Tax concerns - UK-based and drop shipping to US only using US suppliers

DropFin
Tourist
5 0 1

Hi there,

I'm wondering if someone might have some insight into the tax obligations in this scenario?

I'm looking to do drop shipping in the US only using Spocket's US suppliers (no customs duty). I'm UK-based and a UK tax payer.

My understanding is that I'll be paying tax on my UK income only and don't have to worry about US sales taxes.

However, if the product is stocked and despatched by Spocket's US supplier and it happens to be in the same US state as the customer, I'm unsure if I'm liable for some sort of tax.

It might be that the supplier deals with it. I have contacted Spocket, but get an unclear reply, I guess my scenario is overly taxing (sorry!)

I don't think I have to be concerned with US taxes using US Spocket suppliers, but would be great to have some confirmation.

If anyone does something similar, I would appreciate any information.

All the best!
Fin

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Victor
Shopify Staff
Shopify Staff
894 78 219

Hi @DropFin,

Thank you for getting in touch and for asking your question. I'd be happy to offer some advice but I'll start by saying Shopify is not able to confirm what your tax obligations are, and we would always encourage merchants to seek out a tax professional if they're needing confirmation on anything tax-related.

My understanding is that no, as you've said, you won't be required to pay any sales taxes to the UK tax authorities on sales you make to the US. However, whether or not you need to pay and remit sales tax in the US depends heavily on whether or not you are deemed to have a tax nexus in any US states. If Spocket has a warehouse in the US and you are using that warehouse to ship your products from, this may constitute as a tax nexus for your business and you'd then likely need to register for sales tax in the state the warehouse is based in. My recommendation would be to ask Spocket where their warehouse(s) are based, and once they have confirmed this, to then check the state-level tax nexus laws for the state(s) in question. This should give you a clearer idea of whether or not you would need to register for tax in any US state, and then whether or not you'd need to charge sales taxes to your US customers.

I hope that explains things better for you, but please let me know if you have more questions.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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DropFin
Tourist
5 0 1

Hi Victor,

Thank you so much for the considered reply. That is very helpful.

I've contacted Spocket. They're unable to tell we where their warehouses are based, but tell me to get tax advice.

I cannot get tax advice without knowing about the warehouse locations... I did contact my UK accountant who also seems confused and I'm blocked at the moment.

Surely there are UK-based drop shippers out there using US Spocket suppliers.

If anyone out there could give me advice or refer me to someone in the UK who might be able to help, I would be very thankful.

All the best!
Fin

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TeamSpocket1
New Member
2 0 2

Hi Fin!

I understand that taxes and dropshipping can be a big confusing, but hopefully I can help you here

As a rule of thumb, it's most often the end customer who is paying consumption tax (GST, VAT, sales tax). 

My understanding is that you are a retailer in the EU. Therefore, whether or not you need to charge sales tax in the US, and VAT in the EU depends on a few things:

  1. In the United States, you must charge GST when you have sales nexus in a particular state. Typically you must meet a threshold of sales in order to have sales nexus. Since you are just starting out, it doesn't sound like you have sales nexus and therefore won't be required to collect and remit taxes on your US sales. Here's an article on sales nexus: https://quaderno.io/blog/definitions-the-various-us-sales-tax-nexus/
  2. In the EU, it depends on whether your business is located in the EU or not. If your business is located in the EU then you must charge VAT on each EU sale. But the tax rate depends on how much you sell annually. There are “distance selling thresholds,” which dictate whether you charge the tax rate of your home country or the customer’s country.

In summary, taxes are confusing because it entirely is dependent on your scenario. However you are not required to pay any VAT to Spocket suppliers, but you are required to charge your end customers VAT and remit that. If you need your invoices for what you're paying to your suppliers for every order, you can download them from your Spocket dashboard through the steps in the article here.

Meanwhile, if you could chat with us or send us an email at support@spocket.co, we can give you our supplier's warehouse location (state).

I hope this helps!

Victor
Shopify Staff
Shopify Staff
894 78 219

Hi @DropFin,

It looks like @TeamSpocket1 have replied above and encouraged you to reach out again, so hopefully they'll be able to assist moving forward and can provide more information about their locations. In terms of getting tax advice re: selling into the US, you may wish to speak with a US-based tax professional who will know more about tax registration and charging sales taxes in the United States, rather than one in the UK. You can view some US-based tax consultants here on the Shopify Experts marketplace.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
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DropFin
Tourist
5 0 1

Hi @Victor and @TeamSpocket1 

Thank you for the information and helpful links. It's much appreciated.

I've contacted Sprocket using their online chat. They can give me the state location of where a warehouse is based if I give them the names of the individual suppliers.

I'm thankful for their response, but will first contact a US tax professional to see if they can help give clarity on the requirements I need.

Thank you again for your help.

Kind regards!

Fin

Victor
Shopify Staff
Shopify Staff
894 78 219

Hi @DropFin,

Superb stuff! I'm glad to hear that you've found a way of determining where your suppliers' products are shipped from, and that you plan to contact a tax professional about this. They'll be able to confirm your obligations when selling in the US and you can then move forward with your business with the confidence that you've set up everything correctly.

Thanks again for getting in touch and please let me know if you have any questions moving forward.

Kind regards,

Victor | Shopify Social Care

Victor | Social Care @ Shopify 
 - Was my reply helpful? Click Like to let me know! 
 - Was your question answered? Mark it as an Accepted Solution
 - To learn more visit the Shopify Help Center or the Shopify Blog

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