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Drop Shipping: What is Georgia's Sales and Use Tax Policy?

author photo of Lauren Stinson

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.

Questions?

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!

About the Author: Lauren Stinson,CMI, is Principal and National Leader - Sales & Use Tax at Cherry Bekaert LLP; a national CPA and consulting firm ranked as one of the top 25 in the country. Previously, Lauren was Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 25 years experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers as the Manufacturing contributor in SalesTaxSupport’s Industry blog, as well as the Georgia Sales Tax contributor in the States blog.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's Firm Profile page.

Other recent “Georgia (GA)” posts by Lauren Stinson, CMI:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

6 Responses to Drop Shipping: What is Georgia's Sales and Use Tax Policy?

  • Posted by JASMINE on March 29, 2018 10:58am:

    Hi Lauren,
    I am new to drop shipping and i'm really trying to understand everything as i am completely blind when it comes to talking about sales tax. I am based out of Georgia as a online retailer. The manufacturers that ship to my customers are not located in Ga so i assume that i wont have to collect sales tax. I am aware that i probably need to apply for a sales tax exemption permit/certificate but how do i go about doing so?
    Please any feedback will be much help.

    • Posted by Author photo of Lauren Stinsonlaurenstinson on March 29, 2018 12:31pm:

      Hi Jasmine,

      Drop-shipping can be complicated but I will answer the questions you have asked. Whether or not you will need to collect sales tax depends on if you have nexus in Georgia.
      If you do not have nexus in Georgia for any reason, you should not need to collect. To apply for a sales tax exemption certificate, you will need to apply for a sales tax permit in Georgia and complete the GA ST-5 and present that to your supplier.

  • Posted by Aimee on February 1, 2018 12:05pm:

    We have "builder" customers in which we "ship" to the electricitician/sub-contractor's shop, but the builder is insisting that we tax based on the final home site. What is the correct way of doing this and taxing so we avoid any risk in audit by the state of GA??

    • Posted by Author photo of Lauren Stinsonlaurenstinson on March 2, 2018 11:24am:

      Hi Aimee,

      Tax should be charged where the delivery takes place. See the Georgia Letter Ruling below:

      Letter Ruling No. SUT 2013-06-12-01 (LR SUT-2013-12)—
      Sales and use: Taxability of persons and transactions: Drop shipments: Drop-shipment related services.–
      A letter ruling issued by the Georgia Department of Revenue examines the taxability of a service sold by a taxpayer which entailed the use of an item that was drop-shipped from the manufacturer directly to the customer. The taxpayer retained title to the item and no leasing of the item is involved. Charges on the invoice to the taxpayer’s customer included charges for the use of the item and charges for associated services, such as transportation and cash management services.
      The department advised the taxpayer that it was proper under Georgia law for it to pay sales tax when purchasing the item from the manufacturer (or to accrue and remit use tax on the item), and that the taxpayer should bill its customer a single charge for the exempt transportation and cash management services. However, because the taxpayer as a service contractor was considered an end-user and consumer of the tangible personal property used to carry out its service contract, tax applied at the rate of the county where the taxpayer took delivery of the item, and at the rate of the county where the taxpayer used the item to fulfill the service contract. Finally, as a general rule, reciprocal credit could be taken for sales or use tax paid at the time of purchase against any use tax that could become due at a later date.

  • Posted by Author photo of Lauren Stinsonlaurenstinson on June 30, 2016 9:26am:

    In general, most services are not taxable in Georgia except for a handful of specifically taxed services (sale of accommodations, in-state transportation, admissions and some games/amusement activities). The services you specifically mentioned are non-taxable.

  • Posted by Casey on May 9, 2016 12:49pm:

    What services are taxable in GA? Trash Service? Training Services? Employment Services? Security Monitoring?

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