Yes, POS systems and subscription tools may be deductible under IRC §162 or depreciated using Form 4562.
5. How often should I file sales tax returns?
Most states require monthly or quarterly filings, depending on your revenue volume and location.
About Our CPA
Anshul Goyal, CPA EA FCA, is a U.S. Certified Public Accountant and IRS Enrolled Agent. He helps Shopify sellers, retail store owners, and POS users stay compliant with multi-state sales tax laws while ensuring accurate tax reporting and reconciliation. From setup to filing, Anshul guides business owners to prevent penalties and operate confidently.
To book your POS tax compliance session, contact anshul@kkca.io.