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We do most of our drop-ships from China. Do we need resale certificates for customer's ship-to location in US or is this not necessary if they accept ownership before it leaves China?

Full Question: We do most of our dropships from China. Must we ensure that we have a resale certificate for the customer's ship-to location in the states, or is this not necessary if they accept ownership for the product before it leaves China?

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Answer:

Diane Yetter photoThe determination as to whether a resale certificate is required is dependent on whether the seller has nexus in the ship to state. If you are selling to a distributor who is reselling to a customer in the US into a state where you have nexus, then the fact that the goods shipped from China likely won't protect you in all states - even if the distributor accepts ownership in China. Many states have language that says that the seller or a prior owner of the goods can be held liable for the tax. This could result in the you as the drop shipper being held liable. Therefore, if you have nexus in the ship to state, it is recommended that you obtain a resale certificate for the ship to state from the entity you are selling to. 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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