Sales Tax Awareness for E-Commerce Connect’s Dropshipping Program

Sales tax responsibilities in dropshipping can be complex. Learn the basics of nexus, common pitfalls, and why awareness matters as e-commerce activity increases.

Sales Tax & Dropshipping: What E-Commerce Connect Members Should Be Aware Of

(This is not tax advice — it’s a heads-up)

Dropshipping continues to grow rapidly, with the model generating hundreds of billions of dollars in ecommerce sales annually. As more garden centers expand online through the E-Commerce Connect program, we’re seeing an increase in questions around one topic in particular: sales tax. Dropshipping sales tax can be confusing, varies by state, and depends heavily on how each individual business operates.

Before diving in, an important note: E-Commerce Connect is not providing tax, legal, or accounting advice. This article is meant to give members general awareness of common considerations so you can ask better questions of your CPA, tax advisor, or compliance partner.

Why sales tax gets complicated with dropshipping

In a traditional retail setting, sales tax responsibility is straightforward — the retailer collects and remits tax. Dropshipping adds a third party (the supplier), which introduces complexity.

A typical dropshipping transaction looks like this:

• A customer places an order through your online store

• You forward the order to a supplier

• The supplier ships directly to the customer

• You bill the customer and pay the supplier

The key question becomes: who is responsible for collecting and remitting sales tax?

In most cases, the answer is still the retailer — but not always. The determining factor is nexus.

Understanding nexus (the foundation of sales tax responsibility)

Nexus refers to your business’s connection to a state. If you have nexus in a state, you may be required to collect and remit sales tax on orders shipped there.

There are two primary types of nexus to be aware of:

Physical nexus - You may have physical nexus if you have:

• A physical location

• Employees

• Warehouses

• Inventory in a particular state.

Economic nexus - Even without a physical presence, you may establish nexus by exceeding a state’s economic thresholds. Many states use thresholds like:

• $100,000 in annual sales, or

• 200 transactions per year

Some states set higher limits (for example, California’s threshold is higher than many others). Each state defines its own rules.If you have physical or economic nexus in a state, you are typically responsible for collecting sales tax on sales shipped to customers in that state.

The role of the retailer, supplier, and customer

Retailer

(you) In most dropshipping scenarios, the retailer is responsible for collecting and remitting sales tax to the state when nexus exists. This is true even if the product ships from a supplier in another state.

Supplier

Suppliers generally do not collect sales tax from the end customer unless they are selling directly to that customer. However, a supplier may need to charge sales tax to the retailer if:

• The supplier has nexus in the retailer’s state, and

• The retailer has not provided a valid resale or exemption certificate

A resale certificate typically allows suppliers to sell products tax-free to retailers because the retailer is responsible for collecting tax on the final sale.

Customer

Customers usually do not remit sales tax directly. However, if sales tax is not collected at checkout, the customer may technically owe use tax when filing state taxes. Enforcement of use tax is increasing, which is another reason compliance matters.

Common sales tax challenges in dropshipping

Dropshipping sellers often run into issues around:

• Proper use and storage of resale certificates

• Managing different nexus rules across multiple states

• Handling exemption certificates correctly

• Avoiding double taxation (where both supplier and retailer collect tax)

• Navigating international taxes like VAT or GST for cross-border orders

Mistakes in any of these areas can create risk during a sales tax audit.

Tools That Can Help (Optional Support)

Platforms like Shopify can calculate and collect sales tax at checkout based on customer location. However, many compliance responsibilities—such as tracking economic nexus thresholds, managing resale certificates, and filing returns—remain manual.

As a newer program, E-Commerce Connect has proactively sourced and vetted third-party platforms that can help reduce this administrative burden. One such platform is Numeral, which provides tools for monitoring state thresholds and supporting sales tax compliance workflows.

Participation is optional. E-Commerce Connect has secured a lifetime member-only discounted rate of 50% OFF state registrations, with Numeral for those who choose to explore it.

For more information or to inquire about access, check out our Partners at Numeral.

The bottom line

In most dropshipping scenarios, the retailer is responsible for sales tax — but exceptions exist, and rules vary by state. As e-commerce activity grows, so does enforcement, making awareness and proactive planning increasingly important.

This blog is intended to provide visibility, not instruction. Every garden center’s situation is different. We strongly recommend speaking with a qualified tax professional to review your specific business structure, sales activity, and state obligations.

Our goal with E-Commerce Connect is to give members a heads-up, not advice — so you’re informed, prepared, and asking the right questions as your online business grows.