You’re thinking about starting a dropshipping business. You’ve done your research and you think it’s a great opportunity to make some extra money (or even a full-time income). But there’s one question you can’t seem to find an answer to: do I have nexus for a dropshipping business? Nexus is a legal term that refers to the physical presence of a business in a state. If you have nexus in a state, you are required to collect and remit sales tax on behalf of your buyers. Whether or not you have nexus for a dropshipping business depends on a few factors, including the type of products you’re selling and the states in which your customers reside. In this blog post, we will explore the concept of nexus and how it applies to dropshipping businesses. By the end, you should have a good understanding of whether or not you have nexus for your dropshipping business.
What is nexus?
Nexus is a legal term used in the United States to describe the substantial presence of a business in a state that allows that state to tax the business’s sales. A business has nexus in a state if it meets any of the following thresholds:
-It has a physical presence in the state, such as a retail store, office, or warehouse.
-It has employees or contractors working in the state.
-It owns or rents property in the state.
-It has sales agents or representatives working in the state on its behalf.
-It regularly provides services in the state.
If your dropshipping business reaches any of these thresholds in a particular state, then you have nexus there and may be required to collect and remit sales tax on behalf of your customers.
What are the different types of nexus?
When it comes to nexus, there are four different types that are commonly talked about in businesses – sales tax nexus, property tax nexus, income tax nexus, and payroll tax nexus. Each type of nexus has different requirements for what needs to be present in order for a business to owe taxes to that particular state.
Sales Tax Nexus
The most common type of nexus is sales tax nexus. This is typically defined as having some type of physical presence in a state – like having an office, warehouse, or storefront. But it can also be something as simple as having an employee who travels into the state frequently on business. If your business has any type of physical presence in a state, it’s likely that you have sales tax nexus there.
Property Tax Nexus
Property tax nexus is similar to sales tax nexus in that it requires a physical presence in a state. However, instead of being based on sales, property taxes are based on the value of any property that your business owns in the state. This could include real estate, machinery, or even inventory. If your business owns any property in a state, you may have property tax nexus there.
Do I have nexus for a dropshipping business?
There are a few things to consider when determining if you have nexus for a dropshipping business. The first is the physical presence test. This test looks at whether you or your employees have a physical presence in the state. If you do, then you most likely have nexus.
The second test is the economic presence test. This test looks at whether your company has an economic presence in the state. This can be determined by looking at factors like whether you sell to customers in the state, ship goods into the state, or have any type of physical presence in the state.
If you have nexus for a dropshipping business, then you will need to register for a sales tax permit and collect and remit sales tax on all orders shipped to customers in that state.
How can I establish nexus for my dropshipping business?
If you’re running a dropshipping business, nexus refers to the state in which your company has a physical presence. This could be an office, warehouse, store, or any other type of physical location. If you have nexus in a state, you’re required to collect and remit sales tax on orders shipped to customers in that state.
There are a few different ways to establish nexus for your dropshipping business:
1. Sell through an online marketplace: If you sell through an online marketplace like Amazon or eBay, you may be required to collect and remit sales tax in certain states.
2. Use a fulfillment service: If you use a fulfillment service like Shipstation or Fulfillment by Amazon (FBA), you may be required to collect and remit sales tax in certain states.
3. Have a physical presence: If you have any type of physical presence in a state – even if it’s just a home office – you may be required to collect and remit sales tax in that state.
4. Use drop shippers: If you use drop shippers (i.e., companies that ship products directly to your customers on your behalf), they may be required to collect and remit sales tax in certain states on your behalf. Be sure to check with your drop shippers to see if they have nexus in any states where your customers reside.
Conclusion
If you are planning on starting a dropshipping business, it is important to determine whether or not you have nexus in the state(s) where you will be doing business. Nexus refers to having a physical presence in a state, and if you do not have nexus, you may be required to collect and pay sales tax to the state. However, if you do have nexus, you will need to obtain a sales tax permit and collect and pay sales tax on all eligible transactions. You can use the resources below to help determine whether or not you have nexus in your state of choice.
