Virginia Example: From Threshold to Tax Filing
Let's walk through a real-world example using Virginia (because every good guide needs a concrete example, and we can't just wave our hands and say "do the thing").
Virginia's Thresholds
According to the Virginia Department of Taxation, you're required to register and collect sales tax if you have:
- $100,000 in annual sales to Virginia customers, OR
- 200 or more separate transactions to Virginia customers
Notice that all items count toward these thresholds – even tax-exempt items like groceries. So if you're selling non-taxable items, you still need to monitor your Virginia sales because they contribute to triggering your obligation.
Registering for a Virginia Tax ID
Once you've hit the threshold, you need to register with Virginia:
- Visit the Virginia Tax Online portal
- Complete the registration for remote sellers
- Receive your Virginia tax registration number
Adding Your Tax ID to Shopify
After you have your registration number:
- Go to Settings → Taxes and Duties in Shopify
- Click on Virginia from your state list
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Choose Start Collecting Taxes (if not already active)
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Enter your registration number in the appropriate field
- Click Collect sales tax
Virginia's Tax Rates and Rules
Virginia makes things relatively straightforward (as tax jurisdictions go):
- The general sales tax rate is 5.3% for most items
- Certain regions have additional local taxes (Shopify Tax handles these automatically)
- Food for home consumption (groceries) and essential personal hygiene items are taxed at a reduced rate of 1%
This is where product categorization becomes critical – Shopify needs to know what you're selling to apply the correct rate.
Filing and Paying Virginia Sales Tax
Virginia will assign you a filing frequency (monthly or quarterly) based on your tax liability. As a remote seller, you'll use Form ST-8 to file and pay. According to Virginia's sales and use tax guidance, you can file online through their e-forms portal.
Virginia uses destination-based taxation, meaning you charge tax based on where the customer receives the product, not where you're located.
The Secret Sauce: Product Categorization
Here's something most Shopify sellers overlook until it bites them: accurate product categorization is essential for correct tax calculation. Remember Virginia's 1% grocery tax rate versus the 5.3% general rate? Shopify Tax can only apply the right rate if it knows what category your products fall into.
According to Shopify's tax documentation, categorizing your products correctly ensures compliance across all states, each with their own unique exemptions and reduced rates.
How to Assign Product Categories
From your Shopify admin:
- Navigate to Settings → Taxes and Duties
- In the Manage sales tax collection section, click United States
- Find the Categorize products for tax purposes section
- Click Manage categories
You'll see a list of your products. Shopify often suggests categories automatically based on your product descriptions. You can:
Approve Individual Suggestions:
- If Shopify suggested a category, click the checkmark in the Product category box
- Click Save
Select a Different Category:
- Click the X in the product category box
- Start typing a description of your product
- Choose the correct category when it appears
- Click Save
Bulk Category Assignment:
- Check the boxes next to multiple products
- If suggested categories are correct, click Accept and save below the list, then Accept and save all
- If you need to choose a different category for selected products, click Edit products, search for the correct category, and save
Taking fifteen minutes now to categorize your products correctly will save you from potential audit headaches later (and nobody wants those).
Generating Your Sales Tax Reports
When it's time to file your taxes, you'll need data. Lots of data. Fortunately, Shopify makes this relatively painless.
To access your sales tax reports:
- Go to Analytics → Reports
- Search for "sales tax" in the search bar
- Click on United States sales tax report
- Choose Export report in the top right corner
This report breaks down your taxable sales, tax collected, and other relevant data by state. You'll use this information when completing your tax returns for each state where you're registered.
Pro tip: Export these reports regularly (monthly is good) and store them somewhere safe. Your accountant will thank you. Your future self will thank you. The state auditor who randomly decides to review your records three years from now will begrudgingly accept that you have your act together.
The state auditor who randomly decides to review your records three years from now will begrudgingly accept that you have your act together.
You've just completed the full cycle: Understanding nexus → Activating Shopify Tax → Monitoring liability → Starting collection → Registering with a state → Configuring rates → Categorizing products → Filing taxes.
That Virginia example? It's your template for every other state where you trigger nexus. The process is remarkably similar across jurisdictions (though the specific rates, thresholds, and forms will differ).
But what happens when things get complicated? What about those edge cases, those "wait, what do I do about..." questions that inevitably come up as your business scales?
→ Continue to Part 4: Advanced Tips, Common Pitfalls, and When to Get Help for the critical reminders that could save you thousands, guidance on marketplace facilitator laws if you sell multi-channel, advice on when complexity demands professional help, and how YellowWebMonkey can take this entire burden off your plate.
You're almost there. One more article, and you'll have the complete picture of Shopify tax compliance – from beginner to battle-tested.