- Sales tax for print-on-demand and dropshipping businesses hinges on economic nexus thresholds, typically ranging from $100,000 in sales to 200 transactions in many states, with some variation.
- Marketplace facilitator laws require platforms like Amazon and eBay to collect sales tax on behalf of sellers, potentially simplifying compliance for many online businesses.
- Dropshipping creates unique tax scenarios. To avoid double taxation, both wholesale and retail transactions must be properly documented with resale certificates.
- Understanding your specific tax obligations across different states can save you thousands in potential penalties and help maintain good standing with tax authorities.
The intricacies of sales tax for print-on-demand and dropshipping businesses can seem like a bore until your business runs into trouble with state rules! Far too many ecommerce entrepreneurs have built an otherwise perfect business model that has run afoul of tax requirements and been blindsided by unexpected tax bills. This guide will help you avoid such scenarios.
The Basics: What Makes Sales Tax So Complicated?
Navigating the sales tax landscape for ecommerce businesses is complex due to the patchwork of rules across different states. After the 2018 Supreme Court decision in South Dakota v. Wayfair, states gained the ability to require remote sellers to collect sales tax for dropshipping and POD businesses based on economic activity in said states rather than just physical presence alone. The result? A whole new world of tax collection requirements for online businesses.
How does this work for sales tax for dropshipping and POD businesses? Well, it essentially means that you might need to collect and remit sales tax in states where:
- You have a physical presence (e.g., offices, employees, inventory, etc.)
- You exceed economic nexus thresholds regarding sales volume and/or transaction count.
- Your dropshipper or POD supplier has a presence, even if you don’t
Let’s explore some of these sales tax issues for print-on-demand and dropshipping businesses and other questions, such as whether you need a sales tax ID for your dropshipping and POD business, in more detail!
Understanding Economic Nexus: When Do You Need to Collect?
All of the 45 states that have a sales tax have established what are called sales tax economic nexus thresholds, which are essentially a threshold of sales to people or businesses in those states that, once crossed, trigger a sales tax collection requirement. These thresholds generally take the form of:
- Annual retail sales revenue exceeding a specific dollar amount – for most states, this is $100,000. Still, some have a higher threshold amount (typically $500,000) before sales tax for dropshipping or POD businesses has to be collected.
- AND/OR a specific number of transactions – while many states have dropped the transaction count threshold, it is usually at 200 sales for those that retain it.
But here’s where things get messier for some ecommerce businesses – states can differ dramatically on which sales count towards these thresholds. How does this work for sales tax for print-on-demand and dropshipping businesses, specifically?
Some states count all sales, taxable and non-taxable, while others only count taxable sales. For instance, California specifically includes sale-for-resale transactions in its dollar threshold count, while many other states exclude them. Also, if you meet a state’s threshold, you need a sales tax ID for dropshipping and POD businesses, though the requirements can differ by state!
These policy variations add another layer of complexity to managing sales tax for dropshipping and POD businesses, especially when transactions can span multiple states with conflicting rules! It is essential to keep up with these differences to remain compliant!
When Rules Suddenly Change
When navigating these waters, experienced POD and dropshipping businesses have become accustomed to one constant, sometimes frustrating, change. States are constantly reconfiguring their sales tax rules regarding ecommerce businesses, resulting in an increasingly diverse tax regime landscape.
Some recent examples:
- Florida lagged behind other states as it lacked economic nexus legislation until July 1, 2021, making it very difficult to collect sales tax for dropshipping and POD businesses.
- Kansas finally introduced a $100,000 threshold in 2021 after initially implementing a burdensome economic nexus with no threshold in 2019.
- Utah is another state that will drop the 200 transaction count threshold requirement on July 1, 2025.
- Tennessee lowered its initially high threshold of $500,000 to $100,000 in 2020, meaning that now dropshipping or POD businesses with sales over $100,000 need a sales tax ID.
Understanding how sales tax works for dropshipping and POD businesses can be exhausting. Even so, keeping up with these regular changes is a must for these businesses.
The Sales Tax for Dropshipping Puzzle: Who Collects What?
Dropshipping creates a unique sales tax situation because there are technically two transactions happening:
- You, the retailer, are purchasing from your supplier.
- Your customer is purchasing from you.
In most states, your purchase from the supplier should be tax-exempt if you provide a valid resale certificate. This prevents double taxation since your customer will ultimately pay the sales tax.
But, and this is crucial, if you don’t have nexus in the customer’s state, some states require the drop shipper to collect tax on their sale to you if they don’t have nexus in the customer’s state.
Sales tax for dropshipping gets even more complicated: In dropshipping situations, if the retailer isn’t registered to collect sales tax in the state where the product is being delivered, most states allow the supplier to accept alternate paperwork to confirm that the sale is for resale and doesn’t require sales tax. Even so, if you make enough to trigger nexus, you need a sales Tax ID for your dropshipping or POD business.
Print-on-Demand: Special Considerations
Our initial question was “how does sales tax work for print-on-demand AND dropshipping businesses?,” but POD businesses may also face some unique challenges:
- Digital designs, which are potentially taxed differently than physical goods, aren’t usually an issue in most cases with sales tax for dropshipping businesses.
- Production facilities in various states can lead to other nexus triggers.
- Shipping across state lines.
Each state can treat these scenarios differently. For instance, in some states, the POD service might create a physical nexus for simply printing products there.
In addition, if you’re using marketplaces like Amazon or Etsy for your POD sales, marketplace facilitator laws can apply.
Marketplace Facilitator Laws: A Boon for POD and Dropshipping Businesses
These recent laws require marketplaces like Amazon, eBay, Etsy, Walmart, and other similar large ecommerce platforms to collect and remit sales tax for print-on-demand and dropshipping businesses and all other third-party sellers on their sites. As of 2025, all states with sales tax have enacted marketplace facilitator laws.
This is excellent news for many POD and dropshipping businesses, as these sites often handle sales tax collection for you. In many states, if you’re only selling through facilitators, even if multiple, you do not need a sales tax ID for your dropshipping or POD business! However, it’s imperative to understand the rules, which can differ by state, even when selling through marketplaces.
How To Work With Print-on-Demand and Dropshipping Sales Tax Rules?
What’s a savvy POD or dropshipping business owner to do? There are some common-sense steps that, when it comes to sales tax for dropshipping and POD businesses, all such companies should take:
- Based on the states you’re shipping to customers, determine where you have a physical and economic nexus. It’s essential to regularly review these policies, as they aren’t static.
- Register in states where required. Each state has its own sales tax registration process, which can be tedious to keep up with. Know when you need a sales tax ID for your dropshipping and POD business.
- Set up proper collection methods—configure your shopping cart or use specialized software to collect taxes when necessary!
- Document everything – this will help you maintain compliance. Keep those resale certificates and exemption documents organized.
- File and remit on time – Different states have different sales tax filing frequencies and deadlines for sales tax for print-on-demand and dropshipping businesses.
There are, of course, other ways to ensure compliance, such as not doing it alone!
Don’t Do It Alone
You didn’t start your POD or dropshipping business because you were looking for a roundabout way to study tax code. Unfortunately, ignoring sales tax requirements doesn’t make them disappear – luckily, we know precisely how sales tax for dropshipping and print-on-demand businesses works.
At RJM Tax Exemption, we specialize in helping ecommerce businesses navigate the sometimes confusing world of tax compliance, exemption, and optimization. We’re renowned for our results, unparalleled customer service, and perfect timelines for deliverables.
Ready to stop worrying about sales tax for your dropshipping or POD business and focus on growing it instead? Let’s talk. Contact us now to book a free consultation, and let’s ensure your print-on-demand or dropshipping business is 100% compliant!
