Are you dropshipping? Or you are researching how to dropship, but are you wondering what to do with taxes like the sales tax and VAT? Well, don't worry anymore! In this awesome guest post from Quaderno, you learn everything that you need to know about the taxes for when you're dropshipping.

The dropshipping model has become increasingly more popular because of the ease and flexibility with which entrepreneurs can start and run their online business. But this model can run into tricky territory regarding one ever-complicating reality of ecommerce: sales taxes!

At Quaderno, we remove the confusion and stress around sales tax. Our goal has always been for business owners to forget about tax compliance so they can give their business the attention it deserves. That’s why we not only created our software solution, but we also love offering helpful insights on how to deal with sales tax while dropshipping. Hope this helps!

How does sales tax work with dropshipping?

Your Dropshipping Business, in a Nutshell

In dropshipping, there are two purchases at play for one product: the customer buys from the retailer, then the retailer from the supplier. So when is sales tax charged and collected, and by whom?

In this post, we’ll explain the general rules around sales tax for dropshippers, plus how to comply with tax rules in major world markets. 

Some legal steps to get your dropshipping business up and running in the US

The first step must be to make your business official, and decide which type of business you want to set up.

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. 

Also, you might need to get your Employer Identification Number (EIN), a sort of a Social Security number for a business used by the IRS to identify them. You can apply for one online here. However, you might not need one, in order to find out simply check out this site

Finally, since most dropshipping businesses are run at home offices, a local business license might not be necessary. But it’s always best if you contact your city to find out if you need it or not.

Pretty straightforward up until now, isn't it? BUT, there can be complications, though, and one of the big ones is tax.

What Is Sales Tax?

Sales tax is a form of consumption tax, applied to the purchase of goods and services. The end customer pays the tax, because they are who’s actually consuming the end product. And it’s a tax on consumption, on buying and spending for one’s own personal use.

With dropshipping, the main question is a matter of who collects the consumption tax from the end customer. Is it you, the retailer, or the dropshipping supplier who delivers the order?

Who collects sales tax, you or the supplier?

Surprise! There’s no clear answer… But we’ll lay out the general scenarios you encounter, when purchasing from a dropshipping supplier and when selling to a customer. We’ll also advise you on how to double-check your particular tax status.

Do you need to pay sales tax to your suppliers?

This is a tricky step. Usually, you do not need to pay sales tax on the orders you make from your suppliers. That’s because there’s a sales tax exemption for purchases intended for resale. BUT to take advantage of this exemption, your business needs an official exemption certificate.

Sales Tax Exemption Certificates

Also referred to as resale certificates. The rules for these certificates vary by state. Some states only accept in-state issued certificates, while others accept multi-state certificates.

When you make your purchase from the supplier, you need to provide them your complete exemption certificate. Then the supplier will not charge you sales tax.

Do you need to charge sales tax from your customers?

This B2C (Business to Consumer) part is a bit more straightforward.

If you have sales tax nexus in a state…

Then you must register for sales there. Then you must collect and remit sales tax in all states where you’re registered. It gets confusing with dropshipping. Some states tax the full retail price of the transaction, and other states only require taxing the wholesale price.

If you don’t have nexus in a state…

That usually means you’re exempt from charging and remitting sales tax. But — there’s always a but! — if the dropshipping supplier who delivers the order is located in the same state as the customer, then you might be on the hook for sales tax.

Some states consider an in-state supplier to qualify as a nexus for that sale. California, New York, Texas, and Florida have particular clauses about this scenario.

Always check each state’s tax policy to make sure you’re staying within the rules. Here’s a list of each state’s revenue department website.

Side note: This doesn’t apply to you as the retailer, but there are special clauses for dropshippers, too. If the supplier has nexus in the state, but you don’t, then they might be responsible for collecting sales tax. These states include California, Connecticut, Florida, Hawaii, and others.

For a full explanation of how to comply with US economic nexus, download our Ultimate Guide to US Economic Nexus.

What if you sell in Canada?

If you're a Canadian company or your company sells in Canada, you will likely have to apply and collect GST instead of Sales Tax. GST stands for “goods and services tax” and it’s typically charged at every stage of production.

Like US sales tax, it’s typically levied as a flat-rate percentage, based on the value of the transaction. 

In general, Canada follows what is called “the place of supply rule” which determines the tax rate you should charge to your customers, withhold, and remit to the appropriate government body. Determining the “place of supply” can differ based on your business location, what you sell, and to whom.

If you are an ecommerce company selling tangible goods (i.e. clothes, electronics, PDFs, etc.), the rule is pretty clear. You need to charge GST across the board if the destination is in Canada. Depending on the destination, you may charge GST only, GST + PST, or HST.

For further information, please head to our Canada Sales Tax Guide.

Tip: If you want to dropship in Canada with a local dropshipping supplier, then check out this list with 12 great options.

What if you sell in the European Union?

Now let's move on the taxes part if you're selling in the European Union.

Do you need to pay VAT to your suppliers?

If you are an EU VAT-registered business, and your supplier is also in the EU, then VAT on these B2B purchases is managed through the reverse-charge mechanism.

If your business is located outside of the EU, but your supplier is inside the EU, then you probably don’t have to pay VAT.

Do you need to charge VAT from your customers?

If your business is located outside the EU… Then you must register for EU VAT and begin charging tax once you surpass the thresholds.

If you remain below the thresholds and never register for VAT, then you run the risk of unhappy customers. If your goods are being imported from outside the EU, then upon delivery, the customer might end up paying some surprise VAT and import duties. Such unexpected costs make for poor reviews!

For the best customer experience and a consistent sales tax process across all EU member states, follow the rules for distance selling in the EU. Here you’ll also learn everything you need to know about the distance selling thresholds.

For further information about VAT, please head to our EU VAT Tax Guide.

How to Charge Taxes on a Shopify Dropshipping Store?

Screenshot of how to charge tax on a Shopify dropshipping store. This is great if you need help with your accounting.

If you're using Shopify for your dropshipping store, then this for you! But if not, then don't worry, most ecommerce platforms have guides on how to charge taxes on their platform.

Do keep in mind that these are guides on how to charge taxes; most of these platforms don't give any legal advice. For example, this is what Shopify writes in one of their guides:

The following reference guide is for informational purposes only, and is not intended to replace professional tax advice. If you have further questions about whether tax legislation applies to you, then you should contact US state tax authorities or a tax professional.


The thing is, Shopify will collect sales tax for you, but you must configure your store to do so. Thankfully, Shopify has easy steps for enabling all of EU VAT and all of US sales tax, so you can knock out 28 countries and 50 states with one setting.

Here are the instructions for enabling sales tax in the United StatesCanada, and the rest of the world.

And you can read this article here if you're not sure yet which countries you're going to target. That article also includes a few countries that are better to be avoided when dropshipping.

It’s a bit tricky and tedious… But if you aren’t using an automated tax plug-in for Shopify, then these little steps are necessary.

If you're interested in learning more about the taxes on a Shopify store, then I suggest reading our guide here.

One thing that we will cover in that guide is how to add taxes to your product price: Surprising your customer with an extra cost at checkout or adding the tax to the product price.

Do you want a hint on our suggestion? See the image below!

*Disclaimer: At Quaderno, we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.

Resources: Making Your Business Official by Oberlo (Their Dropshipping 101 Ebook)

Want to Learn More?

See what our fans are saying


  1. Hi. What if my company is in Canada and am dropshipping and selling to the US. How does it work?

    • Do Dropshipping - Author Logo


      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.

  2. 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 🙂


    • Do Dropshipping - Author Logo

      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

  3. 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

    • Do Dropshipping - Author Logo

      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

  4. 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.


    • Do Dropshipping - Author Logo

      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

  5. 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,


    • Do Dropshipping - Author Logo

      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

  6. 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?


    • Do Dropshipping - Author Logo

      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

  7. Hey,

    I’m from Switzerland, were not under EU agreement, in this case, how should I proceed?

    Many thanks for you answer 🙂

    • Do Dropshipping - Author Logo

      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

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