Tax on USA LLC Dropshipping Business

There is a new way and lucrative opportunity of doing business in the US called dropshipping. It allows you to fulfil customer orders without keeping any inventory. That is why it’s a clever way to save space, time and money. The global market is projected to reach $1670.1 billion by 2031 thus for this reason, if there was ever a point when one could dive into dropshipping, it would be right now. However, to fully gain from the business and stay compliant you must also know about tax on USA LLC Dropshipping Business.

What Is Dropshipping?

Dropshipping enables you to sell products without maintaining an inventory. Dropshipping works in three simple steps:

A customer places an order with you.
You buy the items from a supplier.
The supplier dispatches the goods directly to your client.

Do I Have To Pay Tax On Drop-Shipping?

Yes, taxes are based on your sales tax nexus which refers to your business presence in the state. It means that you have a liability to pay tax whenever:

You make money in that state
Own property or assets there
Have employees working there
Lease or own property there
There is a physical location within the state;
Salespeople solicit business;
Property containing intangible property;
Residents work within the state.

List of Top Dropshipping Platforms for USA LLC

Amazon
Etsy
Inventory Source
Magento
Shopify
Squarespace
Weebly
WooCommerce

What Taxes Do You Need To Pay for USA LLC Dropshipping Business?

You’ll need to pay both income tax and sales tax:

Income Tax

Income tax is on your dropshipping profits. You’ll pay federal income tax and possibly state income tax. However, If you don’t make a profit, you won’t owe income tax.

Sales Tax

Sales tax is a percentage of sales and varies by state. You can qualify for a resale exemption certificate, which means you won’t pay sales tax when buying products for resale.

Sales and Use Tax

If a nonresident seller can’t collect sales tax, it becomes a use tax, which the customer pays. However, if a dropshipper has a sales tax permit in the customer’s state, they must collect the use tax and pay it to the state. For example, if Sellvia, LLC, in California delivers to a California customer, they collect and pay the use tax. If the customer is in Arizona, where Sellvia isn’t registered, they don’t collect the tax.

FAQs About Drop Shipping Taxes in USA

Do You Need a Tax ID for Dropshipping?

To collect customer sales tax, you will need a tax ID.

Do I Need an LLC Before Dropshipping?

It is advisable to have LLC company registration in USA so that there would be liability protection on personal assets while providing business credibility.

What Permits Do I Need for Dropshipping?

You must obtain a seller’s permit to collect sales tax and sell products online. States without sales tax include Alaska, Delaware, Montana, New Hampshire, and Oregon.

Is it difficult to manage Tax for USA LLC Dropshipping Business?

Yes, doing taxes for drop-shipping can be quite tricky; therefore it is better to get professional assistance. You can get assistance from E-StartupIndia’s experts. They are experienced professionals on drop-shipping taxes who can help you prepare your taxes faster and with ease.