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:
|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:
|Shipping Phoenix, AZ||1||$25||Yes||$5||$30|
|Shipping New London, CT||1||$25||No||$0||$25|