Sales tax glossary
What does drop shipping mean for sales tax?
Drop shipping, for sales tax, is a sale where a retailer takes the customer's order and a third-party supplier ships the item directly to the customer. It involves three parties and two sales, which raises questions about who collects tax and whether the retailer's resale certificate is valid.
Full guide: Dropshipping and sales tax: a complete guide
Example
A retailer sells a lamp to a customer in another state, and the manufacturer ships it. If the retailer can't give the manufacturer a resale certificate that state accepts, the manufacturer may have to charge the retailer sales tax.
Why it matters for sellers
Drop shipping can create tax on the wholesale sale as well as the retail one. Some states don't accept out-of-state resale certificates, so suppliers and retailers should confirm what each delivery state requires.
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Related terms
This definition is general information, not tax or legal advice. Rules vary by jurisdiction and change over time.
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