Dropshipping sales tax: who collects, and where you have nexus

A dropshipped order has three parties: the customer, you, and the supplier who ships. There are therefore two transactions — the supplier's sale to you, and your sale to the customer — and each has its own sales-tax answer.

Two transactions, two questions

Sellers who think about only the second transaction end up paying tax on their own purchases. Sellers who think about only the first accrue an uncollected liability on their sales. Both happen constantly.

What creates nexus when you hold no inventory

Nexus is the connection that lets a state require you to collect. Since South Dakota v. Wayfair (2018) it comes in two forms, and a dropshipper is exposed to both:

• Economic nexus — sales into the state above a threshold, commonly $100,000 in the current or prior year. Some states add a transaction count; a number have removed it. This is the one that catches dropshippers, because it arrives without you doing anything.
• Physical nexus — an office, an employee, or inventory in the state. You have no inventory, which is the one genuine structural advantage of the model. But a contractor or a returns address can be enough in some states.
• Affiliate and click-through rules — in several states, in-state affiliates driving sales to you can create an obligation.

Where you sell decides who collects

Marketplace-facilitator laws require marketplaces to collect on sales made through them. Practically:

• Marketplace channels — Amazon, eBay, Etsy, Walmart, TikTok Shop — are collected on by the marketplace. Nothing for you to do on those orders.
• Your own store — Shopify, WooCommerce, anything self-hosted — is entirely yours. Shopify calculates once you tell it where you are registered; it does not register you and does not file.
• Running both is the pattern that produces most of the uncollected liability in this model, because sellers assume the marketplace's collection covers everything.
• Marketplace sales may still count toward your economic-nexus thresholds for the direct channel in some states. Check rather than assume it in your favour.

The monitoring habit

Nexus is not something you decide; it is something that happens to you. The cheap control is a quarterly review: pull sales by state for the trailing twelve months, compare each against that state's threshold, and register where you have crossed.

Twenty minutes a quarter prevents the situation where a state contacts you about three years of uncollected tax, with interest, on sales whose margin you have already spent. And when you eventually sell the business, the first thing an acquirer's accountant looks for is exactly this.

Registering has a cost too

Do not register everywhere pre-emptively. Every registration creates a filing obligation that continues until you formally close it — including zero returns in quiet months, in states where you have no sales that quarter. Register where you must, when you must, and deregister properly when you stop.