Drop Shipments: Understanding Sales Tax Treatments of the Seller, Shipper, and Customer
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Get an update on the sales tax laws for drop shipments.Many retailers and suppliers engage in transactions that are known as drop shipments without full consideration of the tax effects. In light of the Supreme Court's decision in South Dakota v. Wayfair, Inc., et al., nearly every state that imposes sales and use taxes has amended their laws, regulations, and guidance to force out of state retailers and suppliers to collect sales taxes on their behalf. Despite some commonalities, the various laws are frequently inconsistent and counterintuitive. This topic will help you identify drop shipments and determine when your business or client may need to collect sales taxes in the various states, specifically focusing on the federal constitutional underpinnings and the ways states have chosen to update their laws, regulations, and guidance, as well as determine the best way to bring their business or client into compliance.
AuthorsMatthew E. Foreman, J.D., LL.M, Law Offices of Matthew E. Foreman, P.C.
What Is a Drop Shipment and Why Are They Used?
What Is the Location of the Sale in a Drop Shipment?
Tax Treatment of the Parties
How Much Is the Sales/Use Tax?
• Final Sales Price
• Are Shipping and Handling Taxable?
What Is Nexus and How Much Is Enough to Be Substantial?
• Physical Presence
- How Substantial Is Substantial?
- Trailing Nexus - How Long Do I Have Nexus?
- Affiliate Nexus
- Click-through Nexus
- Economic Nexus
- Physical Presence Requirement Was Eroding Before Wayfair
- South Dakota v. Wayfair, Inc., et al.
• Reporting and Notification Regimes
Am I in Compliance?
• Two Questions:
- Are My Goods/Services Taxable in Each Jurisdiction?
- Do I Have Substantial Nexus in Each Jurisdiction?
• Options to Become Compliant