How to Charge Sales Tax When Dropshipping

Full Member
rookanga2000
Posts: 3
Joined: 07 Dec 15
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7 Dec 15 05:41:44 am
Im new to this and ive done research about this, but im still confused, some say that I need to collect sales tax if the customer buys from the same state as me, some say that I have to collect it on everything, some are even saying that if the drop shipper and the customer are in the same state and im in a different state that they are suppose to collect it, im confused on it all, I live in michigan, but I dont know if that helps, could someone help explain it to me, thanks

Site Admin
fudjj
Posts: 5909
Joined: 27 Jul 07
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7 Dec 15 08:34:07 pm
Hi Jared and welcome to the forum,

I'm not an expert in local Michigan tax laws, but I'm sure that the Michigan Department of Treasury would be able to tell you exactly what you need to know.

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Mark (fudjj)

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Site Admin
Rhea_SaleHoo
Posts: 260
Joined: 23 Mar 15
Karma: 
11 Dec 15 06:14:53 am
Hi Jared,

Let's break this down to help you understand better:

"some say that I need to collect sales tax if the customer buys from the same state as me"
-True. If your buyer is in Michigan, then you will have to collect sales tax from them. If your buyer is located outside of the Michigan state, then no need to charge them with sales tax.

"some say that I have to collect it on everything"
-If your drop shipper charges you with sales tax, then this should mean that either they're also located in Michigan, or that they have a physical store or office some place else. Let's just assume they charge you with sales tax. Your selling price to your customers will have to be computed this way:

Michigan customers: total dropshipper's product price (with sales tax) + Michigan sales tax + profit
Outside of Michigan customers: total dropshipper's price (with sales tax) + profit
Note: Shipping/handling rates will be charged separately.

"some are even saying that if the drop shipper and the customer are in the same state and im in a different state that they are suppose to collect it"
-Your buyers (from Florida, for example) will be buying from you so you will not charge them with sales tax. You will be buying from your Florida-based drop shipper (and not your buyer) so they (drop shipper) don't charge you with sales tax. Ergo, you will not charge your buyer with sales tax as you are the one purchasing the product for them indirectly. You are your drop shipper's sale. Your buyer is your sale.

I hope this helps clear out your concerns.

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