How To Tackle U.S Sales Tax as An International Dropshipper with U.S Suppliers
Please Note: I have done my best to gather information from blogs on Tax information. We always recommend consulting a sales tax professional with any questions you may have regarding sales tax.
Do I Have To Collect Sales Tax as An International Dropshipper?
The short answer: Maybe
From the information I found online, as an international dropshipper who is working with a U.S manufacturer, it depends on which state the dropshipper is located in.
You are responsible for collecting and submitting sales tax if you have a registered Nexus in the state.
What is Sales Tax Nexus?
From Tax Jar:
Sales tax nexus occurs when your business has some kind of connection to a state. All states have a slightly different definition of nexus, but most of the time states consider a “physical presence” creates nexus.
Physical presence can mean a number of things, including:
Having an office
Having an employee
Having a warehouse
Having an affiliate
Storing inventory
Drop shipping from a 3rd party provider
Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair
If you suspect you might have a physical presence in a state, you could check with that state’s taxing authority to determine whether or not you have sales tax nexus.
Which States Count “3rd Party Dropshipping Suppliers” as having a Sales Tax Nexus?
As you see here, some states count having a 3rd party dropshipping supplier as a physical presence in the state meaning you need to pay sales tax to that state.
If your dropshipping supplier is located in the U.S in one of these states, then you must register with the state to collect and pay sales tax.
- California
- New York
- Texas
- Florida
If your supplier is located outside of these states and you do not have any other attributes that would link you to a sales tax nexus in the state, then you do not need to collect sales tax. If however a customer purchases from the same state as your supplier (IE: Your supplier is in Alabama and a customer from Alabama purchases from your shop) the supplier would charge you sales tax for the order as they have a tax nexus in the state!
To simplify the tax issue as much as possible, here is a diagram I created to try to simplify the process as much as possible:
For more tax resources, here is a great list of sales tax resources we have compiled:
https://blog.taxjar.com/international-sellers-deal-sales-tax-u-s/
https://blog.taxjar.com/drop-shipping-sales-tax/
https://taxify.co/2015/07/22/sales-tax-and-drop-shipping-what-sellers-need-to-know/
https://blog.taxjar.com/sales-tax-inventory/
https://www.avalara.com/learn/whitepapers/sales-tax-implications-of-drop-shipping/
