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We have customers in Canada, who sell our products in the US. We are one of their drop-shippers and have nexus in 15 states. Should they be charged sales tax?

Full Question: We have customers based in Canada - they sell to Customers in the US - we are one of their suppliers -our company has nexus in 15 states - they don't feel they should be charged sales tax on those states we the supplier have nexus in - since they do not have nexus and other suppliers do not charge them tax.

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Answer:

Diane Yetter photoYour question relates to the rules for drop shipments. You are correct that if you are shipping to a state where you have nexus that you need to either charge sales tax or receive a valid resale certificate for the ship to state. Depending on the state, you may be able to accept a Canada GST or PST registration number as proof for resale. Some states may accept this number on their own state's form like NY while others will accept just a statement from your customer with the GST number and a statement that they are a registered retailer in Canada. However, other states like CA would require you collect tax if you have nexus unless you obtain a CA resale certificate with a CA registration number. The rules do vary by state. For more information on drop-shipments, please consider our Tax Implications of Drop-Shipments Webinar or the book we wrote (published by CCH) Drop Shipments: Taxation, Compliance and Planning. If you need further assistance with this matter, please feel free to contact us directly.

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