Estimated reading time: 6 1/4 minutes
If you’re a Shopify Plus user currently using AvaTax, Shopify tax changes are reshaping how you manage sales tax compliance, and it’s not as easy as flipping a switch.
As of April 30, 2025, Shopify is sunsetting the old Avalara integration with Shopify (which was actually owned and managed by Shopify), and replacing it with two options:
- Shopify Tax (Shopify’s own tax engine)
- The new Avalara for Shopify integration (using the AvaTax tax engine)
This change might sound straightforward, but it’s leaving many sellers scratching their heads.
But don’t worry—we’ve broken down what this change means for you, so you can decide which option is best for your business.
Key Takeaways
- By April 30, 2025, Shopify will sunset its old Avalara integration, giving Shopify users two options: Shopify Tax (Shopify’s own tax engine) or Avalara’s new Avalara for Shopify integration (using the AvaTax tax engine).
- Shopify is also offering automated state-level sales tax filings, but there are a lot of eligibility requirements and limitations to be aware of. Be sure to carefully evaluate if it meets your business’s needs.
- Legacy AvaTax for Shopify users must migrate to Shopify Tax or the new Avalara for Shopify integration by April 30, 2025, to ensure uninterrupted sales tax compliance. Don’t wait—start planning your transition now!
Table of Contents
- A quick background on sales tax compliance
- Options previously available for Shopify Plus sellers
- Shopify tax changes: What tax engine options are now available?
- Shopify Tax offers automated sales tax filings
- Are Shopify automated filings right for your business?
- How to get help navigating Shopify tax changes
Sales Tax Compliance: A Quick Background
Before we dive in though, let’s give a bit of background.
If you sell online, you know that sales tax compliance is unavoidable.
Marketplace facilitators like Amazon, Etsy, eBay handle it for you. But once you start selling on your own website – such as through Shopify – it’s up to you to collect and remit sales tax on that channel.
To make the ordering process seamless for your customers, you have to choose a sales tax engine to calculate sales tax on the back end based on where the orders are being shipped.
Options Previously Available to Shopify Sellers
For years, Shopify used Avalara’s AvaTax for Shopify as the backbone of their tax tool, essentially “borrowing” Avalara’s engine to make sales tax calculations, even though Shopify owned and maintained the integration.
The AvaTax tax engine product was bundled into the Shopify Plus subscription.
Behind the scenes, though, while Shopify had the AvaTax product at their disposal, they used it as a model to build their own tax engine – Shopify Tax – which was released in 2022, though with the ability to calculate sales tax on US transactions only.
Now that Shopify has finished building Shopify Tax and fully rolled it out, they’re essentially giving ownership of the product they “borrowed”– AvaTax for Shopify – back to Avalara.
There will still be an Avalara for Shopify integration; Avalara is simply taking back ownership of that product.
Shopify Tax Changes: What Tax Engine Options are Now Available?
In recent months, Shopify has announced that starting April 30th, 2025, it is sunsetting its old agreement and integration with Avalara.
ALL Shopify Plus legacy AvaTax users now must decide between using Shopify Tax OR continuing with Avalara for Shopify and migrating to the new app owned and maintained by Avalara.
This choice must be made by April 30, 2025, at the latest.
If you are already using Shopify Tax, nothing needs to be done.
However, if you have been using AvaTax’s old integration with Shopify, it’s decision time:
- Switch to Shopify Tax
- Migrate to the new Avalara for Shopify integration
Here is a breakdown of both options.
Key Features to Consider
Both Shopify Tax and Avalara for Shopify offer:
- Rooftop calculations: That means the sales tax rate is calculated based on the full address, not just the zip code.
- Automatic rate change updates: Rates adjust for sales tax holidays and other changes without requiring manual updates.
- Sales tax analytics: This can help give you visibility into your sales tax obligations.
- Supports state fees: This means that they will collect fees such as the Colorado Retail Delivery fee.
Shopify Tax: Pricing and Features
Pricing:
- Fees kick in after your store surpasses $100,000 in global sales, though Shopify Tax is only available in the US, UK, and EU regions.
- Once you cross the threshold, Shopify Tax charges 0.25% per order (for Shopify Plus subscribers) OR 0.35% per order (for non-Shopify Plus subscribers), capped at $0.99 per order.
- Fees max out at $5,000 annually per region, for an international cap of $15,000 annually.
Important Details
- The $100,000 threshold includes all sales channels connected to Shopify – gift cards, in-person sales, and non-taxable products count.
- Sales through Shopify Payments and other gateways also count toward the threshold.
- Shopify’s tax migration team is promising client-specific support during the transition.
- The agreement terms are still unclear, but a 12-month term is expected.
Avalara for Shopify: Pricing
AvaTax is a solid tax engine that has been in place for years and has been proven to work well. Also, it is a fully global solution and isn’t confined to only a few regions.
For those of you already using Avalara’s AvaTax, Avalara is offering an updated integration with Shopify and is offering promotional pricing.
If you are new to AvaTax, pricing varies based on individual needs because everybody’s sales tax situation is vastly different.
Reach out to LedgerGurus, and we can help you get the sales tax support you need.
Automated Sales Tax Filings: A New Feature in Shopify Tax
Shopify Tax is also introducing automated sales tax filings.
While this may seem appealing at face value, there are many serious limitations to consider.
Eligibility Requirements
- This service is only available to U.S.-based stores using Shopify Tax.
- Merchants must ONLY use Shopify Payments, Shopify Balance, or Shopify Credit.
- This service is not available to stores that used non-Shopify tax tools in 2024.
Limitations to be Aware Of
- The automated filings apply only to state-level returns – local jurisdictions (we’re looking at you, Colorado and Louisiana!) are not supported.
- Sales from non-Shopify channels, imported orders, and marketplace sales where Shopify isn’t the merchant of record are excluded. So, if you are selling on Amazon or any other places, this service will not meet your needs.
- Compatibility issues exist with certain apps, such as Loop Returns.
- Current returns ONLY. No back filings or amended returns supported.
Also, automated filings are NOT included in Shopify Tax. It is an optional offering with additional fees.
Are Shopify Automated Filings Right for Your Business?
Shopify Tax introduces a new level of convenience for sales tax compliance, especially with features like rooftop calculations and automated filings.
However, the program’s pricing, eligibility criteria, and automated filing limitations require careful consideration, especially for ecommerce sellers with:
- Complex sales channels
- Significant non-Shopify sales
Carefully consider your business’s needs before deciding.
Need Help Navigating Shopify Tax Changes?
The rollout of Shopify Tax brings big changes for Shopify Plus users. We will continue to discuss this change and what it will look like for Shopify Plus users.
If you’re unsure which tool is right for your business, our team of ecommerce accounting and sales tax compliance experts is here to help.
They are well-versed in the complexities of US sales tax and can take the burden of trying to manage everything and stay on top of all the changes from you so you can focus on what you do best – growing your business!
Contact us today to ensure your business remains sales tax compliant and to determine the best solution for your needs!
