If you are a dropshipper, you may have heard of the term “nexus.” But what is nexus, and do you have to worry about it if you’re dropshipping from US suppliers? Nexus is a legal term that refers to a business’s physical presence in a state. If a business has nexus in a state, it means the business has some kind of physical presence there. This could be something like having an office or warehouse in the state, or even just having employees who work in the state. If a business has nexus in a state, it means the business is subject to that state’s sales tax laws. This means that if you are dropshipping from US suppliers and your customers are in states where your suppliers have nexus, your customers may have to pay sales tax on their orders. Fortunately, there are ways to avoid this. In this blog post, we’ll discuss nexus and how to avoid it when dropshipping from US suppliers.
What is nexus?
Nexus is a Latin word meaning “connection”, “tie”, or “link”. In business, nexus refers to the relationship between a business and a state or other jurisdiction that allows the business to be subject to tax in that jurisdiction.
In order for a business to have nexus with a state, there must be some type of physical presence in the state. This can be in the form of an office, warehouse, store, or any other type of physical location. It can also be in the form of employees or agents who are working in the state on behalf of the company. Nexus can also be created through economic activity, such as sales, even if there is no physical presence in the state.
Once nexus is established, the business will be required to collect and remit sales tax on taxable items sold to customers in that state. The amount of tax owed will depend on the tax rate in the jurisdiction where the sale took place.
Do I have nexus if I am dropshipping from US suppliers?
There are a few things to consider when dropshipping from US suppliers to determine if you have nexus. First, are you shipping the goods yourself or using a third-party fulfillment service? If you are shipping the goods yourself, then you likely have nexus in the state where the supplier is located as well as any state where you have customers. If you are using a third-party fulfillment service, then you likely only have nexus in the state where the supplier is located. Second, are your suppliers selling to customers in other states? If so, then you may have nexus in those states as well. Third, what type of products are you dropshipping? Certain types of products may require special licenses or permits in order to sell them, which could create nexus for you in those states.
To summarize, if you are dropshipping from US suppliers, you will likely have nexus in the state where the supplier is located as well as any state where you have customers. You may also have nexus in other states if your suppliers sell to customers in those states or if you are selling certain types of products that require special licenses or permits.
A. If I am selling in the state where my supplier is located
If you are selling in the state where your supplier is located, you will need to obtain a sales tax permit from that state. You will also need to collect and remit sales tax on all taxable items that you sell to customers in that state.
B. If I am selling in a state where my supplier has an affiliate
If you are selling in a state where your supplier has an affiliate, you may have nexus. This is because the affiliate may be considered to be conducting business in that state. If you have nexus, you will need to register for a sales tax permit in that state and collect and remit sales tax on your taxable sales.
Conclusion
If you are running a dropshipping business, it’s important to know if you have nexus with any US suppliers. This is because if you do have nexus, you will be required to collect and remit sales tax on behalf of your customers. Luckily, there are a few easy ways to check if you have nexus with any US suppliers. By following the steps in this article, you can ensure that you are compliant with all applicable laws and regulations.
