Collecting sales tax from retailers with Shopify Collective

You can choose to collect sales tax from retailers when they sell your products. In certain jurisdictions, you're required to charge VAT or local sales tax on the B2B transaction that takes place when you supply a product to a retailer. You then pass the tax amount on to the relevant tax authority.

Certain retailers might have a resale certificate that exempts them from paying tax to you. The retailer needs to provide you with a copy of their certificate.

If your store's based in Canada, the United Kingdom (UK), or a European Union (EU) country, then you need to verify your tax registration status before you can use the Shopify Collective sales channel.

Collecting sales tax from retailers

You can choose whether to collect sales tax from retailers on an individual level. The tax amount that's applied then automatically displays on orders that you receive from retailers that you're collecting tax from.

The table in the Retailers section of your Shopify Collective sales channel displays a Collect tax column, which indicates whether or not you're collecting tax from each retailer.

Review the following table for details of the tax collection setting that you have for all retailers by default, which depends on your location and your tax registration status that you've submitted to Shopify.

Change your retailer tax collection setting

1. From your Shopify admin, go to Sales channels > Collective: Supplier.

2. Click Retailers.

3. Click a retailer that you want to change the tax collection setting for.

4. In the Payments and taxes section, activate or deactivate the Collect tax option.

Understanding how tax is calculated for Shopify Collective transactions

Review the following table to determine where sales tax needs to be paid, and which price the tax amount is calculated with.

The table outlines the default tax settings for supplier-to-retailer transactions in Collective, but you should confirm with a tax professional that the scenarios are appropriate for your particular sales transactions.

No tax is charged between suppliers and retailers that are located in Gibraltar or Hong Kong.

Example tax and profit scenarios for Shopify Collective transactions

The following transaction scenarios illustrate how profit is calculated for retailers and suppliers when both parties have their product prices set to either exclude tax or include tax. You configure this in your Shopify admin by going to Settings > Taxes and duties > Global settings > Include sales tax in product price and shipping rate. The transaction examples are based on a 30% retailer margin being applied to the product that's sold.

Scenario 1: Domestic sale where supplier and retailer both exclude sales tax from product prices

• US supplier > US retailer > US customer
• Both the retailer and the supplier have tax excluded from their product prices.
• Therefore, tax is added to:
  • the product price that's displayed to the customer on the retailer's checkout.
  • the product cost price that the retailer pays to the supplier.
• This example is based on a 10% rate being used for both the B2B and DTC taxes.

Scenario 2: Domestic sale where supplier and retailer both include sales tax in product prices

• UK supplier > UK retailer > UK customer
• Both the retailer and the supplier have tax included in their product prices.
• Therefore, tax is already included in:
  • the amount that the customer pays on the retailer's checkout.
  • the amount that the retailer pays to the supplier for the product.
• This example is based on a 20% rate being used for both the B2B and DTC taxes.

Verifying your tax registration status

If your store's located in Canada, the United Kingdom, or a European Union (EU) country, then you must verify your tax registration status to be able to use the Shopify Collective sales channel.

The tax ID and billing address that display for tax registration verification are connected to the following locations in your Shopify admin:

• Tax ID number: Settings > Taxes
• Billing address: Settings > General

For UK suppliers, the VAT number that you provide is displayed to retailers that you're collecting sales tax from.

Verify your tax registration status in Canada

1. From your Shopify admin, go to Sales channels > Collective: Supplier.

2. Click Settings.

3. In the Tax registration status section:

   • If there's an Unverified badge, then do either of the following:
     • If the GST/HST number is pre-filled:
       1. Optional: If you need to edit the pre-filled details, click the icon, and then make your changes.
       2. Optional: Click the billing address link, and then confirm that your billing address is correct.
       3. Select I verify that my GST/HST number and billing address are correct.
       4. Click Verify.
     • If the GST/HST number isn't pre-filled:
       1. Click Continue.
       2. In the Add GST/HST number dialog, enter your GST/HST number.
       3. Click Save.
       4. Optional: In the Tax registration status section, click the billing address link, and then confirm that your billing address is correct.
       5. Select I verify that my GST/HST number and billing address are correct.
       6. Click Verify.
   • If there's an Ineligible badge and a message displays that says You must use Shopify Tax or a third-party app to collect tax, click Continue, and then take the necessary steps to set up your store for using either Shopify Tax, Basic Tax, or a third-party tax app.

Verify your tax registration status in UK/EU

1. From your Shopify admin, go to Sales channels > Collective: Supplier.

2. Click Settings.

3. In the Tax registration status section:

   • If there's an Unverified badge, then do any of the following:
     • If the VAT number is pre-filled:
       1. Optional: If you need to edit the pre-filled details, click the icon, and then make your changes.
       2. Optional: Click the billing address link, and then confirm that your billing address is correct.
       3. Confirm that the I verify that my VAT number and billing address are correct checkbox is selected.
       4. Click Verify.
     • If the VAT number isn't pre-filled, and your store's sales are above the VAT registration threshold:
       1. Click Continue.
       2. In the Verify tax registration status dialog, select I have a VAT number.
       3. Enter your VAT number.
       4. Click Save.
       5. Optional: In the Tax registration status section, click the billing address link, and then confirm that your billing address is correct.
       6. Confirm that the I verify that my VAT number and billing address are correct checkbox is selected.
       7. Click Verify.
     • If the VAT number isn't pre-filled, and your store's sales are below the VAT registration threshold:
       1. Click Continue.
       2. In the Verify tax registration status dialog, select I don't need to register or collect VAT.
       3. Click Save.
       4. Optional: In the Tax registration status section, click the billing address link, and then confirm that your billing address is correct.
       5. Confirm that the I verify that my tax registration status and billing address are correct checkbox is selected.
       6. Click Verify.
     • If the tax registration status displays as I don't need to register or collect VAT, and this information is correct:
       1. Optional: Click the billing address link, and then confirm that your billing address is correct.
       2. Confirm that the I verify that my tax registration status and billing address are correct checkbox is selected.
       3. Click Verify.
     • If the tax registration status displays as I don't need to register or collect VAT, and this information is incorrect:
       1. In the Tax registration status field, click the icon.
       2. In the Verify tax registration status dialog, select I have a VAT number.
       3. Enter your VAT number.
       4. Click Save.
       5. Optional: In the Tax registration status section, click the billing address link, and then confirm that your billing address is correct.
       6. Confirm that the I verify that my VAT number and billing address are correct checkbox is selected.
       7. Click Verify.
   • If there's an Ineligible badge and a message displays that says You must use Shopify Tax or a third-party app to collect tax, click Continue, and then take the necessary steps to set up your store for using either Shopify Tax, Basic Tax, or a third-party tax app.