Dropshipping and Resale Certificates: What You Need to Know
Dropshipping is an attractive business model—you don't have to hold inventory, pack boxes, or manage a warehouse. But when it comes to sales tax and resale certificates, dropshipping creates some unique situations that every dropshipper needs to understand.
This guide covers everything you need to know about using resale certificates in a dropshipping business.
Dropshipping Business
How Dropshipping Works
Before diving into tax implications, let's clarify the dropshipping model:
- Customer orders from your online store
- You forward the order to your supplier
- Supplier ships directly to your customer
- You never touch the product
Despite never handling inventory, you are still the seller of record—which has important tax implications.
Do Dropshippers Need a Resale Certificate?
Yes, absolutely.
Even though you never physically possess the inventory, you are:
- Buying products from suppliers
- Reselling those products to customers
- The legal seller in the transaction
A resale certificate allows you to purchase from your suppliers without paying sales tax, just like any other retailer.
The Three-Party Transaction
Dropshipping creates a simple three-party flow:
- Customer places an order on your website
- You (the seller) forward the order to your supplier
- Supplier ships the product directly to the customer
Who Pays What Tax?
| Party | Sales Tax Responsibility |
|---|---|
| You → Supplier | Exempt (with resale certificate) |
| Customer → You | Customer pays sales tax (you collect) |
You buy from supplier tax-free, and you collect sales tax from the customer.
Setting Up Your Dropshipping Business
Step 1: Get Your Resale Certificate
Register for a sales tax permit in your home state. This gives you:
- Legal authority to collect sales tax
- A resale certificate to provide to suppliers
Step 2: Provide Certificate to Suppliers
When setting up supplier accounts:
- Give them your resale certificate - They keep it on file
- Specify you're a reseller - Not an end consumer
- Confirm tax-exempt status - Verify they won't charge you tax
Step 3: Set Up Sales Tax Collection
Configure your e-commerce platform to:
- Collect sales tax from customers
- Calculate correct rates by location
- Generate reports for filing
Nexus Complications for Dropshippers
Here's where dropshipping gets tricky: Where does nexus exist?
Your Potential Nexus Points
| Nexus Source | Location |
|---|---|
| Your business registration | Your home state |
| Economic nexus | States where you exceed sales thresholds |
| Supplier inventory | Potentially where supplier is located |
The Supplier's Location Question
Some states consider you to have nexus where your supplier ships from. This is debated and varies by state.
Conservative approach: Register for sales tax in:
- Your home state
- States where you have economic nexus
- Potentially your supplier's state(s)
Economic Nexus Thresholds
Once you exceed these thresholds in a state, you likely need to register:
| Common Threshold | What It Means |
|---|---|
| $100,000 in sales | Sales to customers in that state |
| 200 transactions | Orders to customers in that state |
Track your sales by state to monitor when you approach thresholds.
Working With Suppliers
Finding Dropship Suppliers
Look for suppliers who:
- Understand resale certificates
- Have experience with dropshippers
- Will ship blind (without their branding)
- Offer competitive pricing
Popular Dropship Platforms
| Platform | Resale Certificate |
|---|---|
| AliExpress | Usually not needed (international) |
| Alibaba | Usually not needed (international) |
| US Wholesalers | Required |
| Doba | Required for US suppliers |
| SaleHoo | Varies by supplier |
| Spocket | Required for US suppliers |
Providing Your Certificate
When signing up with US-based suppliers:
- Complete their vendor application
- Provide your resale certificate
- Include your state tax ID number
- Specify you're a dropshipper
Print-on-Demand: A Special Case
Print-on-demand (POD) is a form of dropshipping where products are created when ordered.
Popular POD Providers
- Printful
- Printify
- Gooten
- SPOD
- Teespring/Spring
Using Your Certificate with POD
| Provider | How to Submit Certificate |
|---|---|
| Printful | Upload in Settings → Tax Settings |
| Printify | Submit in Store Settings |
| Gooten | Upload during account setup |
| SPOD | Contact support or upload in settings |
What's Tax-Exempt?
With your certificate, you don't pay sales tax on:
- The product cost
- The printing/customization
- Shipping (in most cases)
You still collect sales tax from your customers.
Record Keeping for Dropshippers
Good records are essential for audit protection.
What to Track
| Record Type | Details to Keep |
|---|---|
| Supplier invoices | All purchases, showing tax-exempt status |
| Sales records | Each order, customer location, tax collected |
| Certificates on file | Copies of certificates given to each supplier |
| Nexus tracking | Sales by state, threshold monitoring |
Why It Matters
If audited, you need to prove:
- You had a valid resale certificate
- Products were purchased for resale
- Sales tax was collected from appropriate customers
- Collected tax was properly remitted
Common Dropshipping Tax Mistakes
Mistake 1: Not Getting a Certificate
"I don't hold inventory, so I don't need one."
Wrong. You're still buying and selling products. Get a certificate.
Mistake 2: Ignoring Nexus
"I only ship from my supplier's state, so I have no nexus."
Wrong. You likely have nexus in your home state and any state where you exceed economic nexus thresholds.
Mistake 3: Not Collecting Sales Tax
"My supplier handles everything, including taxes."
Wrong. Unless your supplier is specifically collecting and remitting on your behalf (rare), you need to collect from customers.
Mistake 4: Using Certificate for Personal Purchases
"I'll just order some stuff for myself through my supplier account."
Wrong. This is tax fraud. Personal purchases are always taxable.
Platform-Specific Considerations
Shopify Dropshippers
- Use Shopify Tax or apps like TaxJar
- Configure tax collection by state
- Integrate with dropship apps properly
WooCommerce Dropshippers
- Install tax calculation plugin
- Configure shipping zones with tax rules
- Set up proper supplier integrations
Amazon + Dropshipping
Amazon has restrictions on dropshipping, but if you do:
- Amazon may collect tax as marketplace facilitator
- You still need certificate for supplier purchases
- Follow Amazon's specific dropshipping policies
International Dropshipping
Importing from Overseas
If your suppliers are in China, India, or other countries:
Sales tax on imports: Generally not applicable (you'll deal with customs/duties instead)
Resale certificate: Not usually needed for international suppliers
But remember: You still need to collect sales tax from US customers!
The Full Picture
| Transaction | Tax Treatment |
|---|---|
| You buy from China supplier | No US sales tax |
| Customs/import duties | May apply |
| Customer buys from you | Sales tax applies (you collect) |
Frequently Asked Questions
"Do I need a resale certificate in every state?"
No. You need a certificate from your home state to provide to suppliers. You may need to register for sales tax permits in other states where you have nexus.
"My supplier is in California. Do I need a California certificate?"
If you're buying frequently from California suppliers, you may need to register in California (they require in-state registration).
"What if I use multiple suppliers in different states?"
Your home state certificate usually works. For states requiring in-state registration, you may need to register there.
"Do I need to charge sales tax on shipping?"
It depends on the state. Some states tax shipping; others don't. Use sales tax software to calculate correctly.
Get Started With Your Dropshipping Business
Ready to set up your dropshipping business correctly? Get your resale certificate and start buying inventory tax-free.
Apply for Your Resale Certificate →
Have questions about dropshipping tax compliance? Contact our team for help.