We are a 501(c)(3) non-profit selling merchandise for the first time. Our merchandise is being made/stored/shipped through a third party company located in a different state. I understand this qualifies as drop-shipping. In a drop-shipping scenario, is that company considered a physical nexus for us? Do we need to register for tax liability in that state? Or is the expectation that the 3rd party company takes care of all that and would just request resale certificates for qualifying purchases?
Thank you for getting in touch with your question. This is something that may well depend on who your dropshipper is and where they are based, among other factors, so this is not something anyone from Shopify can answer for you directly.
Tax nexus laws do vary by state so I would first recommend looking into what the laws are in the state you operate in, and the state that the dropshipper’s warehouse is based in. I would also recommend contacting the third-party fulfillment service you’re using directly and asking them what they recommend; this might be a question they receive regularly and they may have guidance they can offer.
Ultimately though, if you are unsure of your tax obligations we would always recommend speaking to a tax professional for more information. Each merchant’s tax situation is likely going to be different as such speaking with someone who can offer professional guidance is suggested.
Nonetheless, Shopify does aim to help inform and educate merchants about managing their taxes and we do have plenty of resources you can refer to to learn more: