Navigating Sales Tax in Drop Shipments: Simple Yet Complex Nexus Considerations

• Drop shipments are common in ecommerce and involve a seller using a distributor for order fulfillment to a buyer
• Drop shipments can involve three locations where sales tax must be considered
• Drop shipments are actually two transactions: one between the distributor and the retailer, and another between the retailer and the end-user customer
• Understanding sales tax obligations in drop shipments involves knowing the nexus of the business/retailer and the drop shipper/distributor
• Sales and use tax situs is based on the ship-to location in drop shipments
• Example: A retailer in South Carolina sells a baseball hat to a customer in Illinois through a distributor in Arkansas
• Some states require different documentation for exempt sales in drop shipments
• Utah is one state with special drop shipment rules

Source: taxconnex.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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