Sales Tax for Dropshippers Compliance & Exemption Strategies

The federal income tax ranges from 10% to 37% for sellers living in the US. The final value of income tax due varies according to your total annual income and state of residency. On the other hand, if you reside outside the US, you must review the tax income brackets for your country of residence. As a business owner, it’s your responsibility to consult with local tax authorities or professionals regarding the tax rates that you must charge your customers and the process of filing tax declarations. One of the most effective ways to lower your income tax liability is to deduct your business expenses. As a dropshipper, you may have expenses like website hosting fees, marketing expenses, eCommerce platform subscriptions, etc.

Hawaii’s general excise tax (GET) is a privilege tax imposed on business activity in Hawaii. It generally applies to most transactions, including shipping and handling charges. Florida sales tax applies to the total sales price of taxable tangible personal property, which includes services considered part of a sale. Charges to deliver taxable items are generally subject to Florida sales tax. Charges for a company to deliver goods in its own vehicle are often taxed differently than charges for delivery by common carrier or private carrier.

The state’s rules that must be followed and the tax that applies is the state where the goods are delivered to the customer – so the ship to state. With the nature of how drop shipping functions, it’s almost guaranteed one party is functioning as a reseller. For instance, a retailer who purchases goods to be delivered to the customer is the reseller. They’ve already collected the tax on the purchase price, and would not owe additional tax to the supplier. Apart from maintaining legal compliance, keeping accurate records of taxes collected and sales transactions makes the tax filing process easier. You can also seek guidance from a tax professional to help you out with the tax filing process.

This is true even if the supplier has nexus and an obligation to collect sales tax in the seller’s state. This is why dropshipping suppliers are often such sticklers about resale certificates, and some may not accept them at all. Having economic nexus means you’ve sold enough products in a state for them to see you have a strong economic presence. In other words, you’ve passed their economic threshold, so they can require you to collect and remit sales tax. However, in ten states you are required to register for a sales tax permit and collect sales tax from all buyers in that state in order to take advantage of the perks of having a resale certificate. Drop shipping seems simple until you start thinking about sales tax.

• Instead, they partner with a third-party supplier who ships products directly to the customer.
• Separately stated transportation charges are generally exempt provided the purchaser is not required to pay for the service.
• In case your dropshipping business is VAT-registered in the European Union, and you are sourcing your products from an EU supplier, the reverse-charge mechanism will manage VAT on your purchase.
• You then place that same order with a manufacturer or other supplier to have it drop shipped on your behalf.

How to Register GST for Online Selling?

Also, read our previous article about dropshipping in Canada. Your business has to charge GST or HST in Canada unless it qualifies as an exception. That’s why it is crucial to understand the exceptions and the requirements for charging, collecting, and remitting this kind of tax in the country. In Canada, the sales tax is known as GST or Goods and Services Tax. This tax is added to the base price of each product and is charged by your supplier at an average rate of 10%. As a dropshipper, you may be considered self-employed, which means you are subject to self-employment tax.

Dropshipping Taxes in Different Countries and Regions

Numeral can help you transform sales tax collection from a stressful and confusing issue into an automated process you barely need to think about. This customer likes your store a lot and has ordered another t-shirt. But you have provided them with a valid resale certificate (click here to see how), so you do not need to pay it. The Advanced Sales and Use Tax Workshop is the perfect reason to immerse yourself in a city that’s as dynamic as the sales tax topics we’ll cover. The  training equips you with expert strategies to tackle the toughest sales tax challenges. Learn insider tips, avoid costly penalties, and take control of your tax processes like never before.

The customer’s role in sales tax

Whether you are a dropshipper selling products to EU customers or an aspiring dropshipping entrepreneur looking to target the EU market, you have probably heard about VAT so far. Moreover, as a dropshipping store owner, the amount of income tax you have to pay depends on your profit and the location of your business. For example, dropshippers often need to pay income tax based on their earnings to their local governments, although there are exceptions like nine U.S. states that don’t have an income tax.

Since most sales in South Dakota are taxable, shipping and handling charges are generally taxable. However, if the sale is exempt, shipping and handling charges are also exempt. As of July 1, 2023, separately stated charges for shipping and handling are not included in the sales or selling price so are not subject to Kansas sales tax. If included in the sale price, shipping charges are generally subject to sales tax. Shipping and handling charges incurred on behalf of the seller of taxable goods are generally taxable in Indiana, whether included in the sale price or separately stated.

In this scenario, Debbie does not collect sales tax from Ron, even if Debbie has sales tax nexus in the state where Bobby Buyer is located. However, Debbie Drop Shipper may have sales tax nexus in the state where Bobby is located. Since Debbie is drop shipping the product to Bobby at her ship-to address, Debbie would be required to charge sales tax from the buyer, Ron Retailer, if Bobby is located in a state where Debbie has nexus. The taxes that apply to dropshippers and dropshipping businesses in India are income taxes, GST and other applicable taxes as per the existing laws in India. Dropshippers living in the US and selling to US customers are only required to collect and pay sales taxes in US states where they have a nexus. Meanwhile, other taxes like sales tax have a different process.

How can I register for GST for my dropshipping business?

For select businesses, easy tax savings are just one form away. Rather than figure out how to take advantage of this on your own, check out our simple guide. Clothes priced above ₹1,000 attract 12% GST, while those up to ₹1,000 are taxed at 5%. In addition to this, textile items like synthetic yarn, woven fabrics, pile fabrics, accessories like tapestries or tablecloths and rugs attract GST at the rate of 12%. If you are the service provider and someone makes a purchase from you, you need to send a sales invoice to the recipient of the service.

Charges for delivery are exempt if paid by a customer to a delivery company and not imposed or collected by the seller of the goods shipped. See drop shipping sales tax Ohio Laws and Administrative Rules and the Ohio Department of Taxation. Handling charges are considered part of the sale price whether separately stated or not. Managing sales tax is far from the most glamorous part of running a business, but it’s one of those things you can’t afford to overlook. Missing a deadline can quickly land you in hot water, racking up fines, penalties, and audits that are a real drain on your time.

There’s no straightforward answer, but I’ll explain the common situations you’ll come across when buying from a dropshipping supplier and when selling to a customer. Additionally, customs duty taxes can range from 0% to 37.5%. Hence, the amount of this tax you’ll owe depends on factors like the size, weight, and type of the product.

Different rules may apply for local sales tax because Louisiana is a home-rule state. With Numeral, you spend five minutes or less every month on sales tax. We’re the white-glove service you are looking for that’s run by operators and CPAs. Sales of digital goods are taxed in most states and jurisdictions (table below). Here is what you need to know about sales tax if you sell digital goods in 2025.