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.
