Drop Shipping
Category: other
A retail fulfillment method where the seller doesn't hold inventory but ships directly from supplier.
Drop-shipping is a fulfillment model where the seller does not hold inventory but instead transfers customer orders to a third-party supplier or manufacturer who ships directly to the customer. For tax purposes, drop-shipping creates complex nexus questions depending on the location of the supplier, seller, and customer. Sales tax obligations vary by jurisdiction and the specific roles of each party in the transaction.
Examples
- • A US-based Shopify drop-shipper selling products from a Chinese supplier to California customers must collect California sales tax.
- • Drop-shipping from a US-based supplier may create nexus for the seller in the supplier's state, depending on the specific arrangement.
- • Marketplace facilitator laws in most US states mean that if a drop-shipper sells through Amazon, Amazon handles sales tax collection.