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How to Pay Sales Tax when Dropshipping: How to Collect Sales Tax for Shopify & Amazon

How to Pay Sales Tax when Dropshipping: How to Collect Sales Tax for Shopify & Amazon



In this video you’ll learn how to pay sales tax when dropshipping, and how to easily collect sales tax for Amazon & Shopify.
Get free 30 day trial to TaxJar: http://wholesaleted.com/go/taxjar Get free 10k/month ebook: http://wholesaleted.com/4-step

Please note: this description contains affiliate links

Apply for resale certificates: http://wholesaleted.com/go/resale-certificate/

Please note: This advice should not be used in-place of a qualified accountant. Anyone running any business should seek the advice of an accountant.

Question: What taxes do I need to pay?

1) Income tax to your local governing body (if you live in Australia, you’d pay it to the Australian government, if you live in the USA you’d pay it within the USA etc).

2) Sales tax. In the USA, sales tax is collected by individual states, and NOT the federal government. You will usually pay a state tax + a local district tax + in some cases, a special tax.

In addition, some states are origin based (you pay the sales tax rate based on where the item is being shipped from) and some are destination based (you pay the rate based on where the customer is based). Destination based in tricker because the rate you collect/pay is always changing.

Question: Who has to pay sales tax when dropshipping – me, the dropshipper, or both?

First, determine whether you or your dropshipper has nexus in a state. Nexus is a legal term which means that your business has a sufficient physical presence in a state that means you need to collect and pay sales tax within it. Based on this, you’ll fit into one of 5 scenarios:

1) Your customer is based in Oregon, Delaware, New Hampshire or Montana
Congratulations! These states don’t have sales tax so neither you nor your dropshipper have any obligations to collect/pay sales tax for these customers.

2) Neither you nor your dropshipper have nexus in your customer’s state
Neither you nor your dropshipper need to collect/pay sales tax on these orders.

3) Your dropshipper has nexus in your customer’s state, but you don’t.
Some states will require that they collect sales tax. But, if you provide them with a resale certificate/license, this sales tax can usually be waived.

4) You have nexus in your customer’s state, but your dropshipper does not.
You need to collect/pay sales tax on the orders, not your dropshipper.

5) Both you and your dropshipper have nexus in your customer’s state
You’ll need to provide your dropshipper with a resale certificate/license. It means they can waive the sales tax on the order between the two of you, and then you’ll be required to collect it from the customer.

Question: How do I get sales tax waived?

If you’re eligible to have sales tax waived you’ll need to get a resale certificate/license to prove that you’re buying the items for the purposes of resale. SaleHoo have a great guide with links to how you can apply for each state’s resale certificate online: http://wholesaleted.com/go/resale-certificate/

Question: What is an easy way to collect sales tax?

I recommend that you use a service called TaxJar. Get a free 30-day trial here: http://wholesaleted.com/go/taxjar

For Woocommerce, they have a free plugin which when connected sets up your sales tax settings for you.

For Amazon.com it connects to your account to easily create reports that makes submitting your returns easy. In addition, if you’re selling on Amazon I recommend setting up their Amazon Tax Service. Here is how you do it:

Step 1: Login to your seller account.

Step 2: Click on settings and click “Tax Settings.”

Step 3: Click “View/Edit your Tax Collection and Shipping & Handling.”

Step 4: Choose how to manage your Product Tax Codes. To make it easy, you can select “Use Default Product Tax Code.”

Step 5: Specify your Tax Collection Obligations. TaxJar have a free cheat sheet you can download which tells you which boxes to tick.

TaxJar also connects to your Shopify account to make reporting easy. And be sure to set up your sales tax settings under the “Tax” option. Under physical presence, type in the state you have nexus in. If you have a physical address tied to your nexus, type in the ZIP for it too, and save that entry. Do this for each state. Shopify will now automatically add sales tax to each purchase in the states you have nexus in.

Question: How do I pay the sales tax?

You will need to file a report with each state and outline how much money goes to each district, city etc. Because of all of the different district/special taxes this is a lot of paperwork. That is why I recommend you use TaxJar’s autofile feature, which will file and pay your sales tax returns for you in 37 states. Remember, you can get free trial here: http://wholesaleted.com/go/taxjar

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49 thoughts on “How to Pay Sales Tax when Dropshipping: How to Collect Sales Tax for Shopify & Amazon

  1. Elbert Ramos

    Great explanation. I love how you dive deep on each topic, but the best is that you gave the information on where to get help. One last thing, Where id the link for the ebook you and your team are giving away for free?
    Thank you

  2. Leigh King

    This is an excellent beginner explanation. One thing that should be re-iterated, when she says close to the end of the video, if in doubt, go ahead and collect and remit the sales tax — it should be pointed out that you MUST be registered with the state to legally collect sales tax. If you collect sales tax and are not legally entitled to by that state to do so, you are committing fraud, so make sure you register first. If it's confusing, just keep researching and learning. There's tons of info and places to ask questions. It's not hard, but definitely overwhelming in the beginning as you start wrapping your brain around it. Otherwise, stop complaining about it. It's one of the costs of doing business. Complaining is unprofessional and makes you sound small time. Think big and don't complain or apologize for something that is just part of being in business, especially when you benefit from the effects.

  3. Claude Malagoli

    Thx for the info! I'm an Australian that has lived in Australia all my life (56 years). I recently moved to Italy and have become a citizen and hold 2 passports. Then my Shopify store is Online, do I base the store in Italy or Australia? Do I have sales go to my Australian bank account or set up an Italian bank account for sales? How does sales tax work with my situation? Do I pay tax in Italy or Austrlai when tax time is due? I'm not sure which way to go with my store before I go live!!! If you can help, I'd appreciate it.

  4. marcelo

    So I don't have nexus in any state in USA I'm located outside of USA, however, my dropshipping supplier is located in New Jersey. I'm confused to which customers I have to charge sales tax, or I don't need to charge sales tax at all?

  5. Henry Agbidion

    Hi Wholesale Ted, I live in the Netherlands. Please, how do I setup a strip atlas account in the USA as non – USA citizen? After setting up the strip atlas account, do I need to also pay taxes in the USA and also in the Netherlands? Or I choose where to pay my tax? Please, I will really appreciate if you can guide me through all this process. I just can't give up at this point. My website is ready, products uploaded the only things left is the strip account so that I can be able to process any type of payment in my online store. Thanks in advance!

  6. Marco Sosa

    This is very informative and my head hurts, but I am beginning to understand lol.

    So lets say I live outside the USA and I am not a US citizen (legal term: nonresident alien).
    1) I setup a sole proprietor LLC in the state of Delaware (they don't have sales tax)
    2) a customer from NY buys a product on my online store.
    3) My drop shipper does not have nexus in NY, nor do I. (lets say: Printful has nexus in California)
    ——————————————————————————————
    4) This means that I don't have to charge my customer NY sales tax?
    5) Do i need a resale certificate from NY? from California? from Delaware?
    ——————————————————————————————
    6) Do i need to pay income tax?

  7. pepe TZ

    So if I understood correctly, if I'm dropshipping from Aliexpress (china) to only USA customers, and I live in UK, I don't have to worry about taxes as neither me or the dropshipper have nexus in any state? Can someone clarify this to me please? I will be very grateful ! thanks guys!

  8. Zerg Cerebrates

    OK this is a big overwhelming. So let me see if I get this correctly, basically if you don't have a presence in your customer's state you don't need to collect sales tax from the buyer's state, but if your customer is located at the same state as you then you will need to collect sales tax from them? And the same principle applies to your dropshipper? So if your dropshipper has a presence in lets say the customer's state then the dropshipper collects the tax but you don't?

  9. Vincent

    We pay 21 procent just for sales tax in Netherlands but people are saying that if you dropship from china directly to the customer outside of your country of residence then you dont have to pay sales tax. Anyone have experience with this?

  10. Felipe Urzua

    Hi Sarah! Thanks a lot for your videos, they are very precise, with lots of tips and info that can make everyone confident enough to start a dropshipping or FBA business. I have only one question about this video, if I don't have a nexus (because I'm a chilean traveling), and my dropshipper is form China, do I have to charge any taxes or fees to my customers on my website? Looking forward to your response and thanks a lot!!

  11. Street Assassin

    I live in Texas. I hope it's not too difficult for me. If we hire an accountant, why would we have to worry? It's them that do all the calculating. We just keep records of every transaction, which is being kept track of by pay pal or stripe.? I apologize if I sound ignorant, I'm new to this. Any advice would be greatly appreciated.

  12. Coby Hudson

    A little tip: to save some $, use a book keeper and only use an accountant for final filings after your book keeper has it ready to go for them (a lot of bookkeepers out there with accountant qualifications but not yet active as full price accountants)

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