Dropshipping taxes: income tax, sales tax and resale certificates

You pay income tax on profit, not on sales. For most dropshippers the math is:

• Sales, at the full price your customer paid, less refunds.
• Minus cost of goods sold: what the supplier charged for each order you sold, including their shipping and any duties they bill you.
• Minus expenses: payment processor and platform fees, store subscriptions and apps, ads, and software.

Sole proprietors and single-member LLCs report this on Schedule C and pay self-employment tax. You may also receive a Form 1099-K from your payment processor. It shows gross payments, not profit. See 1099-K for online sellers.

Common mistake: booking revenue from payouts. Shopify Payments, PayPal and Stripe deposit net amounts, so fees and refunds vanish from your books and gross sales no longer tie to your 1099-K.

A drop shipment usually involves two sales. You sell to your customer at retail. Your supplier sells to you at wholesale and ships straight to your customer. Sales tax belongs on the retail sale. The wholesale sale is a sale for resale.

• Your obligation. You collect sales tax in states where you have nexus, usually through economic nexus thresholds. See e-commerce sales tax and economic nexus.
• Marketplaces. On Amazon, eBay, Etsy, Walmart or TikTok Shop, the marketplace collects as facilitator. California’s Regulation 1706 says that when a marketplace facilitator is the retailer, the supplier shipping for the marketplace seller is not a drop shipper.
• Your supplier’s exposure. If your supplier is registered in the customer’s state and you are not, some states treat the supplier as the retailer. Under California Regulation 1706, that supplier owes tax measured by the retail price and may estimate it as its price to you plus a 10 percent markup.

This is why suppliers ask for resale certificates, and why some charge you tax when you cannot provide one the state accepts.

A resale certificate tells your supplier that you are buying to resell, so it should not charge you sales tax. Options:

• Streamlined Sales Tax (SST) Certificate of Exemption. Accepted in SST member states. Its drop shipper instructions say a drop shipper may accept an ID number issued by another state, so a seller registered in only one state can still use it. See streamlinedsalestax.org.
• MTC Uniform Sales and Use Tax Resale Certificate. A multistate form from the Multistate Tax Commission with state-by-state notes. It warns that a seller may refuse it if you are not registered where your customers are.
• A state’s own certificate. Texas, for example, says out-of-state retailers may issue Texas resale certificates using an out-of-state permit number or their home-state registration number (Texas Comptroller auditing manual).

States do not all accept the same documents, and the rules change. Check the customer’s state, and keep every certificate you issue on file with each supplier.

Supplier invoices. Keep an invoice for every order that shows the product cost, shipping and any tax or duty charged. If a supplier charged sales tax after you gave a valid certificate, ask the supplier for a refund. These invoices support your cost of goods sold if the IRS asks.

Foreign suppliers. A supplier overseas usually does not collect U.S. sales tax for you. Your nexus and collection duties stay the same. Convert foreign-currency costs to dollars consistently and keep the rate you used.

Import duties. As of October 2026, CBP’s e-commerce FAQs say duty-free de minimis treatment is suspended indefinitely for shipments valued at $800 or less, from all countries and by all modes, including mail. Duty is now paid on low-value orders. Who pays depends on the shipping terms and who is the importer of record:

• Supplier pays (delivered duty paid). Duty is built into the supplier’s price and lands in your cost of goods sold.
• You or your customer pay. If you pay, the duty is part of the cost of the goods.

Tariff and de minimis rules changed several times in 2025 and 2026 and may change again. Check CBP before you rely on any summary, including this one. For the inventory side, see tariffs, landed cost and COGS.

Best for: Shopify and multichannel dropshippers who are being charged sales tax by suppliers, are near a state threshold, or need clean books for their first real tax return. We work with clients nationwide.

1. Free initial consultation. Tell us your channels, suppliers and where your customers are.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter before work starts.
3. Sales tax map. We review sales by state, your registrations and the resale certificates each supplier needs.
4. Books. We set up e-commerce bookkeeping that records gross sales, supplier costs and fees correctly.
5. Tax return and planning. We prepare your income tax return and set quarterly estimates.