Sales Tax for a Dropship Retailer

12 0 1

Does anyone know the tax laws for an online marketplace? Is the marketplace retailer required to collect sales tax based off where the orders are actually shipping from (via the drop shippers) OR are sales taxes still based off of the retailers physical location?

Shopify Partner
29 0 3

Hi David, 

Sales taxes are normally due at the point of sale.  A sale occurs when the ownership of the goods is transferred from the buyer to the seller.  Where that transfer takes place is usually covered in your terms of sale, under the description Freight On Board, (FOB).

If your sale is FOB at the shipping site (the Freight is On Board the carrier, at your drop shipper's dock) then the customer owns the shipment at that point, the sale is made, and the tax situation at that jurisdiction kicks in. Additionally, since the customer nows owns the goods, any issues with the carrier are the responsibility of the customer/owner.

If your sales are FOB the customer's dock, then the sale is made in the customer's jurisdiction, and local rules apply.

So you can adjust the location of the sale (and the taxes) by adjusting the FOB.

Since most governments cannot collect taxes on sales in other jurisdictions, you can usually avoid the obligation to collect taxes by making your FOB the customer's location. Assuming it is a different state, province, or country.

If you are operating in Canada, things are a little different, where federal HST regulations can cover more than one province.




New Member
3 0 0

In a drop shipment transaction, the retailer will not hold the inventory that is certainly delivered to the final consumer. Once your order is recognized, the retailer contacts the item supplier/shipper and asks the crooks to ship the goods straight away to the retailer's customer - the final consumer. The supplier/shipper can invoice the retailer - plus the retailer will bill the consumer it is important to note the express varies their rules if your seller has nexus within a state and has registered to get sales tax, they are necessary to collect sales place a burden on on all taxable product sales delivered into in which state.