Dropshipping is a great way to start a business without having to worry about stocking or shipping products. It’s become a popular option for entrepreneurs looking to start a business with minimal overhead. But one of the questions that comes up a lot is whether or not dropshipping is tax free?
The short answer is, yes, dropshipping can be tax free in some cases. Usually, you do not need to pay sales tax on the orders you make from your suppliers. That’s because there’s a sales tax exemption for purchases intended for resale. BUT to take advantage of this exemption, your business needs an official exemption certificate. Also referred to as resale certificates.
What is a Resale Certificate?
A resale certificate is a document that allows a business to purchase goods or services without paying sales tax. Businesses use this certificate to prove to suppliers that they intend to resell the goods and services they purchase, rather than keep them for their own use. This allows them to avoid paying sales tax on the items they buy.
How Do I Get a Resale Certificate?
The process for obtaining a resale certificate varies from state to state. Generally, you will need to apply for a certificate from the state in which you live or do business. You can usually find the application for a resale certificate on the website of your state’s department of taxation or revenue.
What Do I Need to Know About Tax Liability?
Even if you have a resale certificate, you may still be liable for taxes in certain situations. For example, if you sell items in a state where you don’t have a physical presence, you may be required to collect and remit sales tax. Additionally, even if you have a resale certificate, you may still be responsible for collecting and remitting tax on certain items, such as shipping charges.
Dropshipping can be tax free, but you will need to make sure you have an official resale certificate from the state in which you do business. It’s also important to understand your tax liability, as you may still be responsible for collecting and remitting taxes in certain situations.
By understanding the tax implications of dropshipping, you can ensure you are compliant and avoid any potential penalties.