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Don’t Drop the Ball on Drop Shipping Sales Tax

Image showing the relationship between the customer, the retailer, and the wholesaler: Who collects sales tax?

Regardless of which point in this diagram represents your role in the drop shipping equation, figuring out who should collect sales tax on drop shipments can be a real juggling act.

The players in this scenario must consider nexus concerns, product sourcing, customer’s location, and drop shipper’s location -  all of which are moving parts and can vary from one order to the next.

Here are some questions that you should consider when you’re not sure if the ball is in your court:

  • When does sales tax need to be charged?

    • Does the retailer have nexus in the state? If yes, they collect.
    • If neither the retailer nor the drop shipper has nexus, the customer is responsible for reporting the use tax.
    • If the drop shipper has nexus, but the retailer doesn’t, it’s up in the air! The answer is that it depends on the state.
  • Can drop shipping create nexus? Yes. In some states and circumstances, an out-of-state reseller using an in-state drop shipper can be considered a nexus-creating relationship.
  • How can you get it right? First, you should consult a professional to make sure you understand your nexus obligations in the states where you do business. Try our free nexus wizard tool to help you get a better idea of where you may have nexus concerns.  Next, you should implement an automated system to keep up to date with applicable sales tax rates and rules. Contact ArcherPoint to learn about sales tax automation tools that integrate with your Microsoft Dynamics ERP and/or eCommerce system.

For a more on what you need to know about drop shipping and how it affects your business, download our free whitepaper:  Sales Tax Implications of Drop Shipping.

To learn about the current state of sales tax legislation and get some additional practical tips for identifying and mitigating your audit risk, join us for a webinar on Thursday, December 12 at 2 PM ET: Lunch & Learn with ArcherPoint: Stay Ahead of Sales Tax Changes

Register now!