Watch this video to find out who needs to collect and pay the sales tax.
Transcript
What in the world is dropshipping?
My name is Mansoor Ansari and I’m with Nexus Tax Defense.
What’s a Nexus?
A Nexus is a sales tax obligation that you create with another state.
Let’s break down the dropshipping scenario
Let’s say you’re the seller and I’m the dropshipper, and the customer lives in another state.
Scenario 1
If you have Nexus and I have Nexus, then:
I charge you the sales tax unless there’s a resale certificate
Then, you charge your customer sales tax
Scenario 2
If I have Nexus and you don’t have Nexus, then:
I charge you sales tax unless you have a resale certificate
Then, you charge the customer the sales tax
Scenario 3
If I don’t have Nexus and you have Nexus, then:
You just charge your own customer the sales tax
Scenario 4
If you don’t have Nexus and I don’t have Nexus, then:
Nobody’s collecting sales tax
Need Help?
If you have any questions, give us a call and we’ll iron this out for you.
Frequently Asked Questions
What is dropshipping?
Answer: Dropshipping is a retail fulfillment method where a seller does not keep products in stock. Instead, the seller transfers customer orders to a third party the dropshipper who ships the products directly to the customer.
Who is responsible for collecting sales tax in a dropshipping scenario?
Answer: Responsibility depends on who has nexus in a given state. If either the seller or the dropshipper has nexus, they may be required to collect sales tax, unless a valid resale certificate is provided.
What is a sales tax nexus?
Answer: A nexus is a legal connection to a state that requires a business to collect and remit sales tax there. Nexus can be created by having physical presence, employees, inventory, or economic thresholds within a state.
When does a resale certificate exempt a business from paying sales tax?
Answer: A resale certificate exempts a business from paying sales tax on items purchased for resale. If the seller or dropshipper provides this certificate, they may avoid being charged sales tax on those transactions.
What happens if neither the seller nor the dropshipper has nexus in the customer’s state?
Answer: If neither party has nexus in the customer’s state, generally, no sales tax is collected on the transaction. However, the customer may still owe use tax in their state.
