Small Business Owners Guide to Dropshipping Taxes 2025

Be sure to read reviews, ask for samples, and communicate directly with potential suppliers to ensure they meet your standards. In Utah, you reach it when you have $100K in gross sales OR 200 transactions. For instance, in New York, you reach it when you have $500K in gross sales there AND at least 100 transactions. We highly recommend discussing your specific tax obligations with do you pay taxes on drop shipping your tax professional.

Do you have to collect sales tax in drop shipping transactions?

The process of obtaining a tax ID varies by state, so it is important for drop shippers to research the requirements in each state they do business in. Being knowledgeable about multistate regulations is vital for any drop shipping business operating across state lines. This includes contra asset account understanding nexus, a term describing a connection between a seller and a state, triggering sales tax obligation. The Multistate Tax Commission (MTC) is an organization that helps streamline tax regulations across states.

The Role of Suppliers in Drop Shipping

Since you’re not buying in bulk, you’ll likely bookkeeping for cleaning business pay more per unit, which can eat into your profits. Additionally, the competitive nature of drop shipping means you’ll often have to lower your prices to stay competitive, further reducing your margins. If your target market is in the U.S., working with a domestic supplier can reduce shipping times and costs. On the other hand, international suppliers might offer lower prices but could lead to longer delivery times and potential customs issues. First, you set up an online store and list products from your chosen supplier. When a customer places an order on your site, you forward the order details to the supplier.

Should I charge tax on Shopify dropshipping?

It is typically collected by the seller and remitted to the state. Contact us today to learn more about how we can help you achieve full tax compliance. Most consumers aren’t aware of this, and sometimes it’s not enforced very aggressively. However, this is changing, and enforcement around online purchases has been growing in recent years. The supplier retrieves the order from their inventory, packages it, and ships it to the customer. But, as we’ve often found with anything sales tax-related, there’s a wrinkle.

Drop Shipping: Simple Yet Complex for Sales Tax

That’s because there’s usually a sales tax exemption for purchases intended for resale. BUT to take advantage of this exemption, your business needs an official exemption certificate. A resale certificate allows a retailer to buy products to resell without paying sales tax on those products. As a retailer, you can present your resale certificate to your vendor to let them know that they aren’t required to collect sales tax from you.