Dropshipping is a popular business model that allows entrepreneurs to sell products without having to stock any inventory. Many people wonder if they need to pay tax when they are dropshipping.

The short answer is usually no. Most states have sales tax exemptions for purchases that are intended for resale. This means that if you purchase products from a dropshipping supplier for the purpose of reselling them, you do not need to pay sales tax on those orders.

How to Take Advantage of the Exemption

In order to take advantage of the sales tax exemption, you will need an official exemption certificate. This is also sometimes referred to as a resale certificate. This document will allow you to purchase items from your dropshipping supplier without paying sales tax.

You will need to obtain an exemption certificate from your state’s Department of Revenue. The requirements for obtaining the certificate may vary from state to state. Once you have obtained the certificate, you will need to provide it to your dropshipping supplier in order to take advantage of the exemption.

What Happens if You Don’t Have an Exemption Certificate?

If you do not have an exemption certificate, you may still be able to purchase items from your dropshipping supplier without paying sales tax. However, this will depend on the laws of your state. In some states, you may be able to purchase items from your supplier without paying sales tax if you are able to provide evidence that the items are intended for resale.

In other states, however, you may be required to pay sales tax on your dropshipping purchases even if you are able to prove that the items are intended for resale. It is important to check with your state’s Department of Revenue to find out what the specific requirements are in your state.

Summary

In most cases, you do not need to pay sales tax on orders you make from your dropshipping supplier. This is because there is a sales tax exemption for purchases intended for resale. To take advantage of this exemption, however, you will need an official exemption certificate. The requirements for obtaining this certificate may vary from state to state, so it is important to check with your state’s Department of Revenue. In some cases, you may be able to purchase items from your supplier without paying sales tax even if you do not have an exemption certificate.

3 Sept 2020