What if I use a drop-shipper?

Questions to Consider

1.) What is a drop-shipper?

Drop-shipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer.

The biggest difference between drop-shipping and standard retail is that with drop-shipping the selling merchant doesn't stock or own inventory. Instead, the merchant purchases inventory as needed from a third party (usually a wholesaler or manufacturer) to fulfill orders.

 

2.) Do I have nexus in the state(s) where my drop-shipper is located?

Unfortunately, there is not a single correct answer to this question. It depends on too many variables specific to your business - e.g. where you're based, where your drop-shippers are based, where your employees live, the dollar-value of your sales in a given state, the number of transactions you have in a state, etc. Please ask your tax attorney or accountant to provide guidance on where you have nexus, and whether you have to collect sales tax in a given state.

 

3.) All the drop-shippers I use are based in Streamlined states. Can I collect and file in only those states, or do I have to participate in the Streamlined program?

TaxCloud will file and remit your sales tax returns for free in all 24 Streamlined states (including the ones where your drop-shippers are located) if you decide to participate in the Streamlined program. TaxCloud can offer its service for free because the 24 Streamlined states pay TaxCloud for the funds it remits on merchants' behalf.

Alternatively, you can select individual states where you want TaxCloud to calculate tax, but then our service is not free. The cost depends on the number of states and whether TaxCloud is file/ remitting for you, or merely providing the sales tax amount to collect at the moment of sale (in which case you'd file yourself).

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