April 1, 2020
What you need to know about Sales Tax when Selling Online and Drop shipping in 2019

What you need to know about Sales Tax when Selling Online and Drop shipping in 2019

One of the things that make or break an online
store is finances, and therefore taxes. If taxes are something that confuse you, don’t
worry, we’re here to help. I’m Wes from Printful. And today I’ll be answering a few questions
about sales tax, including what it is, why it’s collected, and when and how to collect
it. I’ll also go over some common questions
about drop shipping sales tax and sales tax with Printful. Joining me today are our friends at TaxJar,
who will be lending their expertise and answering some of these questions. Hei, I’m Jennifer Clark from TaxJar. I’m excited to join Printful today to explain
some of the biggest concerns and pinpoints around sales tax to help make things clearer
for you. And stick around until the end of the video
– we’re hosting an AMA in the comments down below. So, If you’ve got a question we didn’t
cover, you can ask us in the comments for the next 3 hours after this video goes live. Finally, all the links we mention in is videos
will be available in the description down below. What is tax and why is it important? So, let’s start with the basics. What is tax? Tax is a percentage of the sales price of
a taxable product, put in place by the government. The government uses this money to pay for
public services, like schools and roads. Sales tax is governed at the state level,
which means each state gets to make its own laws. This means that each state collects sales
tax a little differently. Sales tax is a “consumption tax,” which
means it’s only charged when the end consumer buys goods or services. It’s also known as a “pass-through tax,”
because even though a business charges sales tax, they don’t keep it. Businesses are required to collect it and
remit it – or pass it through – to the relevant government. This means that we at Printful are required
to collect and remit sales tax on purchases our customers make based on their retail price. And you, our customer, might also be liable
to collect and remit sales tax as an online seller. How do you know when to collect sales tax? So, that leads to the obvious next question,
how do you know when to collect sales tax? You need to collect sales tax from sales in
states where you have “sales tax nexus.” Sales tax nexus is having a physical presence
in or a meaningful connection to a state that requires you to comply with their sales tax
laws. This means that you would need to collect
and remit sales tax when someone from that state makes a purchase. These are a few common factors that create
sales tax nexus: 1. If you have a physical location This includes a warehouse, office or even
your kitchen table (home office). 1. If you have employees or salespeople This includes employees working remotely—you
may have nexus where they work from. Note that in some states, affiliates can also
give you sales tax nexus. 1. States you store inventory in If you use Printful for print-on-demand dropshipping,
our fulfillment centers don’t give you nexus. However, if you are using Printful’s Warehousing
and Fulfillment service, then you will have nexus where you are storing it. So, if you store products in our North Carolina
warehouse, you will have nexus in NC. 1. If you make enough sales in a state, in dollars
or transactions This is also referred to as economic nexus
and has caused some confusion for a lot of online sellers. That’s because, on June 21, 2018, the Supreme
Court made a ruling in the case of South Dakota v. Wayfair, overturning a previous decision
and law known as Quill. Quill established that state governments can
only tax businesses who have a “physical presence” in the state. Now, states can tax remote sellers if they
make enough in sales or transactions. It was designed to level the playing field
between brick and mortar stores and ecommerce stores, so that both have to pay taxes. Since this ruling is fairly new, the laws
are changing rapidly, and each state has its own threshold. To keep up to date, we recommend following
TaxJar’s blog post on economic nexus for the latest information. The lowest threshold for economic nexus at
the date of recording is $100,000 in sales or 100 transactions in Minnesota, so keep
a lookout when approaching those numbers. With all this information, you should now
be able to tell which states you have sales tax nexus in. Marketplace facilitator laws
Several states have also made laws around marketplaces like Amazon, eBay, and Etsy. These states, like Oklahoma and Washington,
require marketplaces to collect and remit sales tax on behalf of their third-party sellers’
transactions. So what does that mean for you? Any sales you make through these marketplaces
to these states will be taxed for you, you don’t need to do anything. However, if you have nexus, you should keep
a sales tax permit, as they only handle tax on sales through the marketplace. You still need to handle sales tax through
other avenues. If you don’t do any sales outside of those
with the marketplace, you’re required you to file a simple “zero return” saying
so, or register for non-reporting sales tax status. You can keep up to date on marketplace facilitator
laws at TaxJar’s blog post. How do you collect and remit? So, how do you actually collect and remit
sales tax? Step 1: The first step is to check where you have
sales tax nexus. To help with this, TaxJar has a handy Sales
and Transactions checker, which shows you exactly where you have economic nexus. It’s also important to note that international
sellers may also have sales tax nexus, so if you’re outside of the US, you should check
as well. We recommend that international sellers who
have, or are approaching nexus to get in touch with a tax expert to help with their situation. You can get more advice in our blog on international
sellers, link in the description below Step 2: Then, you need to check if your products are
taxable. If you use Printful for print-on-demand, you
can see which products are considered non-taxable by some states in our FAQ, the link is in
the description below. If you use Warehousing and Fulfillment, you’ll
have to do your own research to see which products are non-taxable. Step 3: The next step is to apply for a sales tax
permit for each state you have nexus in. You can’t collect sales tax until you have
a permit. The application process is different for every
state. You can find the full list of how to apply
in each state on TaxJar’s blog post. If you only have to apply for a sales tax
permit in a few states, then you can do it yourself by following the step by step instructions
we provide. If you have to apply for many states, then
we recommend using one of our vetted sales tax accountants to help you out. Once this is done, you can add tax rates to
your store. You should check your ecommerce platforms
resources to find out how. Then, you can start collecting Step 4: If you use Printful, we also recommend you
get a resale certificate, which is different from a sales tax permit. A resale certificate lets you buy products
without paying sales tax if you plan to resell them, meaning Printful won’t collect sales
tax. So, you should submit resale certificates
to Printful for each state you charge sales tax in, so we don’t unnecessarily charge you
tax. In some states, your sales tax permit also
works as your resale certificate, but other states keep them as two separate documents. You can find and fill out a resale certificate
application form under the billing section of your dashboard. Choose your state, click “add certificate”,
fill out the details, and choose any combination of categories (Apparel, Home & living or Accessories)
you wish to be exempt from. Note that if you sell in a new category later
on, you’ll have to resubmit your certificate to cover that category. So, you can apply for categories you don’t
sell yet if you think you might later. Fill out and sign the form, upload it, and
click submit. Once you submit your completed resale certificate,
we’ll review it in about 2 business days. After it has been reviewed, we’ll send an
email to let you know if it’s been approved or rejected. If it’s denied, we’ll let you know why so
you can fix it and resubmit it. If it’s approved, you won’t be charged sales
tax on orders shipping to that state. However, you will be responsible for all taxes
on your end. Step 5: Finally, when sales tax filing due date comes,
you need to report how much sales tax you collected. To find out how to file a return for each
state, we recommend you go to TaxJar’s map, choose your state, and follow the guidelines
there. You need to determine how much sales tax you
collected from buyers in not only the entire state but in each county, city, and in other
special taxing districts within that state. This can sometimes be easy, like when there
is only one rate for the whole state. Other times, it can be really complex. That’s why we created TaxJar. TaxJar connects with all the shopping carts
and marketplaces where you sell and then creates a return-ready sales tax report just the way
the state wants to see it. It’s also important to remember to file
a sales tax return every time you have a filing due, even if you didn’t collect any sales,
or there could be a hefty penalty. That’s the basics of sales tax, so let’s
move on to how sales tax works in a drop shipping relationship. Drop Shipping + Sales Tax Sales tax while drop shipping can be confusing
as there are multiple sellers involved. We’ve found the best way to explain this
is through a diagram. In this diagram, we have the drop shipper
(in this case Printful), the seller (in this case you), and the end customer (in this case,
your customer). Let’s start with you. You need to collect sales tax from your end
customer if you have nexus in their state. Simple yes or no. Now, we add the drop shipper, or on this case
Printful to the equation. If we don’t have nexus in the end customers
state, then we don’t charge you sales tax. If Printful has nexus in the end customer’s
state, we need to collect sales tax from you unless you provide a resaletail certificate. This doesn’t matter if you have nexus or
not. So, the key points to remember here are: 1. Sales Tax is collected on “retail” purchases
based on the final customer’s location 2. Even if you don’t have nexus, Printful still
may need to collect sales tax from you as we could have nexus which needs to be fulfilled. 3. A resale certificate is needed when buying
from Printful, otherwise, they will collect sales tax. And that’s it! So let’s recap what we went over today. Recap Sales tax is a pass-through tax, collected
by a seller and remitted to the government to pay for public services. We now understand what sales tax nexus is,
and the steps you need to take to collect and remit it. And, we’ve gone over the common tax situations
you will face when dealing with drop shipping. Now, it’s over to you. Ask any questions you have in the comments
below! TaxJar team will be joining us for the next
few hours, so now’s your chance to get some answers from our expert. Don’t forget to head over to TaxJar for some
extra help with your tax filing!

14 thoughts on “What you need to know about Sales Tax when Selling Online and Drop shipping in 2019

  1. I am in Iowa. I am creating an Etsy shop where I will sell shirts that I have designed, and Printful has made. Does Etsy collect my tax for me and take care of it all? I am so lost on what to do and where to start.

  2. So one of my most important questions was answered in this video–if you're using Printful's print-on-demand services, their locations don't give you nexus (but if you use Printful's Warehousing and Fulfillment services, then you have nexus where your inventory is being stored). So since I only have nexus in one state, I only have to worry about charging sales tax in my state, until I reach the threshold for Economic nexus in other states. However, Printful is still going to charge ME sales tax for each of my customers' orders based on the state the customer is in and the states where Printful has nexus.

    I was thinking that means that in my Shopify store, I should charge sales tax for each of the states that Printful has nexus in, since Printful will be charging ME that sales tax on behalf of my customers' orders. Would that be correct? Or am I actually not allowed to charge sales tax (or at least label it that way) for customers in states where I don't have nexus and therefore don't have a Sales Tax Permit? (Because Printful will be the one collecting the sales tax from ME on behalf of my customers and therefore Printful will be the one to remit it.) Does this mean I should raise the prices of my products in order to account for this?

  3. I am in Georgia. Printful is going to charge me taxes for items sold in North Carolina and California because they are located there. I'm I to collect, report and pass that tax on to the those States or is that Printful's job to do. Because this video said that if I am ONLY Drop-shipping, I do not need to pay taxes in States where Printful is located.

  4. Q1. Let's say you hit 100 transactions in a particular state where this would give you economic nexus.

    You now collect and remit sales tax on transaction 101, 102 on so on. Correct? This would be difficult to time correctly. I'm guessing we should start to register before we hit 100 transactions.

    Q2. Is it true some states require international sellers to have a US bank account to register & remit sales tax? If so, do Taxjar offer a solution for this?

    Many thanks. Great video

  5. Does your website hosting location create nexus for you. I.e. if your website is hosted in Iowa. Do you now have Nexus in Iowa?

  6. Most business, especially small business, haven't quite accepted that they need to build an audience FIRST. They can scale this up quickly with FB and IG advertising and then retargeting the audience, that engaged with the ad but the truth is, most ads are ineffective. It's been a tough year for small business and they will either have to hire a digital marketer or learn it themselves. Adapt or die.

  7. I live in India and am planning to sell clothing on etsy. The funds will be collected through paypal.

    So does etsy collect the sales tax for me ? And will printful charge me any sales tax if its already collectes on etsy ??

  8. Hi Printful, thanks for trying to explain all this. I'm in Australia, and we have a flat GST of 10% for all states… why does the USA have to complicate things so much?? Anyway, Shopify are also collecting sales tax in states that require it, so how does that come into play with Printful? Thanks.

  9. Thank you for this tax video. I apologize, however I have a more basic question. How do you select a business name that sounds like you should need to pay taxes. (In other words, you successfully sold something. LOL)

  10. Ok, that seems fine to me. Couple of questions to clarify. Which states does Printful have Nexus in.? If I'm an international seller – UK based – the only time I will have nexus and a US tax liability is in states where Printful doesn't have nexus and where I have in excess of $100k sales. In that case I need to pay sales tax collected to the US/State? government. Is that correct? Also, in relation to EU sales where VAT is due, does Printful charge me VAT, or do I need to VAT register and collect that myself.

  11. This is so fcked up. The entire pitch to build a print on demand business is that it's a fairly passive model, now if I sell more than 200 products per state I have to start tax relationships with each state!? I live in Europe ffs.This is a huge issue that should be mentioned BEFORE you spend months building a POD business.

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