Overview of Dropshipping Nexus
In a dropshipping setting, keep in mind that there are three main players involved:
- Seller
- Dropshipper (Distributor)
- Customer
General Rule for Sales Tax
Sales tax is collected at the end-state of the sale, where the customer resides.
Note:
If the Dropshipper has Nexus, but the Seller does not, then the seller does not charge sales tax to its customers.
The Dropshipper would charge the seller sales tax, unless the seller has a resale certificate.
Scenarios to Determine Nexus in Dropshipping
When Dropshipper Has Nexus vs. No Nexus
| Seller Status | Dropshipper Has Nexus | Dropshipper Does Not Have Nexus |
|---|---|---|
| Seller Has Nexus | Dropshipper charges Seller tax, unless there is a resale certificate. Seller charges its customer tax. | Dropshipper does NOT charge Seller tax. Seller charges its customer tax. |
| Seller Does Not Have Nexus | Dropshipper charges Seller tax unless Seller has a resale certificate. Seller charges customer tax. | Dropshipper does NOT charge Seller tax. Seller does NOT charge its customer tax. |
Summary: How to Determine Nexus in Dropshipping
- Dropshipper has Nexus
- Seller has Nexus:
- Dropshipper charges Seller tax unless resale certificate provided
- Seller charges Customer tax
- Seller does NOT have Nexus:
- Dropshipper charges Seller tax unless resale certificate provided
- Seller charges Customer tax
- Seller has Nexus:
- Dropshipper does NOT have Nexus
- Seller has Nexus:
- Dropshipper does NOT charge Seller tax
- Seller charges Customer tax
- Seller does NOT have Nexus:
- Dropshipper does NOT charge Seller tax
- Seller does NOT charge Customer tax
- Seller has Nexus:
Key Takeaway
The existence of nexus for both the seller and the dropshipper directly impacts whether sales tax should be collected. Understanding these relationships ensures proper compliance with tax laws.