5 replies to this topic

[mark754]

I'm planning to do a site which will list products from other companies who will drop ship orders that we forward to them. We will not take possession of any inventory and will act essentially as an online sales agent for the drop shippers.
We will receive the money from customers and pay the drop shippers a wholesale price for each transaction.

I'm wondering if we would be liable to withhold and pay sales taxes on this. Normally, this would be dictated by "place of business" but in this case you could say it's a gray area, since our involvement is basically in cyberspace. The site won't even be run from a single location (for example, the webmaster might travel out of the country and run it from anywhere online).

Also, has anyone incorporated their e-comm business offshore for tax purposes? Are there any legal/tax risks to doing this?

Edited by mark754, 10 March 2004, 02:22.

[charlieworks]

I am doing the same thing. I am going to be running a business with dropshippers. I would like to know the answer to this question also.

[ChateauChabot]

I'm not sure about the legalities, but I do know that when I drop ship to a customer who is located in the same state as my supplier, the supplier charges me tax. Essentially, I think it's because the transaction is happening in the same state, so I would think you should collect the tax, if you are being charged the tax (unless it's small enough you can afford to absorb it into the price).

I do know that if you reside in x state and you physically sell an item in the same state you are to collect and pay sales tax. Again, I don't know the rules for internet and "mail order" sales anymore. I was still under the impression that mail order sales are not taxable unless the customer resides in the state where the company is doing business.

When you register your "business" be it, physical store, mail order, internet, etc. they get an address from you. I think they would base your "location" off of that address unless you can prove that you don't do business there or from there. For example, I work online from my home, but I also sell at flea markets out of state. I only collect tax from people who live in my state and not at all when I sell at the market because there is no business relationship with the 2nd state. I'm not sure if this is legal, but the requirements of the market do not tell me I need to have a license to sell there...

Not sure if I added anything to this or just made it worse, LOL. In anycase, I too would love to know the "legalities" of doing business online (if there are any in place yet). I think it's still a grey area and the states/feds are trying to figure out how to tax it.

I look forward to further replies.
AJ
Chateau Chabot... Confections & More!!
http://chateauchabot.com

[mark754]

I have some products on my site where all we do is process the payment, then send the order to the vendor, who ships it out to the customer. We never take physical possession of these products. In this case should we collect any sales tax at all? If not I guess I should put some sort of statement on the website telling customers that it is their responsibility to pay sales taxes on it, if they live in the same state as the vendor who shipped it to them?

I just want to be sure we're covered so the tax auditors won't come knocking one day

[only2empires]

I'd like to contribute what I recently discovered in my state of Louisiana regarding taxes. I'm not sure other states are run the same way though.

What I do is purchase my products direct from manufacturers and have them dropshipped to my resale customers (retail stores or internet merchants). In the beginning, I was required to charge all in-state customers state sales tax since I did not qualify for a "W" number (as Louisiana calls it). Once I qualified for my "W" number, I received my own Certificate of Resale forms. Now that I have qualified (based on the volumn of sales I have had), I am still required to charge all in-state customers state sales tax UNLESS they can provide me a copy of their Certificate of Resale exempting them from paying advanced sales tax to me. This passes to them collecting the state sales tax from their customers, the end user. If I sell to an end user in my state, I am required to collect sales tax from them. I am not required to collect tax on out-of-state resellers or end users.

I still have to report all out-of-state and in-state sales totals to Louisiana, however there is a line on the form for Sales to registered wholesalers. My Gross would be the total amount, and then the breakdown starts:

Sales to Registered Wholesalers (companies that provide Cert of Resale)
Other totally tax-exempt sales

If my total sales were $2,000.00 for the month and $200.00 of that was sold to resellers with Cert of Resale for Louisiana and $300.00 from other LA companies not tax exempt yet or end users, I would only have to pay taxes on the $300.00. The $200.00 sales are the responsibility of the business I had sold the products to for resale to pay taxes on when the products are sold.

Having qualified for the Certificate of Resale myself, there is an added benefit. Manufacturers that charge me tax for dropshipping to a business within their state, I am now able to report those sales to get a Sales Tax Credit (a percentage back of what I was charged in taxes by another state).

If the manufacturer resides in Louisiana, I give them a copy of my Certificate of Resale, which allows my company to be exempt from paying advanced sales to tax to them.

So, depending on the state you reside, there may be different rules. Call the Sales & Use Tax division of your state for information on reselling your products to a reseller.

[cdi-buy.com]

Quote

I guess I should put some sort of statement on the website telling customers that it is their responsibility to pay sales taxes on it, if they live in the same state as the vendor who shipped it to them

Your customers aren't going to know ahead of time where these vendors are for their particular order, are they?