April 8, 2020
What Tax Do I Need to Pay when Dropshipping with Aliexpress?! [UPDATED VIDEO]

What Tax Do I Need to Pay when Dropshipping with Aliexpress?! [UPDATED VIDEO]

He, guys. Today I’ve got a really fun, exciting video
for you all. I’m going to talk about what tax you need
to pay as an Ali Express drop shipper. Are you all excited? I bet you are. But look, here’s the thing. I understand that when you’re starting a new
business there’s a lot more fun things that you’d rather be thinking about, like how you’re
gonna make so much money that you’re gonna be able to buy your dream car. But when you make money, well, you need to
pay taxes. And if you don’t pay your taxes then the feds
are gonna come, knock on your door, and they’re gonna pick up both you and your car. The car will get dropped off at the auction
house and you’ll get dropped off in prison. So unfortunately, you don’t actually have
a choice. If you want to reap the financial rewards
of drop shipping then you need to meet your tax obligations. Luckily, I’ve actually got some pretty good
news for all of you Ali Express drop shippers out there, because believe it or not, meeting
your tax obligations is actually really easy. Now, I’ve really wanted to make this video
after I made one two years ago called, “How to pay sales tax when drop shipping.” In that video I scared a lot of people and
made the whole tax thing sound really hard and complicated. Well, the only reason why it sounded hard
and complicated in their video was because of the fact that I was actually mostly talking
about how to meet your sales tax obligations when working with USA-based drop shippers. Now if you were using drop shippers that are
based in the USA, then yes, the honest truth is that meeting your tax obligations can be
quite complicated and annoying. But if you are using drop shippers from Ali
Express, then guess what? That means that you are using suppliers that
are based in China and not the USA, which makes things way simpler. When you first start watching this video it
might seem really overwhelming. But trust me, if you stay until the end you
will see that it’s a lot more simple than you might think. Question one. What tax do I need to pay? First of all, I need to preface this video
and tell you guys that I’m only talking about your tax obligations that you need to meet
when you’re selling to customers that are based in the USA. Why? Well it’s because that is what we teach on
this channel. We teach you how to start an Ali Express drop
shipping store targeting USA-based customers. And I also want to note that I am not a qualified
accountant. You should not use this advice as a substitute
for a qualified accountant. Okay, with that out of the way let’s talk
about one type of tax that everyone needs to pay. Everyone needs to pay income tax. When you are drop shipping, you sell goods,
and any money that you make as profit on those goods counts as income and you need to pay
income tax on that profit. For the vast, vast majority of people watching
this video, when you’re paying income tax you are required to pay it to your local country
of residence. So if you are living in Canada but you’re
drop shipping to customers based in the USA, that doesn’t matter. You still pay income tax to the Canadian government. And if you live in Australia, again, it doesn’t
matter if you are drop shipping to customers based in the USA. You still pay your income tax to the Australian
government. And of course, if you live in the USA, then
you are required to obey the federal and the state income tax laws and pay your income
tax accordingly. So income tax is a form of tax that everyone
needs to pay. However, there is another form of tax that
not everyone will be required to. Not everyone is required to collect and pay
sales tax. For those of you out there that don’t know,
sales tax is when a governing body places a tax on goods and services sold within a
jurisdiction. So if a customer lives in the jurisdiction
that you are obligated to pay sales tax in, then you need to collect sales tax on that
customer’s order and then pay it back to that jurisdiction. So if you are obligated to pay sales tax to
the state of New York, then every time a customer that lives in the state of New York purchases
an item from you, you are required to collect sales tax on that order and then pay it back
to the New York state. In the USA, the federal government, which
is the government that governs the whole of the country, does not require you to collect
and pay sales tax. Instead, each individual state does. So what you do is you collect sales tax and
then pay it back to the state. But don’t worry, because you don’t have to
pay and collect sales tax for every each individual state within the USA. For those of you out there that are required
to pay some sales tax, the chances are that you’re probably only gonna have to collect
it for a single state. You only need to pay and collect sales tax
if you have nexus in a state. So let’s talk about what nexus is and how
you can have it in a state. Nexus is a legal term and it means that you
have a sufficient physical presence in a state that you now require you to collect and pay
sales tax on customers that live within it. So there you go. To be obligated to collect and pay sales tax
within a USA state, you need to have a physical presence in it. That means if you live outside of the USA,
whether it be the UK, Australia, Canada, India, or hey, even New Zealand, the chances are
you don’t have a physical presence in any state in the USA, which means that you don’t
have nexus in it. Which means that you have a slight advantage
over your USA-based competitors because of the fact that you’re not obligated to collect
and pay any sales tax. Lucky you. Feel free to gloat about it in the comments. And if you live in one of these states, then
as you probably already know, you live in a sales tax haven. So congratulations. You don’t have to collect sales tax. Feel free to gloat about it in the comments
section below. If you do live in the USA and you don’t live
in a sales tax haven, then you basically have nexus in whatever state you live in because
living in a state is a very large physical presence. And if you have an office or a warehouse in
another state that you don’t live in, then you’ll almost certainly have nexus in that
state as well. But there are some less obvious ways that
you could be deemed to have nexus in a state by having a sufficiently large physical presence,
and the truth is is that what counts as that, the rules around it, they vary from state
to state. For instance, in some, having a remote employee
based in a state constitutes as having nexus. And it doesn’t matter if that employee is
for a completely different business that is unrelated to your drop shipping one. You’ll still have nexus, which means you will
need to collect and pay sales tax on purchases made by customers that live within it. But the honest truth is that for most of my
viewers here, you are likely to fall into one of two camps. One, you live in the USA but you only have
nexus in that state that you live in. Two, you live outside the USA and you don’t
have nexus in any state. Now if you do think that you might be an exception
to this. Maybe you’ve got lots of properties in multiple
states or maybe you’ve got a large business which spills into other ones. Then I do suggest talking to an accountant. They should be able to sit down and help you
figure out which ones you have nexus in and which ones don’t, and the chances are at most
you will have it in only a few states. Question two, how do I collect and pay sales
tax? Okay, so you’ve figured out how many states
you have nexus in and again, for most of my viewers here, you’ll probably only gonna have
it in the state that you live in. Now how do you collect and pay sales tax on
orders made by customers that live within them? Luckily, if you are using Shopify then this
is super duper simple. Let me switch over to my computer and show
you how to set it up. Okay, start out by signing in to your Shopify
account. Then come and click the products button on
the menu. Come and click this check box to instantly
select all of your products. Then click edit products. We are now entering the bulk product editor. Now select add fields button. Click the charge taxes. Now you’ll be able to select which products
you are going to be allowed to have taxes charged to. I recommend selecting all of your products. I’m gonna pause this video and select all
of mine in this example store now. All right. So as you can see, I’ve gone through and selected
my products. When you’ve done that, click save. Perfect. Now come and click the settings button. On the settings page, come and click on taxes. Now as long as you’ve got a USA shipping option
set up in your store, you’ll be able to select United States next to tax rates. Now you need to enter in what state you have
nexus in. As an example, I’m entering New York. I don’t actually have nexus in New York, though. And type in your zip code. Then click add state. And that’s it. Shopify will automatically collect sales tax
from your customers based in that state. Be sure to add all of the states that you
have nexus in. Now something that you may not realize is
that Shopify actually takes care of some pretty complicated stuff behind the scenes. For instance, did you know that New York as
a destination-based sales tax state, that means that if you have nexus in it, then you
need to collect tax based upon where the customer lives in New York, and this can very drastically. And that compares to origin-based states like
Arizona where you charge sales tax based up on where you live in. It means in that every single customer has
a flat-based rate. So destination-based states are a lot more
complicated. So let’s say that you’ve got a customer based
in New York City. That means that you would need to collect
the following sales tax. State tax of 4%. City tax of 4.5%. And the metropolitan commuter transportation
district surcharge of 0.375%. Which adds up to a grand total of 8.875% sales
tax that you need to collect on every purchase made from customers that live in New York
City. Or if a customer lived in the city of Buffalo,
which is also in the state of New York, then you would need to be collecting the following
taxes. State tax of 4% and the district tax of 4.75%,
which adds up to a grand total of 8.75% tax that you need to collect on all purchases
made by customers that are based in Buffalo. So the rate that you need to collect for all
customers that live in destination-based states is always changing, which is super confusing,
right? But take a look at this. I did a test purchase on my Shopify store
for $10 using a New York City address. Shopify automatically calculated and added
the correct sales tax, which is 8.875%. And I did another test purchase in my Shopify
store using a Buffalo address. And again, Shopify automatically calculated
the correct sales tax of 8.75%. See? Super duper simple. And when it comes time to actually pay your
sales tax, there is a nifty app called TaxJar, which I strongly recommend because it really
helps to massively automate the process for you. I will have a link in the video description
on how you can get a free 30-day trial. Please note that it is an affiliate link. Here at Wholesale Ted, all of our YouTube
videos are free and affiliate links help us keep our videos free. So there you go. It turns out that something that seems really
scary and hard to deal with is actually really simple. We’ll tell you now, every day we do get asked
questions on this channel that, if the person asking them had done a little bit of research
they could’ve quite quickly found an answer for it. For example, a question that we get asked
all the time here at Wholesale Ted is whether customers will actually be willing to wait
two to four weeks for an item to arrive from your Chinese supplier. Well, if the person who asked that question
had clicked through and browsed through our videos before asking it, they would’ve discovered
that we’ve actually got one that answers this question. And of course, if they watch through the video
they’d discover that it’s not a problem after all. Now, I’m not saying this to chastise. My point here is that with a bit of research,
questions that seem scary or seem hard usually have really simple solutions. Thanks for watching this video. If you liked it, I’d appreciate if you gave
this video a thumbs up and subscribe to us here at Wholesale Ted for more great videos
about selling online. And when you subscribe, be sure to click that
little notification bell next to the subscribe button so that you don’t miss out on any of
our videos. And if you have any questions, be sure to
ask them in the comments section below. Again, I’m not a qualified accountant but
I will do my best. And of course, before you go, I’ve got one
last freebie I’d like to give you. Here at Wholesale Ted we have a free e-book. How to make $10,000 a month online with drop
shipping. You can find the link on how to download this
absolutely free e-book in the video description below.

100 thoughts on “What Tax Do I Need to Pay when Dropshipping with Aliexpress?! [UPDATED VIDEO]

  1. Hi How does paying Taxes work if you are from New Zealand buying from aliexpress and selling to us only?

  2. https://www.ato.gov.au/Business/International-tax-for-business/In-detail/GST-on-low-value-imported-goods/Information-for-operators-of-electronic-distribution-platforms/?page=1#Are_there_any_exceptions_ Hi Sarah, Australia govt implemented this starting July 1, 2018. Will this have an impact on drop shipping to Australia?

  3. What if I have Nexus in 3 states( Texas, Arkansas, Virginia) but someone buys from me, lets say in Kentucky. Do I have to charge them a state tax in Kentucky and then pay that State tax or do I not have to charge or pay the taxes for that state at all? Do I only pay taxes for items bought in Texas, Arkansas, and Virginia?

  4. as of March 2018 The US Supreme court has over ruled the presence in the state law. I am trying to start an online drop-shipping presence with my friend and his business, but the accountants are concerned about this new ruling. Please help! What insight do you have into this issue? The store is all set up after viewing your Oberlo tutorial, but the accountant is afraid to let us progress. How do we oblige this new court ruling?

  5. Hello,

    I run a dropshipping shopify store & live in Cupertino,California. I have a business registered here. I also have a few properties in some states in the US but this business has no relation to those properties they are personal properties.. Does that mean I have to collect sales tax for those areas as well eg say NJ, NY.
    Should I add that into my shopify as well ? Please advise

  6. Hey Wholesale Ted just a little question, I am from India and planning to start a dropship store for US customers from Aliexpress but I dont have an address in US or a bank account in US, how to manage returns and how to collect payments? Please guide

  7. If you dropship from ali/ebay to Australia they now ding you 10% tax at checkout, next up is NZ in Sept. I think then ZEE VORLD!! (my Hitler impression,LOL)

  8. And then there are us unlucky Italians… if you want to dropship you have to first pay around 3500 euro tax, plus different other taxes. I swear italy wont let normal people get started financialy. you are either already rich, or you can't invest.

  9. So if I drop ship on AliExpress to a person in Kansas as a resident of Pennsylvania I don’t have to pay sales tax

  10. So the only tax I have to pay from Shopify dropshipping with aliexpress is income tax + sales tax on any sales where my customer is from the state I have nexus in (in my case only my home state). Correct??

  11. I’ve seen 14 year olds in YouTube comments saying they’re making money from drop shipping. I find it hard to believe they are paying their taxes or understand it at all, as well as the majority of people on Shopify. Makes me think you can probably get away with not paying. Anyone got any input?

  12. Fk the gov't, they are just as big thieves as the bankers who kill everyone if they threaten their profits (and get away with it!)

  13. So if I understood correctly, if I'm dropshipping from Aliexpress (china) to only USA customers, and I live in UK, I don't have to worry about taxes as neither me or the dropshipper have nexus in any state? Can someone clarify this to me please? I will be very grateful ! thanks guys!

  14. Hi and thanks so much for the great video! My question is, how do you obtain invoices from Aliexpress as proof of expense for your accounting purposes? In my country, I have to show a tax invoice for every expense I make, if I want it to be acknowledged by the tax man and deducted from my revenues. In essence, I am not allowed to sell a product for which I don't have proof of purchase, which is the invoice. Unfortunately, not all Aliexpress suppliers take this seriously and many wouldn't bother issuing invoices for something that costs a dollar or two.

  15. I'm still confused tbh, If I live outside the US and i'm not a US citizen, and I use aliexpress for dropshipping. What taxes I'll have to pay? and what's the percentage?

  16. Sometimes my mind stops focusing on what you're saying and only focus on how you pronounce the letter "E" in words. It's that much cute.

  17. I just noticed that Aliexpress is charging me sales tax to shipping address I am drop shipping too. Do you know why? I do collect sales tax where I have Nexxus and play quarterly. But in addition to that, Aliexprss is also charging me?

  18. Hello, question: If you are dropshipping on shopify with aliexpress, And you are selling things and making profit, do you have to file (or pay) sales tax, and aside to that Income tax? Or does shopify collect that sales tax and you only have to file income tax at the end of the year?

  19. Just set aside 30%-40% to be safe for income tax. Sales tax is crazy because some states have different tax rates depending on city then you have to track the location of costumers that buy. File quarterly to mitigate errors.

  20. Hi Sarah, thanks for your information. Question regarding your suggestion to dropship in USA, do i need to change my address from asia to U.S. address?

  21. Hey Sarah! We live outside USA, and we're dropshipping through Walmart. The thing is that, we are resellers, and we're still paying sales taxes to Walmart, even though, we are not the final costumer, but they are charging us with the sale tax, so, our question is: If we prove to Walmart that we are resellers and they don't have to charge us with the sale tax, do we still have to collect sales taxes or is there an empty space in the transaction?
    Anyway, we just want the discount of Walmart for being more competitive.

  22. If you have Nexus in a state that doesn't tax clothing and you are selling clothing in your dropshipping store how do you set this up? I did a test sale on my store and it still charged .16 cents for some reason on a $32 sweater?

  23. Not just taxes.. But if your aussie then you have to pay GST if you sell to people in australia since july 2018 for dropshippers so if we sell to australian people in australia we have to pay 10% "gst" on all sales we make even under $1000

  24. So, being in the Philippines, does that mean I have no obligation to pay sales tax? What about if the buyers are from any other of the big 5 countries?

    As I understand it, one only has to pay sales tax to wherever they have nexus to, right?

  25. So it's best to live in a place you don't expect to sell much unless the market there is ripe for your products?
    Where would one best base themselves formally for taxes until the millions come in, if a Chinese green card is not really an option?

  26. Hey! Thanks so much for the video..so if I'm an American citizen but living in Spain (I have residency here) I pay to Spain and not US?

  27. I do not find anything in drop shipping to be overwhelming at all. I don't understand how people get so confused when Google is literally at your fingertips. I'm even able to edit my shopify theme with CSS code all thanks to Google and helpful people. My advice to everyone is, it's never as complicated as you think it is so don't let your eyes glaze over before attempting to solve your problems. Yeah, some things, you'd rather not do, but guess what? You have no choice, you are the one steering the car.

  28. If I have a LLC based in Delaware, but I’m non US resident, I only use LLC bank account to receive payments, do I need to pay taxes? If so, what taxes?

  29. Hello Sara,
    sorry for being late a whole year to answer your Question XD…
    But i live in Egypt and want to start a Drop shipping store that targeting USA to sell in it.
    So what kind of Taxes should i pay?

  30. Why Aliexpress is charging me now taxes. I have a reseller permit in California. Are they passing the custom duty to US companies?

  31. Thanks for remembering Canada in your videos, it really helps a lot seeing I’m trying to launch my Shopify store soon!!! Your videos inspired me to take up drop shipping.

  32. Sara, gotta love you girl! informative video as usual 😀 I'd like to add one more thing that since AliExpress invoice are not provided by them, managing and getting a hold of them is pretty imp too if you wanna take care of your taxes on time. I've been using AliBilling for some time now https://www.alibilling.com/, thoughts on this?

  33. I have to send delivery to following address

    Bothell, Washington, United States, 98021

    Ali express is collecting 10% sales tax. what is this? Is this real and how to handle this.

  34. So then does Shopify send me a W2 when its time when tax season is approaching? Or must I be the one to keep track?

  35. When I click on "seller center," and then "seller login" I am directed to "Business Information." There is a dropdown on this page for "Tax Country." The options are Italy Spain Russia Turkey France. I am in the United States. How do I move forward from this situation?

  36. If you are drop shipping through USA suppliers and you purchase a product that will be shipped to a person that lives in a state that charges sales taxes, then you will have to pay that tax. That is why sometimes you will buy the same product but pay more.

  37. 🙄Still do not get it as I want to dropship my products in India(not USA) and I am also living in India. I am 17 years old starting with budget of $35 so that is why I am 😥worried about taxes as I do not have money to overcome penalty.please explain me about this if you can🙏🙏🙏

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