Sales Tax Rules When Using a Print-on-Demand Supplier

Drop shipping has become a popular option for e-commerce merchants who do not want to handle inventory, packaging, and shipping. Print-on-demand (“POD”) suppliers like Printify and Printful offer an added advantage by allowing merchants to offer custom products without requiring them to invest in expensive equipment or printing processes. If you’re considering using a POD supplier for your drop shipping business, here’s what you need to know about taxes and sales tax.

Does the print-on-demand supplier include tax?

The answer to this question depends on the POD supplier you choose, as well as the specific product and location you are shipping to. In general, POD suppliers may not include tax in the prices they charge, as sales tax requirements vary widely across the US. Instead, sales tax may be added to the final price based on the shipping destination and other factors.

How does sales tax work for drop shipping in the USA?

Sales tax laws in the US can be difficult to navigate for businesses of any size, and drop shipping businesses are no exception. Sales tax is generally applied to the final sale price of a product, but the requirements for collecting and remitting sales tax can vary by state, product type, and other factors. As a drop shipping merchant using a POD supplier, you will need to understand the sales tax requirements for your specific business and ensure you are complying with all regulations.

One important factor to keep in mind is that you may be responsible for collecting and remitting sales tax in states where your customers are located. This means that if you sell a product to a customer in a state where you do not have a physical presence, you may still need to collect and remit sales tax based on that state’s laws. This can be challenging for drop shipping businesses that reach customers across multiple states.

To navigate these complex tax regulations, many e-commerce businesses use tax software or services that can help them automatically calculate and collect sales tax. Some POD suppliers may also offer tax-related services or resources to help their customers comply with sales tax regulations.

Drop-shipping using a POD

Sales tax can be confusing when you use a company like Your POD Supplier, because you are making a sale to your customer when you technically don’t own the inventory. 

There are 2 transactions, which we need to consider separately.

  1. Your sale to the customer. This is simple: if you have nexus in the state where you customer is, you will have to charge sales tax and report it in a tax return. If you don’t have nexus in that state, you don’t have to do anything.
  2. Your POD Supplier’s sale to you. This is technically a “sale for resale”, which is exempt from sales tax – but only if the buyer (you) can provide a “reseller certificate”. If you cannot give reseller information, the supplier must charge you sales tax.

How the transactions work

If you are registered for sales tax in the state of delivery, it is very simple: you would add sales tax to your order (Shopify can do this automatically for you), then file the tax return and pay over the tax you collected.

When Your POD Supplier asks for the resale certificate you will be able to give this, so they won’t charge you tax.

It is more complicated if you are not registered in the “ship-to” state. If you don’t have nexus in the delivery state, you have no obligations to collect sales tax.

In this case, you are technically the “customer” and since you can’t provide a valid reseller certificate in the ship-to state, Your POD Supplier will charge you sales tax.

Registration as a reseller

If you can’t provide an acceptable certificate for every state where items are shipped, Your POD Supplier will have to charge you tax.

This doesn’t mean you have to register in every state to issue an acceptable certificate. If you don’t have nexus in the ship-to state, Your POD Supplier will accept a certificate that is acceptable to that state.

There are about 35 states that will accept some form of documentation without registration.

There are various documents that could be acceptable, including sales tax permits from other states. Therefore, it usually makes sense to register for sales tax in at least 1 state.

The “difficult” states

There are about 10 states where you will have to register (even if you don’t have nexus), otherwise you will be charged sales tax. While you may not have a requirement to register and collect tax, it may make good business sense to voluntarily register. The cost of registering in 1 or 2 states (explained below) is usually much less than having to pay Your POD Supplier sales tax out of your profits.

These 10 states include California, Florida, Connecticut and Massachusetts. Therefore, it might be worth registering in 1 or all of these states (since these sales tax permits can be used to avoid paying tax in most other states).

Conclusion

If you’re considering using a POD supplier like Printify or Printful for your drop shipping business, it’s important to understand the tax requirements and regulations that apply to your specific situation. Be sure to research the requirements for collecting and remitting sales tax in the states where you do business, and consider using tax software or services to help you navigate these complex regulations. With the right tax compliance strategy, you can take advantage of the benefits of a POD supplier while ensuring you stay on the right side of the law.