If you’re a DS Domination team player and you’re wondering how to deal with sales tax, here’s a quick and handy tax guide for DS Domination members who’ve made money in the drop shipping business.
Drop Shipping & DS Domination
Drop shipping is used by an ever-increasing body of retailers who find it easier not to have to deal with inventory, warehousing, and custom products which are hard to keep in stock. Some companies like Digital Altitude offer coaching programs to get you started with your own drop shipping website. According to this popular DS Domination review, members facilitate drop shipping by negotiating connections between several online marketplaces such as eBay, Amazon, CostCo and more.
Many of the retail businesses who make use of the convenience of drop shipping are small businesses that don’t have much space for large amounts of inventory. Shipping costs for the consumer are also often reduced as a result of using drop shipping methods. Everybody wins, including the DS Domination representative who makes it all happen.
Taxes & DS Domination
While everyone wins because of convenience and cost effectiveness, the tax implications can sound quite confusing and scary. Considering sales tax and in some cases “use tax”, there are some details every DS Domination player should learn, or else risk issues with the IRS or with their state government come tax time.
If you take an order from a customer in a state with which you are registered, you as the retailer are required to collect sales tax on that transaction. If your shipper is registered in the state where the customer resides (i.e. where the package is being delivered), then in some cases the shipper must pay.
What State Do You Live In?
As a DS Domination seller, you become the retailer in any online transaction. So, if you’re selling to someone in your own state, then theoretically you are supposed to collect sales tax from that customer.
Likewise, even if you’re not selling to someone in your own state, your shipper might be registered in the buyer’s state, in which case they’ll be looking to collect. Your shipping price might need to be increased, to cover that shipper’s sales and use tax.
It all depends on what state you’re dealing with. Each state has its own theory on how sales tax with online sales should be treated. There are at 7 states where the shipper has the responsibility to collect sales and use tax: Wisconsin, Tennessee, Nebraska, Nevada, Rhode Island, Massachusetts, and California.
Often the way it works is the drop shipping company (UPS?) will charge you, the seller, for the sales & use tax. You would recover your costs in the appropriate manner from your customer (“shipping & handling charges”).
Someone Pays, No Matter What
Remember, someone pays the tax, no matter what. The “business relationship” with a particular state is called “nexus”. If you have just a warehouse in a state, then you have nexus with that state. When you sell to someone there, you’ll have to pay sales tax. If you don’t have any business relationship with the state in which your customer resides, you’re off the hook as far as sales and use tax go. That means it’s the customer’s responsibility.