Guest post: This guide was originally contributed by Quaderno, a tax-compliance platform for online businesses. Do Dropshipping has reviewed and updated the article against current official guidance, but Quaderno remains the guest contributor.
Editor's note: Tax rules depend on your business structure and where you operate. What you sell, where your customers are, and how you fulfill orders can change the answer too. Use this article as general education, then confirm your own setup with the relevant tax authority or a qualified tax professional.
Do you have to pay taxes on dropshipping? Yes, a dropshipping business can have tax obligations even though you never handle the inventory yourself.
There is no single "dropshipping tax." Depending on your setup, you may deal with income tax or US sales tax. GST/HST, VAT, and customs or import charges may also apply.
Quick Answer: How do dropshipping taxes work?Dropshipping can create several different tax obligations. Depending on your setup, you may owe income tax on business profit and collect sales tax, VAT, or GST/HST from customers. Cross-border orders can also bring customs or import charges.In the US, sales tax depends on nexus and registration, while product taxability and resale documentation can affect individual transactions. Other countries apply their own rules.
At Quaderno, we build tax-compliance software for online businesses. In this guest guide, we'll explain the main tax questions dropshippers face and show where the rules can change by country or state.
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What taxes do dropshippers pay?
A typical dropshipping order has two sales and one shipment. Your customer buys from you, then you buy the product from your supplier, who ships it directly to the customer.
Those separate transactions can make dropshipping taxes feel confusing.
The tax on your business profit is a different question from the tax on your customer sale, and both are separate from customs charges when a product crosses a border:
| Tax type | When it can matter | What usually changes the answer |
| Income tax | Your dropshipping activity produces taxable profit. | Your country and business structure, plus taxable profit and deductible expenses. |
| Sales tax | You sell to customers in US states where you must collect sales tax. | Nexus and registration, plus product taxability and customer exemptions. |
| VAT or GST/HST | You sell into countries that use these consumption taxes. | Where your business is established and where the goods move. Registration rules and the type of sale matter too. |
| Customs duties and import taxes | A product crosses a border before reaching the customer. | Destination and country of origin, plus HS classification and shipment value. Trade rules and the importer can matter too. |
Do dropshippers pay income tax?
Income tax is separate from sales tax. It applies to the business's financial result rather than a tax you simply add at checkout.
If you are self-employed in the US, the IRS says you generally work out your net profit or loss by subtracting business expenses from business income. A sole proprietor normally reports that business result on Schedule C.
Self-employment tax can apply as well. The IRS says you generally need to file Schedule SE if your net earnings from self-employment are $400 or more, and self-employed people may also need to make estimated tax payments during the year.
Your exact treatment depends on your business structure and tax situation, so do not use the US sole-proprietor example as a rule for every dropshipper or every country.
US business setup comes before sales tax
If you operate in the US, start by checking how your business should be set up in your state and local area.
The Small Business Administration explains that registration requirements depend on your business structure and location.
You do not automatically need to form a separate legal entity just because you sell online. A sole proprietor using their legal name may have different registration requirements from an LLC or corporation.
If you are unsure which structure fits your situation, speak with an attorney or tax professional. An accountant who understands ecommerce can also help.
You may also need an Employer Identification Number (EIN). The IRS requires one in several situations, including when you have employees or operate certain business entities.
You can apply for an EIN directly through the IRS. If you are not sure whether you need one, check the IRS EIN guidance first.
Home-based businesses can still be subject to local registration or licensing rules, and permit and zoning requirements can apply too. Check your city, county, and state requirements instead of assuming a home office is exempt.
How does US sales tax work for dropshipping?
Sales tax is a consumption tax that can apply when you sell goods or services to the final customer.
With dropshipping, your supplier is also part of the transaction. You therefore need to look at the supplier-side purchase separately from the retail sale to your customer.
Who collects sales tax in a dropshipping order?
There is no single US answer because sales tax is mainly handled at the state level.
Your obligations can depend on where your business has nexus and where the customer receives the order. What you sell and how you document the supplier-side transaction can matter too.
That is why you need to check the two sides of the order separately: your purchase from the dropshipping supplier and your sale to the customer.
Do you pay sales tax to your supplier?
A purchase you make for resale can often qualify for a resale exemption, but documentation rules differ by state.
In practice, your supplier may ask for a valid resale certificate or other exemption documentation before removing sales tax from your purchase.
Resale certificates
Resale certificates are sometimes called sales tax exemption certificates, although the exact terminology and requirements vary by state:
- Multistate Tax Commission. Its multijurisdiction resale certificate is currently listed for use in 36 states, subject to each state's instructions and limitations.
- Streamlined Sales Tax. Its exemption certificate is accepted by the 24 Streamlined member states, but state-specific exemption and ID requirements can still apply.
Do not assume one certificate works everywhere. Check the state where the sale or delivery takes place, then give your supplier the documentation that state accepts.
Drop shipments can add another layer here.
For example, California can make an in-state drop shipper responsible for tax when an out-of-state retailer is not registered there, and the retail sale is taxable.
That is different from saying that every supplier location automatically creates nexus for you.
Do you need to collect sales tax from customers?
This is the B2C (business-to-consumer) side of the order.
If you have sales tax nexus in a state
If you have a sales tax collection obligation in a state, you generally need to register there before collecting tax from customers.
Physical presence can create a registration obligation, while remote sellers can also create economic nexus after crossing a state's threshold.
The threshold itself is not uniform. Depending on the state, it may use gross sales or retail sales. Some states use taxable sales, transaction counts, or a combination of measures.
Once you are registered, your store must apply the rules to the customer's transaction and file and remit as required by that state.
If you do not have nexus in a state
If you have no registration obligation in a state, you generally do not collect that state's sales tax simply because you made a remote sale there.
But dropshipping can still create a supplier-side tax issue.
A supplier that ships into the customer's state may need acceptable resale documentation from you, or the supplier may have its own tax obligation under that state's drop-shipment rules.
So, a supplier being in the customer's state does not automatically create nexus for your business.
Always check the state's own guidance before relying on a general rule. The IRS keeps a list of state government tax and business websites.
For more detail from the guest contributor, see Quaderno's US economic nexus guide.
What if you sell through a marketplace?
Marketplace sales add another rule to check. Many states require qualifying marketplace facilitators to collect and remit sales tax on sales they facilitate for marketplace sellers.
But that does not automatically remove every obligation from you.
Streamlined Sales Tax notes that registration and reporting requirements can still vary by state, and you should evaluate your direct sales separately if you also sell through your own store.
What if you sell to customers in Canada?
Selling in Canada can bring GST/HST into the picture, but selling to one Canadian customer does not automatically mean every business must register.
For many businesses under Canada's normal GST/HST rules, the small-supplier threshold is CAD $30,000.
The registration rules differ depending on whether you cross that amount in one calendar quarter or over four consecutive calendar quarters.
Separate rules also apply to certain non-resident sellers.
For example, a non-resident business selling qualifying goods located in Canada or shipped from Canada may face a CAD $30,000 threshold measured over a 12-month period.
Once you are required or choose to register, the tax rate can depend on the place of supply.
For goods that the supplier ships or sends by courier, the Canada Revenue Agency generally looks at the province where the goods are delivered or sent.
Check the CRA's GST/HST rate guidance for the province involved. Separate provincial sales taxes can also apply outside the harmonized GST/HST system.
For a Quaderno-specific implementation note, its tax-rate guide explains that physical-goods calculations depend on where the product ships from and where it ships to.
Tip: If you want to work with a local supplier, see Do Dropshipping's list of dropshipping suppliers in Canada.
What if you sell to customers in the European Union?
EU VAT is where the old version of this article needed the biggest correction. No single distance-selling threshold tells every non-EU dropshipper when to register.
The right treatment depends on where your business is established and where the goods start their journey. Their destination and the importer of record can change the answer.
Do you pay VAT to your supplier?
If you are an EU VAT-registered business buying goods from a supplier in another EU country, an intra-EU acquisition can require you to account for VAT in the country where the goods arrive.
That is different from buying from a supplier in the same EU country, where domestic VAT rules usually apply.
If the goods come from outside the EU, import VAT generally becomes relevant when the goods enter the EU. Who pays it depends on the shipping terms and who acts as the importer.
If you are comparing suppliers, remember that an EU-based supplier and a supplier shipping from outside the EU can create very different tax and customs flows.
Do you charge VAT to EU customers?
For goods already moving between EU countries, the EU has a €10,000 threshold for certain intra-EU B2C distance sales when the supplier meets the scheme's conditions.
That threshold does not apply to distance sales of goods imported from outside the EU.
The One Stop Shop (OSS) can simplify VAT reporting for eligible cross-border B2C sales within the EU.
For distance sales of goods imported from outside the EU in consignments not exceeding €150, the Import One Stop Shop (IOSS) can simplify VAT collection and reporting when the sale qualifies.
And VAT is not the only border charge to watch.
From July 1, 2026, the EU abolished the €150 customs duty exemption. A temporary €3 fixed customs duty now applies per item supplied as a distance sale of imported goods in a consignment not exceeding €150.
That means older guides that still treat these sub-€150 imports as automatically duty-free are out of date. Include both VAT and customs costs when pricing products you'll import into the EU.
For Quaderno-specific setup examples, its OSS and IOSS use-case guide includes physical-goods scenarios.
Do dropshippers pay customs duties or import taxes?
Sometimes. Customs duties and import taxes are separate from income tax and from the sales tax, VAT, or GST charged on a retail transaction.
The amount can vary based on where the order is going, where the product was made, and how customs classifies it. Shipment value and trade rules can also affect the final cost.
Who pays those charges depends on the shipping terms and who is listed as the importer of record.
For US-bound orders, the old $800 commercial de minimis shortcut is no longer available. Do Dropshipping's dropshipping tariffs guide explains the current US import setup and how to check product origin and landed cost.
Before you price a cross-border product, ask your supplier which shipping route it uses and whether duties are paid before delivery or can be charged to the customer later.
How do you set up dropshipping taxes on Shopify?
If you use Shopify, the platform can calculate many common taxes after you configure the regions where you are registered.
The order matters: first determine where you have a tax obligation, then register with the relevant authority, and then add that registration to Shopify.
Shopify does not decide where your business owes tax. Its tax guidance makes clear that the merchant is responsible for checking the rules that apply to the business.
But Shopify can handle tax calculations and provide reports.
Its US automated filing feature is currently closed to new enrollment, so only stores that were already enrolled can continue using it. If your store is not already enrolled, filing and remitting remain your responsibility.
Shopify has separate guidance for setting up US taxes and setting up Canadian taxes. Its main tax guide covers the tax services and settings available in other supported regions.
If you are still choosing markets, Do Dropshipping's guide to the best and worst countries to target for dropshipping can help you compare the wider trade-offs.
For more Shopify-specific background from the guest contributor, see Quaderno's Shopify sales tax guide.
One practical pricing decision is whether to add tax at checkout or include it in the displayed price, where the rules and platform settings allow it. Do Dropshipping's dropshipping pricing guide covers the wider pricing side.
Guest contributor disclaimer: Quaderno provides tax-compliance software but is not acting as your tax adviser. Do Dropshipping is an educational publication and is not your tax or legal adviser. This article provides general information only, so confirm your own obligations with the relevant tax authority or a qualified professional.
Dropshipping taxes FAQ
What records should you keep for dropshipping taxes?
For US federal taxes, keep records that clearly support your business income and purchases. Keep expense records too. That can include invoices and receipts.
Bank statements, payment records, and other supporting documents may also help. Sales tax and VAT recordkeeping requirements can differ by jurisdiction, so check the rules where you are registered.
Can dropshipping business expenses reduce taxable profit?
Potentially. For US federal taxes, allowable business expenses can reduce the net profit you report, but whether a specific cost is deductible depends on the tax rules and your circumstances.
Keep supporting records and check unusual expenses with a qualified tax professional.
Does Shopify file sales tax returns for you?
Usually not. Shopify can calculate taxes and provide reports, but its US automated filing feature is currently closed to new enrollment.
Stores that were already enrolled can continue using it, while other merchants remain responsible for filing and remitting their taxes.
Want to learn more?
From the Do Dropshipping library, these are useful next reads if you are still working through the legal and practical side of dropshipping:
15 Comments
Hi. What if my company is in Canada and am dropshipping and selling to the US. How does it work?
Hi,
Thank you for your comment. That’s a great question!
Unfortunately though, we can’t help you further with this since we are not from Canada (I’m not sure about all the laws in Canada), but I suggest reaching out to Quaderno (they wrote this awesome article), or to an accountant from Canada.
If possible, try to find an accountant who understands “the online world”, so it’s easier to explain what you’re trying to do.
Let me know if you have any other questions!
– Richard
I was just checking on the Gov. of Canada Website as I’m in the same situation as you. As far as I understand you do not have to apply for GST if your sales are below $30,000 in any one quarter. You CAN apply but it isn’t mandatory until you exceed this limit. If you are a one-man operation like me you will have to go some to exceed those limits!
If someone is more knowledgeable on this please correct me if I’m wrong.
Greetings! 🙂 I have successfully set up my store and have made my first sales!
Question: What is the best way to handle sales tax with Aliexpress.
I charge my customers sales tax via my Shopify page and provide those funds to the State of Tennessee (the State that I have a nexus in) when appropriate. Additionally, Aliexpress is charging me sales tax and is providing those funds to all 50 states. In effect I am paying sales tax twice.
I have a Resale Authorization and a Sales and Use Tax Certificate of Resale from the state of Tennessee. At my sales levels, I am authorized to sell my good to any state (with TN being the exception) tax free.
How do I keep Aliexpress from charging me sales tax?
Help 🙂
-Tucker
Hi Tucker,
Awesome to hear that you made your first sales!
Great question! This Reddit post here will help you further with that (look at the first comment). Basically, you will have to contact the AliExpress via the live chat. (If you’re not sure how; that post also contains a few tips to get “through Eva”)
Good luck! 😊
– Richard
Hello Richard
I am thoroughly reading your articles for months and have learned a lot. I am planning to start my store now finally. But I am concerned about the taxes. I am in India and here, there is GST which is levied on products. But the thing is I am not particularly targeting India. I will source products from CHina mostly and sell to the US, Canada, EU, Australia, etc. So that makes things more complicated. Operating from India, sourcing from China, and selling to customers in the West.
1) Do you think dropshipping from India is a good idea, considering the recent ban of AliExpress in India?
2) Do you have any article which tells about someone dropshipping from India and how this tax system works?
3) Do I need to register my business officially before even making any sales?
I have more doubts but will contact you for sure, once my store is up and running.
Thanks a ton for all the value that you providing for free for all drop shippers.
_ Faizan
Hi Faizan,
Thank you for your great comment! That’s so awesome to hear that you have read a lot of our articles 😊
Great questions! I will go over them below:
1. I can’t comment on if it’s a good idea to dropship if you’re from India, but one thing you should know is that there’s more than AliExpress. For example, take a look at these AliExpress alternatives, or these free dropshipping suppliers here.
2. No sorry, but you can check out this article, and this article from Quaderno, which covers a bit more about how India’s GST tax system works.
3. I know you probably don’t want to hear this, but this depends on the country that you’re living/working in. I don’t have any experience with the Indian tax system, so I can’t help you further with this, but here’s what Quaderno says in this article:
“In theory, if you are doing business, you should register as an entity.
Our advice is always to consult a professional (an attorney, a tax advisor, or an even accountant) because each state has different requirements.”
(In your case, you can replace ‘state’ with ‘country’)
Let me know if that helped you further, and I want to wish you the best with everything!
– Richard
Hi Richard,
I have reviewed all recent conversations and that helped a lot. I am a bit confused about taxation.
My Alidrop store is the under final development stage and I am getting an issue with creating PayPal/stripe account as they need a business number so is it deem necessary to register a business.
I am residing in Canada and my target markets are the USA/CANADA & EU, so how taxation will work like if any sales happen USA/EU then what I have to do like have to collect tax and return to Gov: or what else solution will be. I know about the Canadian tax system.
3rd and last point, suppliers will be from USA & Canada so definitely they will charge tax to me and I have to charge the customer, in that case, I will have to pay tax twice and charge one time so how come I can be out from this issue.
Thanks for your help.
ZAY
Hi Zay,
Thank you for your comment! I personally think this subject (tax) is way easier if you contact someone (like an accountant) in your country (in your case Canada) who has experience with tax laws in multiple countries (like the USA and EU in your case).
Preferably someone that has experience with ecommerce (or even dropshipping).
And for the business number, yes these need a telephone number; you can read more about that in this comment here (about when Stripe accepts dropshipping).
I know this is probably not what you wanted to hear, but it’s important to get it right from the start for your specific situation, and the best person for that is someone like a local accountant.
I hope you understand why I said that, and I want to wish you the best with everything!
– Richard
Hello,
Thank you for this wonderful article.
I have a question:
I have a registered company in Lebanon (Middle East) and wish to dropship to the US using US suppliers.
I believe it is possible but the tax issue is confusing me. Do you have any advice?
Thanks in advance,
Marina
Hi Marina,
Thank you for your comment! You’re in luck though, the main focus of this article from Quaderno is the US. (But as you can see, they added a few things for Europe & Canada as well to make it useful for most people)
You can take a look at the Sales tax part of this article. However, if you’re wondering how taxes work if your company is registered in Lebanon, then I suggest contacting an accountant in Lebanon.
And as I said in the comment above: I know this is probably not what you wanted to hear, but it’s important to get it right from the start for your specific situation, and the best person for that is someone like a local accountant.
Good luck with everything!
– Richard
Hello,
I’m interested in this topic too. What if we are located in EU and doing dropshipping only to US clients sending goods from china?
How I need to setup my taxes shopify page?
Thanks
Hi Lucas,
Thank you for your comment! For the setting up part in Shopify, you can view that at the end of the article or you can click here.
For your other question, we’re looking into creating a few more country-specific articles around taxes, but until then (and even after that), I suggest you contact an accountant in your country to get the best advice for your situation.
Good luck with everything!
– Richard
Hey,
I’m from Switzerland, were not under EU agreement, in this case, how should I proceed?
Many thanks for you answer 🙂
Hi Abia,
Thank you for your comment! Here’s a link to get you started with VAT in Switzerland.
However, for that great question, it’s best to contact an accountant in Switzerland to see how it will work with the tax when selling in the countries you want to sell to. (And since there are usually more things to take care of, like income tax)
Good luck with everything!
– Richard