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ketanco
06-05-2012, 11:03 AM
I am planning to start an ecommerce website which I will sell items that actually the manufacturers will directly ship. So I will not hold any inventory. How about the taxes? I am in new jersey and my business is registered in new jersey but the manufacturers that will ship the products are all over the country. Am I required to collect sales tax? If so how, and do I record the amounts?

Evan
06-05-2012, 09:37 PM
You're essentially dropshipping. You are required to register with your own state, and collect and remit taxes to your own state.

Sales taxes is a state-by-state issue, so you need to be careful here. If you live in NYS, you naturally follow those rules for sales to your state. However, if your dropshipper is in PA, NC (or any other state for that matter), you'll need to research the requirements to register or be exempt there.The dropshipper ultimately would have a taxable sale in their state if they are shipping within their borders... (PA to PA, or NC to NC in this example). That means to be exempt, you may need to be registered in PA or NC (as an example) to get a sales tax exemption to present to them.

This is certainly not a path you should go down without consulting with a qualified accounting professional... CPA preferably.

tmerrill
06-06-2012, 09:03 AM
You or your account would record the amounts. As Evans said above, you should at least have your account check the accounting of your sales taxes. Otherwise, you might receive a fine from whatever state government is in question.

Evan
06-07-2012, 08:48 PM
These dropshipping elements raise the problems with the so-called "Amazon" laws.

smb-coach
06-07-2012, 10:04 PM
Hi Ketanco,

Drop shipping and sales tax can be simple (grocery store on the corner), but mostly is complicated because each state has different rules and knowing it all is not easy, and they change all the time. All states are looking for revenue and they see out of state sales as a way to get money in (Amazon for instance). As mentioned by other posters you really should talk to an accountant, however s/he might know only about your state but not about other states. What makes it more confusing is that because the shipping point is not in NJ you might still owe sales tax.

Here are a few things to consider in all this:

-You can not be exempt in any state where you sell directly to consumers. So any sales that you make on your site you would owe sales tax on in NJ. The burden is up to you to show the sale was out of state (shipped from from a non - NJ vendor). Simply showing on income statement the instate sales and out of state sales will do it as long you have the data to back it up).
-If the shipping point occurs in another state than NJ and that vendor is shipping it out of state (again not to NJ- since you have a presence in NJ then you are liable for the sales tax), you possible do not have to collect sales tax. Again this Amazon deal in CA will change things.
-If you have a instate shipment as mentioned before you will need to have a tax exemption form for that vendor. Most vendors are not aware of this however if they get audited they will owe sales tax on the shipment (and at the value you sold it for - not their selling price - and they will come to you since the burden is now on them). Since you do not have a presence in that state you will need to apply for a sales permit in that state in order to be exempt. What is more now you have to file returns for any state you have a vendor in. What is easier is simply have vendor bill you for sales tax on those shipments (you would of course collect it from the customer. Note that each state has different filing rules so paying the vendor is a lot easier.

Now, I hope I did not scare you away! Ecommerce is and will be the future of retail and you can do well with it with the proper planning and preparation. I give you kudos for asking this question.

I have be in dropship for many years and know that the sales tax end is a royal pain. Please use this info as an FYI and not final or 100% correct. You need an accountant and other who can spell some of these things out.

ketanco
06-08-2012, 09:21 AM
Hi Ketanco,

Drop shipping and sales tax can be simple (grocery store on the corner), but mostly is complicated because each state has different rules and knowing it all is not easy, and they change all the time. All states are looking for revenue and they see out of state sales as a way to get money in (Amazon for instance). As mentioned by other posters you really should talk to an accountant, however s/he might know only about your state but not about other states. What makes it more confusing is that because the shipping point is not in NJ you might still owe sales tax.

Here are a few things to consider in all this:

-You can not be exempt in any state where you sell directly to consumers. So any sales that you make on your site you would owe sales tax on in NJ. The burden is up to you to show the sale was out of state (shipped from from a non - NJ vendor). Simply showing on income statement the instate sales and out of state sales will do it as long you have the data to back it up).
-If the shipping point occurs in another state than NJ and that vendor is shipping it out of state (again not to NJ- since you have a presence in NJ then you are liable for the sales tax), you possible do not have to collect sales tax. Again this Amazon deal in CA will change things.
-If you have a instate shipment as mentioned before you will need to have a tax exemption form for that vendor. Most vendors are not aware of this however if they get audited they will owe sales tax on the shipment (and at the value you sold it for - not their selling price - and they will come to you since the burden is now on them). Since you do not have a presence in that state you will need to apply for a sales permit in that state in order to be exempt. What is more now you have to file returns for any state you have a vendor in. What is easier is simply have vendor bill you for sales tax on those shipments (you would of course collect it from the customer. Note that each state has different filing rules so paying the vendor is a lot easier.

Now, I hope I did not scare you away! Ecommerce is and will be the future of retail and you can do well with it with the proper planning and preparation. I give you kudos for asking this question.

I have be in dropship for many years and know that the sales tax end is a royal pain. Please use this info as an FYI and not final or 100% correct. You need an accountant and other who can spell some of these things out.

Hi smb-coach, and thanks for your detailed answer. I have a few questions based on your answer:

-What is the Amazon deal you mentioned?
-When you say "If you have instate shipment as mentioned" do you mean a shipment from another state to NJ? or from NJ to NJ? or from NJ to outside NJ?
-So overall what I understood is, if the shipment is from NJ, or from any state to NJ, I owe sales tax to NJ. I also owe sales tax to NJ if I sell directly from NJ. BUT, if the shipment is from outside NJ, to any state other than NJ, I dont owe tax to ANY state. Corrrect? In other words, NJ would be the only state I would owe tax in any scenario correct?

Evan
06-08-2012, 04:46 PM
-What is the Amazon deal you mentioned?
Any state which Amazon has a warehouse, they are supposed to charge sales tax on orders from those customers.


-When you say "If you have instate shipment as mentioned" do you mean a shipment from another state to NJ? or from NJ to NJ? or from NJ to outside NJ?
In-state shipments, that is NJ to NJ, have sales tax owed. That means even if it ships from PA to your NJ buyer, the fact you're in NJ means you need to charge sales tax.

But if you were shipping to PA, and that's the dropshipper is, you're also liable for taxes in PA. So you're essentially liable for taxes in your home state, plus all the states of your dropshippers.


-So overall what I understood is, if the shipment is from NJ, or from any state to NJ, I owe sales tax to NJ. I also owe sales tax to NJ if I sell directly from NJ. BUT, if the shipment is from outside NJ, to any state other than NJ, I dont owe tax to ANY state. Correct? In other words, NJ would be the only state I would owe tax in any scenario correct?
Wrong. You're liable for taxes in all the states, potentially, there is a warehouse, as you're acting as an agent of the warehouse in this business. Therefore, you must withhold sales tax and remit it accordingly.

jamesray50
06-09-2012, 02:10 PM
Here is a link to the Streamlined Sales Tax organization. Several states are members. Streamlined sales tax (http://www.streamlinedsalestax.org/index.php?page=faqs). And here is another link to a company that specializes in sales tax. I'm not sure what the cost is, but the company is highly respected, and they offer webinars. Avalara: Sales Tax Rates, Exemption Certificates and Filing Software (http://www.avalara.com/).

ketanco
06-09-2012, 09:13 PM
wow thanks. so does it mean I file tax return with 50 states every year? or at least with all the states that the vendors shipped from, even a single item? how do people start ecommerce then?

by witholding sales tax in a state, you mean I withold it for that state and file a tax return to that state end of the year? (and I dont even wanna remember quarterly, which makes 50 states x 4 = 200 states per year, which doesnt seem right)...

how can people start ecommerce at all, given all these?

jamesray50
06-09-2012, 09:39 PM
In 2008 I had an ecommerce website. I dropped shipped the product. I only had one company I dealt with and they were in a different state than I am. I gave them my reseller certificate and they didn't charge me any sales tax. I only charged sales tax to orders within my state. I'm in Kentucky and you only have to collect tax from sales within the state. Sales outside the state are exempt. In Kentucky, the end user is responsible for paying tax. If they don't pay when buying, then they are suppose to pay a use tax. A business pays the use tax when they file their sales tax return. An individual is suppose to pay when they file their personal income tax return. But, I'm not an expert on sales tax. It's a complicated business.

sbInfo
08-18-2012, 03:08 PM
What happens if your drop shipper charges you for an in state shipment AND amazon charges tax because its required, like TX, SC,VA aand so on? Is that double taxing and how do you avoid?
Thanks

Evan
08-18-2012, 10:00 PM
I don't follow how the dropshipper would charge and Amazon also charge on the same order. How are both handling this same order?