Drop shipping is a popular business model for online sellers. It allows them to sell products without having to carry inventory. Instead, they partner with a third-party supplier who ships products directly to the customer.
However, drop shipping can create some complexities when it comes to sales tax. In this blog post, we will discuss the basics of sales tax for drop shipping and how to comply with the law.
What is Sales Tax?
Sales tax is a tax on the sale of goods and services. It is typically collected by the seller and remitted to the state.
How Does Sales Tax Work for Drop Shipping?
When a customer purchases a product from a drop shipper, the drop shipper is responsible for collecting sales tax. This is true even if the drop shipper is not required to collect sales tax from the customer in the first place.
What are the Complexities of Sales Tax for Drop Shipping?
There are a few complexities to consider when it comes to sales tax for drop shipping:
- Nexus: The drop shipper must have nexus in the state where the customer lives. This means that the drop shipper must have a physical presence in the state or have economic nexus.
- Economic Nexus: Economic nexus is a legal standard that requires businesses to collect sales tax in states where they have a certain level of economic activity.
- Resale Certificate: If the drop shipper is selling to a retailer, the retailer may be able to provide a resale certificate to exempt the sale from sales tax.
How to Comply with Sales Tax Laws for Drop Shipping
There are a few things that drop shippers can do to comply with sales tax laws:
- Determine if you have nexus in the state where the customer lives.
- If you have nexus, register for a sales tax permit in that state.
- Collect sales tax from customers in states where you have nexus.
- File and pay sales tax returns on time.
Tips for Drop Shippers
Here are a few tips for drop shippers who want to comply with sales tax laws:
- Use sales tax software to help you calculate and collect sales tax.
- Stay up-to-date on the latest sales tax laws.
- Work with a tax professional to ensure that you are in compliance.
Conclusion
Sales tax can be a complex issue for drop shippers. However, by following the tips in this blog post, you can ensure that you are in compliance with the law.