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We are an MA based internet retailer and we drop ship from vendors in CA. Are we eligible for tax exemption on CA sales since the bill-to address is in MA?

Full Question: We are an internet retail distributor of renewable energy products. We drop ship from multiple vendors and manufacturers that have a presence in CA. Many of our customers are in CA, and we are charged a sales tax when we drop ship to a location in CA. We are invoiced for these orders and our corporate office is in MA. Are we eligible to file for and receive a tax exempt certificate for these orders since the bill to address is in MA?

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Answer:

Diane Yetter photoSales tax applies to the state where the customer takes delivery of the product purchased. The bill to address is not relevant unless there is a situation where no other physical address is available. In a drop shipment transaction, the purchase by the wholesaler/seller (your company), the sale in concept is a purchase for resale. However, if the manufacturer/shipper is registered in the ship to state, the wholesaler must be able to present appropriate documentation for the resale in the delivery state. Many states accept alternate documentation such as the wholesaler's home state (MA in your case) resale number. However, CA is not one of the states that will accept alternative documentation. Therefore, if the manufacturer/shipper is registered to collect sales tax in CA and they drop ship goods on your behalf to customers in CA, they can only avoid charging you CA sales tax if you can provide a CA resale certificate with a CA registration number. Absent this documentation they will charge you sales tax on their selling price to you plus 10% assumed markup if they don't know your retail selling price. If you do register in order to provide a resale certificate, you are required to collect sales tax on the sales to CA customers on your selling price to them.

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