A drop shipment is a shipment in which the retailer does not ship a product to the customer/end consumer, but instead ships directly to the customer from another third party, such as the manufacturer or a wholesaler. Three parties are involved in this sale and two separate sales transactions are required. Usually, the manufacturer/wholesaler (shipper) will invoice the retailer and then the retailer will invoice the customer/end consumer.
When a retailer has nexus in Georgia, they are required to collect Georgia tax on all sales delivered to Georgia customers. However, what happens when it is a drop shipment scenario and the retailer is not registered in Georgia, but the manufacturer/wholesaler (shipper) is registered? Does anyone collect Georgia tax from the customer? Or the retailer?
Explanation of Georgia's Drop Shipment Policy:
Since the retailer is planning to resell the product to the customer, the manufacturer/wholesaler should NOT be required to collect Georgia sales tax from the retailer, as long as the manufacturer receives the acceptable documentation from the retailer proving to the state that the shipped product is for resale. The retailer who does not have nexus in Georgia is not required to charge sales tax to the customer. However the customer/end user is liable to pay use tax.
Georgia accepts either the retailer’s home state resale number or the Uniform Sales & Use Tax Multi-Jurisdictional Certificate of Exemption as proof of resale.
Beware of These Special Georgia Circumstances:
A few exceptions do exist in Georgia. If any of the following circumstances are true, the sale may be taxable, even when the purchase is for resale:
• The purchaser is a real property contractor;
• The certificate of exemption is not accepted in good faith or properly completed;
• The purchaser’s normal course of business is not a seller of the products being purchased;
• The transactions documents fail to prove that delivery is made to a person other than the purchaser;
• The purchaser has nexus with this state and is required to be registered;
• The seller and purchaser are affiliated entities or persons or the seller performs any services in Georgia which are related to the sale.
Having the correct documentation on hand is important in order to make sure tax is only charged to the end consumer for a drop shipment. If the sale is not properly documented, tax may end up being paid by both the retailer and the end consumer.
Have you run into sales tax problems with drop shipments in Georgia? Share your story with me and send me your questions. I am happy to help!
Other recent “Georgia (GA)” posts by Lauren Stinson, CMI:
- Sales Tax on Labor: In Georgia, Not All is Created Equal
- A Review of Georgia's Sales Tax Exemption Certificates
- Georgia's New Rule for Itemization of Sales and Use Tax
- Georgia FBA Sellers: Your Sales Tax Registration Obligations
- Georgia DOR Is Making Big Changes to Direct Pay Permit Rules