How Do Taxes Work With Dropshipping?
While setting up your taxes for your store is not the most exciting part of running your business, it's important that you take some time to ensure taxes are setup properly in your store. This article primarily focuses on sales tax, which is a single type of tax that is applied during the sale of a goods or service. Please note, there are other taxes (income tax, payroll tax, etc.) that you also may have to pay.
Please Note: Taxes work differently in different locations and depending on your specific situation. We strongly recommend you work directly with a tax expert to ensure your taxes are properly accounted for and filed. Nothing in this article should be taken as tax advice from a tax expert.
How sales taxes work within the United States
Sales taxes are applied during the purchase of a good or service. Within the United States there is typically a sales tax set by each state and in some cases cities, counties, or municipalities, within states. The State and local taxes work in aggregate, meaning you are responsible for the sum of the State & Local tax. The tax is applied based on where the transaction took place. For online transactions, this is typically the shipping address where your order will be sent to. However, in most cases you are only responsible to collect taxes in the jurisdiction where your business has a presence, also called a Nexus. It's very likely that you will be responsible to collect taxes in the state that you live, because having an employee in a state is typically enough to have a Nexus in that state.
For example, if you are located in the State of Oregon, it's likely you will need to collect Oregon state sales tax. Some simple online research will help you find the correct tax amount for your state and local regions.
Taxes and your dropshipping business
As your dropshipping partner, we are also required to collect taxes for orders that we ship based on where Apliiq has a Nexus. Currently, we are located in Los Angeles, CA and so we are required to collect sales tax for any shipments going to the State of California.
Apliiq does not charge tax on any order that is shipped outside California.
Apliiq is required to collect sales tax on any order that is shipped to any address in the state of California. The tax rate is based on the California state tax rate (currently 7.5%) plus the local district tax rates which varies depending on the country (ranges from 0%-2%).
If an order is shipped within California, Apliiq automatically charges the tax amount based on the shipping address of your customer and the total amount for the order.
We recommend you setup your store to also charge CA sales tax in addition to the sales tax of the State you are located in. This way you are collecting a similar amount of sales tax as you are paying, and taxes will not impact your stores profitability. If you are based outside of California, you may also need to setup sales taxes for other states where you have a physical presence.
Think you were charged the wrong amount in taxes?
The most common misunderstanding regarding the amount of tax due is applying the sales tax to your dropshipping cost (what Apliiq charged you), versus the dropshipping price you charged your customer. Apliiq is required by law to charge tax based on the amount you collected from your customer, not the amount Apliiq charged you to fulfill your order.
In the unlikely event that the total sales amount is not available, Apliiq will charge tax based on the dropship price +10% as required by the state of California. You can find more information on California taxes
here.
We can also waive California sales taxes on all your orders by providing a California Reseller's Certificate.
Learn how to get this setup for your account here.
For international orders, your customers are fully responsible for taxes, customs fees, import duties, that may be required for them to receive their order. We will not refund, remake or reship orders when a customer fails to pay duties or taxes.
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