Dropshipping
Quaderno does not support dropshipping. If this is your business model, we recommend consulting a tax advisor before choosing a compliance tool.
Dropshipping is a retail fulfillment model where the seller does not hold inventory. When a customer places an order, the seller purchases the product from a third-party supplier, who ships it directly to the customer. The seller never handles the product.
Tax implications
Dropshipping creates a multi-party transaction chain - seller, supplier, and end customer - each leg of which may have separate tax consequences.
Sales tax and VAT on the customer sale: The seller is responsible for collecting and remitting tax on the sale to the end customer, just as in any standard sale. The fact that the goods ship from a supplier rather than the seller does not change this obligation. Tax is determined by the customer's location.
Tax on the purchase from the supplier: In many jurisdictions, the seller can provide a resale certificate to the supplier to avoid being charged sales tax on the wholesale purchase, since the goods are being bought for resale rather than consumption. Rules vary significantly by jurisdiction.
Cross-border complexity: When the supplier and the customer are in different countries, the shipment may be subject to import duties and customs requirements. This raises questions about who acts as the Importer of Record and who is liable for import VAT or GST. These obligations depend on the shipping terms agreed between seller and supplier.
Nexus: Dropshipping can create unexpected tax nexus. In the US, having a supplier warehouse or fulfillment location in a state may establish economic or physical nexus in that state, triggering registration obligations.
How tax is calculated
Tax on the end customer sale follows the same destination-based rules as any other sale: the rate applied is the one in effect at the customer's location. The complexity in dropshipping is not the rate calculation, but determining where obligations exist and who handles each leg of the transaction.