Sales tax explained for new e-commerce businesses using drop shipping

New Member
3 0 5

Hey all,


I just started a t-shirt e-commerce company using a drop shipper (Printful, which does print-on-demand apparel). For context, I'm registered as a single-member LLC (which effects my cases shared below; your business structure might change your requirements).


The short story:  very small retailers (<$100,000 in revenue, or <200 different transactions) are exempt from collecting and remitting sales tax in states where they do not have a nexus.


In more detail, here's what I learned today:


  • Depending on the state where your business is registered and has an operational nexus, you might need to register for a sales tax permit. And, depending on your drop shipping partner, you might need to submit a resale certificate, so your drop shipping partner does not pass through sales tax to your business on the cost of each t-shirt. For my case, I am located in California, so I registered for a sales tax permit, then submitted a resale certificate to Printful. This way, Printful won't charge my business sales tax, and I only need to collect sales tax from the end customer and remit the collected tax to the state.
  • The Supreme Court ruled in 2018 that e-commerce companies can be required by states to collect and remit sales tax, regardless of whether the company has a nexus (aka physical presence, vendor relationship, affiliate, employees, etc.) in those states. However, there's an exemption for very small retailers (<$100,000 in revenue, or <200 different transactions). So, while you're getting started, you should not have to worry about collecting sales tax in a state other than where you business is located (unless you open another office in another state where you sell, or you have some other type of nexus, such as a vendor or affiliate relationship, or an employee based in another state). It's also important to note that while the Supreme Court said states could collect sales tax from online vendors, that states still need to enact legislation to put this collection practice into law—you'll need to research which states have already enacted legislation, once you've surpassed the revenue exemption threshold. For more context about the Supreme Court ruling, read: The Supreme Court Online Sales Tax Ruling: What Is It? How Does it Affect You?

Finally, obviously, I am not a tax expert, and my above comments should not be taken as legal advice, and I assume no liability for the comments above—as they say, you should consult a tax professional.

Anyway, I hope that's helpful! I spent about 6 hours researching today trying to understand whether I would need to collect and remit taxes to states other than where I operate. It shouldn't be that hard to answer that question, and so I am sharing here in hopes of paying it forward to other new business owners.

Shopify Staff
Shopify Staff
335 32 145

Hey, @majornorth!


May here from Shopify. Congratulations on starting your new business!


Thank you so much for sharing your knowledge with our community! It looks like you've done a very thorough research and I really appreciate you posting here with very thorough explanation, and even a disclaimer at the end of the post 🙂 I am sure other merchants here will find your post very helpful.


For other merchants that might see this, I also highly recommend consulting with a tax professional if you are still doubting whether or not you should charge taxes on your products, and the legalities tied to it. 


If you have any other questions, feel free to reach to us or our community here or contact our 24/7 support for a more immediate assistance.


Thank you again!

May | Social Care @ Shopify
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Shopify Expert
10 0 1

Hey @majornorth


I hope your business is going well. I realize this your post was from a year ago, but I thought this updated chart on economic nexus thresholds would help you and other sellers. Some states have removed the 200 transactions, but there are still 27 states that once you pass 200 transactions, you have created nexus

In regards to the dropshipping, that is where exemption certificates will come into play from your supplier. We are working on a new PowerPoint and video soon that will simplify this complicated part of the dropshipping equation. 


I hope this helps. 


Kind regards, 


Scott Letourneau 

Shopify Tax Partner 

New Member
1 0 0

If you are wanting to sell globally how can you find the individual tax % you need to charge and keep it up to date? 

I'm ready to start shipping but I'm stuck with this tax section..

3 0 1

THANK YOU so much for posting this. I have a small business making under 100K and under 200 transactions but I do work through Printful which charges sales tax if I have sale from California (where I do NOT live). So, from what you wrote, it sounds like I can 1) get a resale certificate for California so that Printful doesn't have to tax me (eat in to my sale profit), and then 2) not worry about paying any taxes to CA later.  Sound right? 

Shopify Expert
10 0 1

They are likely charging you sales tax because you have not provided them a resale or exemption certificate from California. Once you apply for a California exemption or resale certificate which requires registering for a sales tax permit you open up a tax account that requires you to file a sales tax return in California. Your return may be due on a quarterly basis (or monthly or annually) based upon your sales. If you are a legal entity the California franchise tax board will likely send you a notice to pay the $800 franchise tax fee. You may not receive this notice for about 18 months or longer. The other option is sales are low is to continue to pay the sales tax (even though it is necessary). Please check with your supplier before you register to clarify if provided them an exemption certificate will stop them from charging you sales tax. Some suppliers don't know what they are doing and don't care and just want to charge everyone sales tax.