Why do I need to collect sales tax for a drop shipping vendor of mine?


R

Ron

I have an internet related sales tax question, that I am
hoping you can answer and refer me to some substantiating
documents.

I am an internet reseller with a ny state corp. I sell to
customers in all 50 states. I only collect taxes for those
customers residing and ordering in ny state. I only have a
physical presence in ny.

Now my manufacturer, whom I buy products from, drop ships
all my products for me. They have a physical presence in
multiple states, including FL and CA. They are a sales tax
vendor in these states and collect sales tax and pay in
these states. They tell me that when they drop ship
products for me to my customers who have ordered from me to
these states, they have to charge me sales tax, even though
I don't collect it.

Is this true? Why?

Thanks
 
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C

Christopher Green

I have an internet related sales tax question, that I am
hoping you can answer and refer me to some substantiating
documents.

I am an internet reseller with a ny state corp. I sell to
customers in all 50 states. I only collect taxes for those
customers residing and ordering in ny state. I only have a
physical presence in ny.

Now my manufacturer, whom I buy products from, drop ships
all my products for me. They have a physical presence in
multiple states, including FL and CA. They are a sales tax
vendor in these states and collect sales tax and pay in
these states. They tell me that when they drop ship
products for me to my customers who have ordered from me to
these states, they have to charge me sales tax, even though
I don't collect it.

Is this true? Why?
States differ as to what they consider "nexus" or "physical
presence" for the purpose of their sales tax rules. These
rules come into play when you don't have a physical presence
yourself, but you have a relationship with a party that
does.

Florida and California are especially aggressive at
collecting sales tax from drop-shippers (such as you use
there) shipping to in-state customers at the direction of
out-of-state principals (such as yourself).

If your drop shipper is paying sales tax, he can bill you
for it, and you have to pay him. If you don't want to be out
the sales tax, you will need to set up to collect sales tax
from your customers in these states.

It would be a good time to get yourself to an accountant and
maybe a lawyer who know 50-state sales tax issues.
 
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D

D. Stussy

Ron said:
I have an internet related sales tax question, that I am
hoping you can answer and refer me to some substantiating
documents.

I am an internet reseller with a ny state corp. I sell to
customers in all 50 states. I only collect taxes for those
customers residing and ordering in ny state. I only have a
physical presence in ny.

Now my manufacturer, whom I buy products from, drop ships
all my products for me. They have a physical presence in
multiple states, including FL and CA. They are a sales tax
vendor in these states and collect sales tax and pay in
these states. They tell me that when they drop ship
products for me to my customers who have ordered from me to
these states, they have to charge me sales tax, even though
I don't collect it.

Is this true? Why?
Because they are acting as your agent, and thus, you have a
nexus for sales tax purposes that makes you liable - as if
you were present in those states yourself.
 

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