Understanding Nexus, Sales & Use Tax, and Why a Certificate Is Different From an EIN
Running an e-commerce store (and serving wholesale customers through retail outlets) comes with one unavoidable responsibility: tax compliance. The rules can feel overwhelming, especially when you hear terms like nexus, sales and use tax, resale certificate, and EIN thrown around. Let’s break it down in plain English so you know what matters for your business and where Shopify can help you manage it.
Table of Contents
What Is Nexus?
Nexus means your business has a sufficient connection to a state that requires you to collect and remit sales tax there. Since your headquarters (and likely warehouse or retail activity) are in Texas, your nexus starts there automatically.
Texas Rules
- You must collect and remit sales tax on all taxable sales shipped to or picked up in Texas.
- If you sell wholesale to other retailers, you don’t charge them sales tax if they give you a valid resale certificate.
- Without that certificate, you’re required to collect tax even from other businesses.
Shopify Tip: If you haven’t registered yet, you can apply for your Texas sales tax permit directly in your Shopify admin. Shopify provides links to your state’s Department of Revenue to make registration easier.
Other States – Where You May Need to Register
Even if you’re based in Texas, your customers aren’t limited to your state. Thanks to the Wayfair decision, states can enforce economic nexus rules that apply to out-of-state sellers.
A. Physical Nexus
You create nexus if you:
- Open an office, warehouse, or store in another state.
- Employ staff or contractors who work there.
- Store inventory (for example, through Amazon FBA).
- Attend regular in-person sales events like trade shows or pop-ups.
B. Economic Nexus
Many states also require sellers to register once they hit a certain sales threshold, even without physical presence. Typical triggers are:
- $100,000 in sales into that state, or
- 200 separate transactions (though several states have now eliminated the transaction count).
👉 Example: If you’re shipping enough online orders into Florida to exceed $100,000 in a year, you need to register there even if you’ve never set foot in the state.
Common Scenarios
- Only Texas nexus & small out-of-state sales → You likely only need to collect Texas tax.
- High volume in other states → If you cross thresholds, you must register, collect, and file in those states.
- Wholesale customers outside Texas → Usually exempt with resale certificates, but you may still need to register if you exceed that state’s thresholds.
Sales & Use Tax Certificate vs. EIN
Here’s where confusion often sets in.
- EIN (Employer Identification Number) → Issued by the IRS, this is your federal tax ID. You use it for payroll, income tax returns, and banking.
- Sales & Use Tax Permit/Certificate → Issued by individual states, this authorizes you to collect sales tax from customers and remit it to that state. Each state requires its own registration.
Key takeaway:
Having an EIN does not mean you’re registered to collect sales tax. They serve completely different purposes:
- EIN = federal identification
- Sales & Use Tax Certificate = state tax compliance
Steps to Take
- Check where your customers are. Pull a report of your last 12 months of sales by shipping state.
- Compare against thresholds. Each state sets its own rules (California = $500,000; Florida = $100,000; New York = $500,000 AND 100 transactions).
- Register where required. Apply through that state’s Department of Revenue (Shopify links to these in your admin).
- Collect resale certificates. For wholesale customers, make sure you have valid exemption documentation.
- Stay compliant. File returns on the schedule assigned by each state (monthly, quarterly, or annually).
Shopify’s Role in Sales Tax Compliance
Shopify Tax Replaces Basic Tax: Shopify’s “Basic Tax” option was sunset for new and non-grandfathered merchants in July 2025. All new Shopify stores must use either “Shopify Tax” (automated, rooftop-accurate, exemption-friendly) or “Manual Tax” if they collect US sales tax. Shopify Tax includes automated filings, compliance alerts, and advanced tax logic—free for most businesses until sales exceed $100,000/year, then with a marginal per-transaction fee.
Here is how Shopify can help with taxes:
- Registering: Shopify will direct you to your state’s registration site, where you can apply for your sales tax certificate.
- Collecting: Once you’ve added your sales tax settings, Shopify will automatically calculate and collect the correct sales tax from your customers at checkout.
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Remitting: In some states, Shopify can now automatically file and remit your sales tax for you (with a payment fee involved). This is convenient if:
- You’re earning significant revenue,
- Selling into multiple states, and
- Want to outsource filings to reduce admin work.
- Saving for Taxes with Shopify Balance: Shopify recently introduced the option to automatically set aside sales tax collected into a dedicated Shopify Balance account. This helps you avoid surprises at filing time and manage cash flow more responsibly. (We’ll cover this in detail in a future blog.)
Marketplace Facilitator Laws: As of January 2025, Shopify collects, remits, and files sales tax automatically for sales through the new Shopify Shop app—meaning merchants using its marketplace function aren’t responsible for manual filings on those orders. This complies with new facilitator laws and lightens the burden for some sellers.
Automated Filing Tools: Shopify integrates with tax apps like TaxJar, Avalara, Sovos, Numeral, and Kintsugi—these automate sales tax filings, nexus exposure tracking, and reporting for streamlined compliance across states.
Location-Based Automation: Configure automated, location-based tax settings and reconcile collected sales tax monthly to keep up with thresholds and state compliance rules.
Sales Tax Expert Insights
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Experts urge reviewing nexus and registration status every year, as laws and thresholds may change without warning.
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Automation (using Shopify, TaxJar, Avalara, Numeral, Sovos, or similar) is now considered best practice for tracking nexus, calculating multi-state tax rates, and filing returns.
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Improper registration or delayed filings are flagged as top risks by experts; they warn that penalties and back taxes are increasing nationwide, especially after new compliance legislation in many states for e-commerce.
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Seek professional advice early if expansion into new states, high sales volume, or complex wholesale activity occurs, to avoid hidden liabilities.
State-Specific Tax Compliance Information (2025)
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Texas: Texas has a $500,000 economic nexus threshold; sellers must collect and remit a state sales tax of 6.25%, with up to 2% additional for local rates (max combined 8.20%). New rules in 2025 expand taxability to remote and digital sales, and as of October 2025, seller fees on platforms like eBay, Poshmark, and Etsy are subject to tax.
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Threshold Examples: Many states have updated their economic nexus thresholds in 2025. California ($500,000), New York ($500,000 & 100 transactions), and most others at $100,000 or 200 transactions, with some states removing transaction counts—for example, Utah now only applies a dollar threshold.
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New Filing Rules: July 2025 brought midyear legislative changes in several states, affecting product taxability and filing frequency. For example, Utah removed its 200-transaction threshold, and South Dakota eliminated its electronic filing credit.
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US Treasury Update: Businesses must round transactions to the nearest nickel, as pennies are phased out in 2025. Manual sales tax calculations and remittances must be adjusted accordingly.
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Texas Registration: Businesses must register with the Texas Comptroller before collecting sales tax, and local rates change each quarter—check regularly for updates.
Marketplace Facilitator Laws
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Most states require marketplace platforms (Amazon, Shopify Shop app, eBay, Etsy) to collect and remit sales tax automatically. However, sellers must still track where marketplace facilitator laws apply and ensure tax settings are correct for states where additional obligations may exist.
Practical Steps for Compliance
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Visit the Department of Revenue’s website for each state where nexus exists to register for permits.
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Retain all exemption certificates and compliance documentation in case of audit.
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Regularly monitor and adapt to legislative updates, filing deadlines, and tax rate changes.
State-by-State Checklist
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Why This Matters for Business Owners
Failing to register and collect sales tax when you’re supposed to can mean owing back taxes, penalties, and interest.
On the flip side, doing this correctly builds trust with wholesale buyers, keeps your business audit-ready, and protects your margins by passing tax liability to the customer (where it belongs).
FAQs
Q1: Do I need both an EIN and a Sales Tax Certificate?
Yes. EIN is federal (IRS) and for income/payroll tax purposes. A Sales Tax Certificate is issued by each state you sell into, and it authorizes you to collect and remit sales tax.
Q2: If I only sell wholesale, do I need to register?
Yes, if you cross a state’s economic nexus threshold, you usually still need to register — even if most of your sales are exempt. You’ll need to collect and keep resale certificates on file.
Q3: Can Shopify register and file taxes for me automatically?
Shopify will link you to state websites for registration and can now automatically remit in certain states. There is a payment fee, and it’s most useful when you’re selling in many states and want Shopify to take over the task.
Q4: Should I let Shopify hold my tax money?
With Shopify Balance, you can automatically set aside sales tax into a dedicated account. This is a good idea if you want to avoid accidentally spending your tax money and getting hit with a big bill later.
Q5: What happens if I don’t register when I should?
You may owe back taxes plus penalties and interest. States are increasingly aggressive about enforcing sales tax nexus rules, especially for e-commerce sellers.
Final Word
Think of your EIN as your federal ID badge and your sales tax certificates as state entry passes. If you’re only selling in Texas with small online traffic elsewhere, you may only need to worry about Texas. But as soon as you grow, ship more out-of-state, or expand wholesale, you’ll want to review your nexus footprint and register where necessary.
👉 With Shopify’s built-in tools for registering, collecting, and even remitting, staying compliant has never been easier — you just need a system. Start with your home state, watch your growth, and use Shopify’s features to keep your business audit-ready.
References
Veronica Jeans
eCommerce Strategist | Shopify Expert | 7-Figure Business Coach
I have integrated my extensive knowledge in the field of eCommerce and Shopify, along with my international financial expertise, to offer up a playbook for generating income online.