Understanding taxes for sales with Shopify Collective

When you sell a supplier's products with Shopify Collective, you can charge tax on your customer's purchase just like any other sale that you make from your online store. The tax amount that you collect is based on your individual country requirements and your store's tax settings.

If your store is based in the United Kingdom (UK) or in a European Union (EU) country, then you need to verify your tax registration status to use Shopify Collective as a retailer.

A supplier can choose to automatically collect B2B sales tax from you when you sell their products. Review the following considerations for when you're charged sales tax by a supplier:

• The supplier is responsible for passing the portion of B2B sales tax on to the relevant tax authority. You might be able claim back the sales tax amount that you're charged as a credit from your relevant tax authority, depending on your jurisdiction.
• If you have a resale certificate that exempts you from paying tax to your supplier, then you need to provide the supplier with a copy of the certificate, and they won't collect any sales tax from you.
• Your tax registration status in a country might impact on your ability to claim tax exemptions and tax credits for Collective sales.

View whether a supplier collects tax from you

You can view details about which suppliers charge tax on your transactions with them in the Suppliers section of your Shopify Collective app. The Collect tax column in the table indicates whether or not a supplier collects sales tax from you.

You can also view this information on your individual supplier details pages. If you're a UK retailer, then VAT numbers for your UK suppliers are also displayed in the supplier details page.

Steps:

1. From your Shopify admin, go to Apps > Collective.

2. Click Suppliers.

3. Click a supplier that you want to view the tax details for.

4. In the Payments and taxes section, review whether or not a supplier collects taxes from you.

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.

Verify your UK or EU tax registration status

When you verify your tax registration status for stores that are in the UK or the EU, the tax ID and billing address that display are connected to the following locations in your Shopify admin:

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

Steps:

1. From your Shopify admin, go to Apps > Collective.

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.