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Drop Shipping
For information on reflecting shipping charges in your tax calculation, go here.
“Drop Shipping” is more of a business process to define vs. a technical one – one that will require the talents of your company's tax attorney and/or accountant to define what your nexus liabilities and responsibilities are for the origin and destination locations.
Note: Avalara cannot provide recommendations or advice regarding how your company should handle nexus liabilities – this is ultimately the responsibility of your tax attorney or accountant.
What needs to be defined (in advance) is if a “nexus event” is taking place or not. To illustrate a drop shipping scenario, the following example will be used:
- A customer orders a desk and a chair from your web store totaling $1,500.
- There is a shipping and handling charge totaling $50 ($25 fee for each - not related to Origin or Destination)
- The desk ships from your warehouse in Phoenix (where you have nexus liability),
- The chair however is drop shipped from a partner company with a warehouse in New London, CT. (where you do not have nexus).
How does tax get calculated? Below is what is known so far:
| LineNo | TaxCode | ItemCode | Description | Qty | Amount | DestAddress | OrigAddress |
|---|---|---|---|---|---|---|---|
| 1 | PRO50204 | Desk | Office Desk | 1 | $505 | 320 S Boston Ave, Tulsa, OK 74103-3703 | 6850 W Buckeye Rd, Phoenix, AZ 85043 |
| 2 | PR000000 | Chair | Ergonomic Chair | 1 | $995 | 320 S Boston Ave, Tulsa, OK 74103-3703 | 375 Connecticut 12, Groton, CT 06340-2947 |
| 3 | FR020100 | Shipping (Desk) | Shipping / Handling Phoenix, AZ | 1 | $25 | 320 S Boston Ave, Tulsa, OK 74103-3703 | 6850 W Buckeye Rd, Phoenix, AZ 85043 |
| 4 | FR020100 | Shipping (Chair) | Shipping / Handling New London, CT | 1 | $25 | 320 S Boston Ave, Tulsa, OK 74103-3703 | 375 Connecticut 12, Groton, CT 06340-2947 |
The results of this invoice were as follows:
| Description | Qty | Amount | Taxable | Tax | Totals |
|---|---|---|---|---|---|
| Office Desk | 1 | $505 | Yes | $43 | $548 |
| Ergonomic Chair | 1 | $995 | No | $0 | $995 |
| Shipping Phoenix, AZ | 1 | $25 | Yes | $5 | $30 |
| Shipping New London, CT | 1 | $25 | No | $0 | $25 |
| Order Total | $1,598 |