Ecommerce tax for dropship companies

[Mangelo12]

What is the name of your state? IL

Hi guys,
I'm just starting an e-commerce business and had a question - If I'm running my business from Illinois, but my dropshippers are in other states, do I charge sales tax from IL or the state the products originate from? Any help would be greatly appreciated. Thank you.

[anteater]

Originally Posted by Mangelo12

What is the name of your state? IL

Hi guys,
I'm just starting an e-commerce business and had a question - If I'm running my business from Illinois, but my dropshippers are in other states, do I charge sales tax from IL or the state the products originate from? Any help would be greatly appreciated. Thank you.

The states into which the sales are made.

[LdiJ]

Originally Posted by anteater

The states into which the sales are made.

I am not sure that I agree...or rather, I don't think that your answer was clear.

In a drop ship situation the customer is the person on whose behalf the shipment is made. That customer may or may not be a wholesale customer and therefore sales tax may or may not be an issue.

If the actual customer is charging sales tax to the end user (or SHOULD be charging sales tax)....then its a wholesale sale, regardless of the state where the sale is completed or shipped.

[anteater]

Originally Posted by LdiJ

I am not sure that I agree...or rather, I don't think that your answer was clear.

In a drop ship situation the customer is the person on whose behalf the shipment is made. That customer may or may not be a wholesale customer and therefore sales tax may or may not be an issue.

If the actual customer is charging sales tax to the end user (or SHOULD be charging sales tax)....then its a wholesale sale, regardless of the state where the sale is completed or shipped.

Actually, I thought that I would take a swat for ignoring the elephant standing in the corner of the room: who is required to collect/pay the sales tax?

I think that we are saying the same thing, but I thnk of it in different terminology. Or you are looking at it from the manufacturer/distributor's view, while I am looking at it from the OP's view. The OP is the seller. The OP has a customer wishing to buy something from the OP. Since the OP does not maintain inventory, the OP sends an order to manufacturer/distributor with direction to ship to OP's customer. At the end of the day, the state where OP's customer takes delivery is going to want someone to fork over that state's sales/use tax. (Assuming that OP's customer is the end user and does not provide a resale certificate.)

Since the OP is reselling the goods, a resale certificate from OP to the manufacturer/distributor would take care of the manufacturer/distributor's state. Most of the manufacturer/distributors involved in ecommerce/drop ship type businesses seem to have that down.

When last I actually had to worry about the details of this stuff (thankfully past tense), states were all over the place concerning who had what kind of nexus in these 3 party transactions. Last I knew, the Streamlined Sales Tax Project was trying to get uniformity ont hese kind of questions, but I have not stayed up to speed on where that effort stands.

[LdiJ]

Yes, I was looking at it as though OP was the distributor....rather than the customer of the distributor.

[tranquility]

They're still working on it.

I'm not sure they will be successful without substantial changes in the law regarding sales tax. The only proposal I've seen that even looks possible has a single clearinghouse for collections which disburses to the states. A big ol' government database with billions of dollars flowing through it keeping a record of everyone's purchase. That's going to be a hard sell.

The states are crying. The internet did change everything. Courts are not finding nexus just because something was sold to a person in a state. Things will have to change as the internet becomes more prevelant in the sales of goods.

[LdiJ]

Originally Posted by tranquility

They're still working on it.

I'm not sure they will be successful without substantial changes in the law regarding sales tax. The only proposal I've seen that even looks possible has a single clearinghouse for collections which disburses to the states. A big ol' government database with billions of dollars flowing through it keeping a record of everyone's purchase. That's going to be a hard sell.

The states are crying. The internet did change everything. Courts are not finding nexus just because something was sold to a person in a state. Things will have to change as the internet becomes more prevelant in the sales of goods.

The way things are now the major stumbing block is the overall cost of enforcing sales tax over state borders.

It would be ungodly expensive for companies to have to collect and disburse tax for all 50 states....it would be equally expensive for the national clearinghouse that you mentioned. It would also be equally expensive for companies to have to issue some form of tax document for each customer to identify purchases and whether or not sales tax was paid.

Its virtually a no win situation.

About the only solution would be for all states to abolish sales tax, and for there to be a federal sales tax that is distributed to the states under some formula....but even that could be prohibitedly expensive.

[tranquility]

I agree the cost is a major factor in any decision made. Compliance is also a major factor. Let's face it, we really don't need a new set of laws or procedures--most sales tax law is combined with a use tax. Everyone should just be reporting the things they buy without paying the tax and then pay the state their share. Heck, some states have a little box on the personal return to put in the figure in order to make it easy. "Problem" solved!

(wait for laughter to die down)

However, I've always thought nexus was the difficult issue. Why would a person in pago-pago who serves electrons through the world without doing anything to specifically target a person in podunk have to file and pay over some amount of money to podunk's government? Set aside jurisdictional issues (not easy to do I admit), why should pago-pago paul give a rat's behind what podunk wants? Especially when the highest court in podunk's land has determined there is no nexus--even if one were to have a huge warehouse of catalogs in podunk which is going to be sent to all of podunk's finest residences. Catalogs with the stated goal of getting podunkians to buy a lot of pagostuff.

The argument against a federal VAT-type tax to replace sales tax comes from federalism theory. The states don't want the feds to take a cut. Because when the money flows through the feds, there is always room for mischief on how it will be paid to the states. The power to tax is power no one gives up easily.

[anteater]

Originally Posted by tranquility

I agree the cost is a major factor in any decision made. Compliance is also a major factor. Let's face it, we really don't need a new set of laws or procedures--most sales tax law is combined with a use tax. Everyone should just be reporting the things they buy without paying the tax and then pay the state their share. Heck, some states have a little box on the personal return to put in the figure in order to make it easy. "Problem" solved!

(wait for laughter to die down)

Gee, I'm glad you included that last line. I was beginning to think that you must be one of them thar revenooers.

[abezon]

Originally Posted by Mangelo12

What is the name of your state? IL

Hi guys,
I'm just starting an e-commerce business and had a question - If I'm running my business from Illinois, but my dropshippers are in other states, do I charge sales tax from IL or the state the products originate from? Any help would be greatly appreciated. Thank you.

You'll need to collect sales tax for any customers who take delivery in a state where you have a 'fixed base'. For you, this is probably only Illinois. Customers in other states have a duty to file a "use tax' return & tell their state revenooers how much they spent on stuff shipped into the state & pay their local sales tax as if they had purchased locally. And if you think eBay-ers & people who order from catalogs tally up all their out of state purchases & send in a check once a year, I have a nice bridge to sell you. Barely used. Excellent investment opportunity.

[anteater]

Originally Posted by abezon

......I have a nice bridge to sell you. Barely used. Excellent investment opportunity.

Do I have to pay sales tax on that?

[zoom]

Is this article correct regarding sales tax?
[url]http://www.nolo.com/article.cfm/objectId/87F6DD43-E6F2-4DFE-BCDB8E2E85DFF80B/catID/4EE6A6F9-FECA-4AF7-A0E454029D2AEA58/111/277/167/ART/[/url]

I have the same question as the OP, still looking for an answer. I am in Texas.

[LdiJ]

Originally Posted by zoom

Is this article correct regarding sales tax?
[url]http://www.nolo.com/article.cfm/objectId/87F6DD43-E6F2-4DFE-BCDB8E2E85DFF80B/catID/4EE6A6F9-FECA-4AF7-A0E454029D2AEA58/111/277/167/ART/[/url]

I have the same question as the OP, still looking for an answer. I am in Texas.

Yes, I would consider that article to be accurate.

However, for future reference, next time you have a question, please start your own thread, rather than resurecting a very old one.

[FlyingRon]

Situs may be granted to the state because the drop shipper itself has situs there. You need to be careful. Usually these "fleece the ebay moguls" type dropshippers will provide that information.