These two forms cover all but 10 of the states that have sales tax. You have registered for a permit in Kansas but you are a pretty new seller, and you don’t have nexus anywhere else. You don’t actually own the inventory, so you place an order with your dropshipper for your customer’s product. The Arkansas Department of Finance and Administration encourages Arkansas businesses to contact tax departments in other states “to determine if you have the requirement to collect their taxes.” It’s a good rule of thumb. Sales tax is not imposed on delivery services sold independently from the sale of the taxable goods. Determining tax liability and managing exemption documents can be a time-intensive process and requires a great deal of specialty.
Sales Tax Rates as of July 1, 2023
In the United States, sales tax is imposed on the final consumer. The retailer should be able to purchase items it sells exempt from sales tax under the resale exemption. The transaction between the seller and the customer is a retail transaction and taxed according to the nature of the goods purchased or the type of customer. The retail transaction is not between the manufacturer and the customer and therefore, the manufacturer should not be held liable to collect tax based on the retail price. The transaction between the manufacturer and the retailer is considered a resale transaction and should qualify under the resale exemption which applies in every US State. The data below provides a population-weighted average of local sales taxes as of January 1, 2025, to give a sense of the average local rate for each state.
State and Local Sales Tax Rates, 2023
However, there’s no sales tax on shipping if the product being shipped or delivered is exempt. An optional and separately stated shipping charge for taxable goods is generally considered nontaxable. Shipping for exempt transactions is also generally exempt from drop shipping sales tax Illinois sales and use tax. Hawaii’s general excise tax (GET) is a privilege tax imposed on business activity in Hawaii.
- If you have nexus in a state, you need to register for a sales tax permit and set up your channels to start collecting sales tax from your customers there.
- This is a change from previous editions, where we used figures available every decade.
- Typically in state to state transactions, sales tax is determined by the customer’s location.
- In the U.S., all sellers (whether retailers or drop shippers) are required to collect sales tax if they have sales tax nexus in the state to which the item ships.
- Absent a resale certificate or other specific exemption, all 45 states with a sales tax and the District of Columbia will tax drop shipments of retail sales of tangible personal property.
Retailer and Reseller Relationships
However, dropshipping complicates matters because you’re an intermediary. You collect sales tax from customers and pass it to the government. You may also be responsible for paying taxes on products purchased from suppliers. Sales tax is a percentage of each retail sale that goes to the state and local Certified Bookkeeper government.
If you still have lingering questions, you can speak with a vetted sales tax expert who can help you navigate drop shipping and sales tax. Book a free call with one of our sales tax experts to find bespoke solutions for your business, optimize your tax costs, and reach millions of new potential customers. Hawaii has the broadest sales tax in the United States, but it taxes many products multiple times Certified Public Accountant and, by one estimate, ultimately taxes 119 percent of the state’s personal income. This base is far wider than the national median, where the sales tax applies to 36 percent of personal income. Sales tax rates differ by state, but sales tax bases also impact how much revenue is collected from a tax and how the tax affects the economy.
Drop shipping is a great way for e-commerce businesses that have limited or untested inventory to expand their customer offerings. However, drop shipping can have an adverse affect on sales and use taxes and thus, negatively impact the return on investment. To calculate sales tax for drop shipped items, you need to determine the sales tax rate of the destination state and any applicable local taxes. This includes the state sales tax rate, plus any city, county, or district taxes.