Every state collects some amount of sales tax on retail goods and wholesale products (and often services, too). You have to keep up with tax laws whether you own a brick-and-mortar store, sell products online, or both. Understanding tax obligations is even more important for dropshippers because the process can get complicated. This guide offers general answers to sales tax FAQs in the United States, like when and if you need to charge tax on Shopify when dropshipping.
Do I Need To Collect Sales Tax With E-Commerce?
Your store is responsible for collecting sales tax in any state where you sell goods and have a physical presence — also called a nexus. This always includes the state where you register and operate a business, even if you manage your Shopify store from your bedroom.
A nexus also includes any state where you:
- Lease or own property, like a warehouse
- Have employees
- Distribute, store, or ship goods
Sales tax rules also apply in any state where your total revenue exceeds a minimum threshold. This isn’t usually a problem for Shopify merchants because the threshold in most states is pretty big. For example, in Utah, the sales tax nexus rule only kicks in once you sell more than $100,000 or complete 200 transactions in a calendar year.
When Do I Need To Charge Tax on Shopify When Dropshipping?
Sales tax rules also apply to dropshipping and print-on-demand. As the seller, you have to collect and pay sales tax in any state where you have a nexus, even if you’re not the one doing the physical shipping.
Resale Certificates (or Tax Exemptions)
Any dropshipping supplier that operates in the United States will charge you sales tax on the goods you sell. You’re one of their customers.
To avoid paying sales tax yourself, you can apply for a resale certificate in states where your business is registered. This certificate means that you pass on the sales tax to your customers. You collect it from them and send it in — or your Shopify store does, once you set it up.
Dropshipper Nexus
Here’s where things get tricky. What happens when you sell products in a state where you don’t have a nexus, but your dropshipping supplier does have a warehouse or distribution center? In that case, the supplier must charge you or your customer sales tax on the item. This means you may need to collect dropshipping sales tax on Shopify even if you’re normally not required.
How Do I Find Out Where My Suppliers Have a Nexus?
Any trustworthy dropshipping partner will have many other customers, so it should provide plenty of information about its sales tax collection policies. You can ask directly which states it has a nexus in and how it collects sales tax on dropshipped goods.
Over email, you can reach an agreement about who will collect the required sales tax, where, and how. That way, you avoid doubling up on taxes.
Do I Need To Charge Tax on Shopify With Dropshipping Apps?
StayTuned Apps help automate tax calculations, manage pricing, and ensure compliance with tax laws. Many app solutions help you connect with trustworthy suppliers, not to mention offering ongoing support and customer service. At StayTuned Digital, we’re happy to share more resources about when you need to charge tax on Shopify for dropshipping products and print-on-demand. Contact us today.