Back to All posts
Beginner's handbook

How Drop Shipping and Sales Tax Work

By Reading Time: 3 minutes

With a traditional brick-and-mortar setup, a customer pays sales tax on transactions made in store. Simple. But sales tax get more complicated in the ecommerce space, especially when an online retailer partners with a drop shipper. That’s a whole new set of rules, and we’re here to clear them up.

Keep in mind that we’re not accountants or legal experts, so this shouldn’t be used as professional advice. Use it instead as a starting off point to learn some basic information. Our recommendation is always to consult a professional for information specific to your circumstances.

Let’s start with the basics and go over some useful terms you’ll need to know.

Nexus is the term used when a retailer has a presence in a particular state. A company’s presence can be difficult to determine in online commerce, but here are a few common ways that a retailer could have nexus.

  1. If you have a physical location (even if it’s your kitchen bench)
  2. States you have employees or salespeople in
  3. States you store inventory in
    • E.g. If you are using Printful Warehousing and Fulfillment Services
  4. States where you make enough sales, in dollars or transactions.

If your company’s headquarters are located in California, you have employees working remotely in Oregon, and your warehouse is in Texas, you have nexus in all three of those states.

You can find a more expansive definition of nexus, including different types like affiliate or click-through nexus, on TaxJar’s guide to sales tax.

Remember that you must register for a sales tax permit in each state where you have nexus in order to collect sales tax.

Sales Tax is collected when a customer makes a purchase in a state where the retailer has nexus. If an online retailer has nexus in California and a customer from California makes a purchase, that customer gets charged sales tax.

Keep in mind that sales tax is passed on to the state government. It’s used to pay for state initiatives like schools, roads, etc. Each state sets its own rate, and the exact tax varies by locality.

Let’s use Albert, Oklahoma as an example. In total, buyers in Albert, OK pay 6% sales tax in total. However, this is made up of both the OK state tax of 4.5% and the district tax of 1.5%.

A Resale Certificate is needed in order for the retailer to be exempt from paying sales tax on orders they purchase from a drop shipper to resell to customers. Some states don’t accept out-of-state resale certificates. In this case, the drop shipper has to collect sales taxes from the retailer.

So there you have the basics. You, the online retailer, charge sales tax to customers that make purchases in states where you have nexus. Now we’re going to complicate things and throw in rules that apply to drop shipping.

Before we go any further, we’d like to point out that sales tax laws are different in every state, and they change frequently. So make sure you check the laws of any state where you think you may have nexus, and consult a tax professional if you have any questions or doubts. You don’t want to be surprised with a sales tax audit.

As mentioned above, laws involving sales tax get a little more complicated when a drop shipper is involved, because there really are two sales between two businesses and one customer:

1. The customer purchases an item from the retailer
2. The retailer purchases said item from the drop shipper, who then ships it directly to the customer.

The tricky part is understanding who is liable to pay the sales tax and when. Let’s assume that you are the online retailer and Printful is your drop shipper. Here are the four different situations that may occur and how to what happens in each.

 Printful has nexusPrintful doesn't have nexus
You have nexusPrintful charges you tax unless you submit a resale certificate

You charge your customer tax
Printful doesn't charge you tax

You charge your customer tax
You don't have nexusPrintful charges you tax unless you submit a resale certificate and charge your customer taxPrintful doesn't charge you tax

You don't charge your customer tax

Printful has nexus in most stateswhich means we have to collect sales tax in those states. You will need to get a resale certificate if you want to become tax-exempt. You can find out how to do that on this TaxJar blog post.

Again, we emphasize that you talk to a tax professional if you have any questions, but we hope this blog post serves as a helpful introduction to drop shipping and sales tax rules!

Nora covers all things ecommerce for the Printful blog. She appreciates good dad jokes, new books, freshly baked cookies, and evening jogs.

If you enjoyed this post, subscribe to updates

Get actionable drop shipping advice in your inbox

  1. Tony

    Hi there,

    Thank you for posting this article. This article and the questions from everyone have been really helpful, so thank you to everyone as well for their questions and comments. I live and operate my business from MD and have a Sales and Use Tax license in that state. I use Printful for their dropshipping and inventory. I understand that Printful is located in CA and NC. For clarification purposes can you tell me if I am getting the following correct:

    1. When it comes time to do my Sales and Use Tax return, if I made a sale from customers from MD, CA, NC, NJ or even from another country like Canada then I am only responsible for reporting sales I made with customers in MD, correct?

    2. I don’t need to get a Sales and Use Tax License for CA and NC if Printful is located there and I am using their dropshiping and inventory, only the state for which I am operating my business from (Maryland) correct?

    Again I appreciate this article and thank you for your time.

    1. Nora Inveiss Post author

      Hi Tony,

      I’m glad you found this blog post helpful!

      You should talk to an accountant to get the most accurate info on what taxes you’re liable to collect for your specific situation. If you operate your business outside of MD, then yes, you are probably liable to collect and remit sales tax for that state. Since you do use Printful for your inventory, that gives you nexus in CA and NC. This means you’re also liable for sales tax in CA and NC. Printful will charge you sales tax for orders going to CA and NC unless you provide us with a resale certificate.

      Again though, your best bet is to talk to a professional 🙂

  2. Marc

    Hi, i am based in the UK and im looking to sell on Amazon USA via printful. As i am based in the UK do i need to submit any forms or tax to the IRS in America? Or because i am only drop shipping and not storing stock in the USA i am exempt from that and only need to pay my local UK tax?

  3. Emi

    Hello. I’m from Romania looking to sell with printful via dropshipping in Europe and USA. I won’t focus on some specific zones. How should i pay taxes? I want to work alone by myself.

  4. Herbert Aguilar

    Hello, im from El Salvador (a latin american country outside US).
    I want to dropship with you guys and i cant find information on what taxes or fees do i have to pay. Could you please help me out, i dont want to be surprised with legal actions for doing something i dont even know.
    Please help, thankyou

  5. Amy

    Hello! I’m from Colorado. I was curious, the article says something about a sales permit. Would I need one to sell items because of the chance my item would be bought by someone from Cali? Thanks

  6. Angelo

    Bonjour,
    Je viens de Suisse et pour l’instant je veux vendre seulement en Europe via le depôt que printful à en Europe mais pour l’instant seulement dans 2-3 pays. Est-ce que cette article me concerne ?

  7. Alexander Coss

    Hi,

    Thanks for this article. I understand that Printful recently added many more states as a Nexus. What is not clear is how I should configure my Shopify platform to make sure I collect taxes from my customers to offset what Printful is charging me. Do I manually add each state Printful is collecting tax from as though it is my Nexus as well?

    Best,

    Alex

  8. Crystal

    Hello,

    Printful has been charging sales tax on orders from customers in MD where I have nexus. I have not submitted my resale certificate to them yet. Am I still responsible for paying the sales tax this quarter? I figured that I would not be responsible since Printful has already paid it since they charged me sales tax.

    1. Mitch Stepanuks

      Hi Crystal,

      I’m not a tax expert, so I can’t give any specific legal advice.

      If you have nexus, you still need to collect sales tax, it doesn’t matter whether Printful has collected tax. Send us a resale certificate for MD, and we will stop collecting tax those sales.

      Hope this helps!

  9. Grace Guo

    Hi,

    Thanks for this article. Would I be considered having nexus in NC and CA if I use Printful for printing and shipping ONLY? Your advice would be highly appreciated.

    1. Mitch Stepanuks

      Hi Grace!

      Printful’s fulfillment centers don’t give you nexus unless you are using them for Warehousing and Fulfillment.

      I hope this helps!

  10. Ahmed aladawi

    Hello I want to start a business on Etsy and printful and I don’t leave in the u.s and in my country (Qatar)we don’t have tax so how can I can I pay tax or do I even have to please help me out

1 2 3 4

Leave a Reply

Your email address will not be published



Back to All posts

Ready to try Printful?

Connect to an ecommerce platform or make an order

Get started
shares