Dropshipping and Sales Tax in the US — Guide for Foreign Sellers with US LLC (2026)

Many foreign sellers start thinking e-commerce is e-commerce — and the choice between Amazon FBA and own Shopify store is only a marketing question. Tax-wise, the difference is huge.

Amazon FBA (covered in detail in separate article)

• Amazon is marketplace facilitator → Amazon collects and pays sales tax for you
• Your obligations to state authorities — zero
• Administration — minimal

Own Shopify Dropshipping Store

• You're direct seller → you must collect sales tax
• State registration obligations with economic nexus
• Filing monthly/quarterly state sales tax returns
• Potential annual sales tax renewals in 5-50 states
• Administration — substantial

Hybrid Models

Many of you do combination — Amazon FBA + Shopify store. Here obligations calculated SEPARATELY: Amazon sales are marketplace-covered, Shopify sales are direct and create nexus obligations.

US has no federal sales tax. There are 45 states + DC with active sales tax, each with own rules, rates, and thresholds.

Who Pays Sales Tax

Unlike European VAT (included in price), US sales tax is added at checkout — shown separately. Example:

• Product: $25
• Sales tax (Texas 8.25%): $2.06
• Total at checkout: $27.06

Customer pays $27.06. You receive $25, but you're required to remit $2.06 to state tax authority.

Five States WITHOUT Sales Tax

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

If all your customers live in these states — zero sales tax. In practice that's ~5% of US population.

Sales Tax Rates

• Lowest: Hawaii ~4%
• Highest: Tennessee ~9.55% (state + local combined)
• Average: about 7%
• Rates include state + county + city components

"Nexus" is the key concept. In a state where you have nexus:

• You must register for sales tax
• You must collect sales tax on every sale to customer in that state
• You file periodic returns and payments

Two Types of Nexus

1. Physical Nexus — physical presence in the state

• Employees in state
• Office or warehouse
• Inventory in state (even in 3PL warehouse)
• Regular business trips to state

For typical foreign dropshipper without US employees or office — no physical nexus anywhere.

2. Economic Nexus (after South Dakota v. Wayfair, 2018)

Defined by sales to state residents. No physical presence required.

Typical economic nexus threshold:

• $100,000 in sales to state residents (annually), or
• 200 separate transactions to state residents (annually)

Some states have only one criterion, others both. Thresholds vary — some $250K, others $500K.

You track economic nexus by state:

• Track sales by destination state
• If exceed threshold — register in that state
• Start collecting sales tax from next period

If feeling overwhelmed — there's a simpler option. Marketplace Facilitator Laws shift sales tax obligation from you to the platform (Amazon, Etsy, eBay, Walmart Marketplace).

How It Works

All 45 states + DC passed these laws 2019-2021. Marketplace like Amazon:

1. Collects sales tax at checkout on each sale
2. Holds these funds
3. Files monthly/quarterly sales tax returns in each state (in their name, not yours)
4. Remits funds to states

For you: zero sales tax admin. Just receive net payouts (without sales tax included) and run revenue through bookkeeping.

What Counts as Marketplace Facilitator

• Amazon (all services)
• eBay
• Etsy
• Walmart Marketplace
• Alibaba.com (for US sales)
• Redbubble
• Printful (for POD)

What Is NOT Marketplace Facilitator

• Shopify — platform for own store, NOT marketplace
• WooCommerce — same
• BigCommerce, Wix — also not
• Own website/landing page — typically direct seller

Key difference: marketplace sells products from many different sellers from single platform; Shopify is just software letting you make your own store.

Scenario 1: Only Shopify, Under $100K Sales

John dropships products from AliExpress to US customers via Shopify. Annual sales: $80,000. Sales per state: ~$2,000 in California, $1,500 in Texas, less in others.

Analysis:

• Shopify → you're direct seller
• Economic nexus: NOWHERE exceeds $100K or 200 transactions in single state
• Sales tax obligations: NONE

Common position for new stores. Economic nexus protects small-volume dropshippers.

Scenario 2: Shopify Store, $250K Annual Sales

Maria dropships home decor from Shopify. Annual US sales: $250,000. Breakdown:

• California: $120,000 — exceeds $100K threshold
• Texas: $80,000 — under threshold
• Florida: $40,000 — under threshold
• Other 20 states: $10,000 total

Analysis:

• California economic nexus ✓
• Obligations: registration in California DOR, collect CA sales tax (7.25%+), file monthly returns
• Other states: monitor, but no nexus yet

Scenario 3: Hybrid — Amazon FBA + Shopify

Dimitar sells home goods. Amazon FBA sales: $300,000/year. Shopify direct: $50,000/year.

Analysis:

• Amazon sales: marketplace-covered, zero obligations
• Shopify sales: $50K — under federal threshold, BUT must monitor by state
• If among Shopify $50K you have $100K in California — obligations in CA
• Typically hybrid model with small Shopify has zero sales tax obligations

Scenario 4: Large-Scale Own Store

Nicholas has successful Shopify store. Annual US sales: $2,500,000. Sales in 47 of 50 states.

Analysis:

• Economic nexus in 20+ states
• Obligations: register, collect, returns in all those states
• Without automation (TaxJar, Avalara) — impossible manually
• Costs: $300-800/month for sales tax software + $500-2,000/month for compliance consulting

If you reach multi-state nexus, manual compliance isn't realistic. Use SaaS service:

TaxJar (acquired by Stripe)

• $19-99/month depending on volume
• Auto calculate sales tax at checkout (Shopify plugin, REST API)
• Nexus tracking — visualizes which states approaching threshold
• AutoFile — submits returns automatically in registered states
• Integrations: Shopify, WooCommerce, Amazon, eBay

Avalara

• More expensive (enterprise-tier): $500+/month
• More comprehensive — for complex multi-state operations
• CertCapture — exemption certificate management
• Consulting services included

Alternative: Shopify Tax

• $99/month for Advanced plan, or free with transaction fee
• Built into Shopify admin
• More limited than TaxJar — doesn't auto-file returns

What's NOT Replaced

• State registration — still manual, one-time
• Expert analysis of "what's taxable" for your products
• Resale certificates for B2B
• Exempt sales handling

Strategy 1: Marketplace-Only

Limit sales to Amazon/Etsy/eBay — zero sales tax admin. Trade-off: marketplace fees (8-15%) vs Shopify fees (2-3%). For small/medium businesses marketplace often wins defense-wise.

Strategy 2: Work Under Thresholds

If Shopify business under $100K/state — no nexus. Monitor sales per state. If California approaches 85% of threshold — focus on other states for coming months.

Strategy 3: Product-Specific Exemptions

Some products exempt from sales tax in certain states:

• Digital products — varies by state
• Clothing — exempt in MA, MN, NJ, PA, VT, NY (up to $110/item)
• Food staples — exempt in most states

If selling digital services, often can structure as SaaS (service-based) instead of software product, avoiding sales tax almost everywhere.

Strategy 4: International-First

Focus on non-US markets (Europe, Canada, UK, Australia) — zero US sales tax. But here come other complications — VAT in Europe, GST in Canada/Australia, etc.

1. Treating Shopify as marketplace — Shopify is NOT marketplace. You're direct seller. Don't rely on "platform will handle it."
2. Ignoring economic nexus — $100K in single state makes you obligated. Many dropshippers surprised when one popular product throws them over threshold in California or Texas.
3. Not registering before you must — Registration in state without nexus can make you liable for 4+ years of past sales tax collection. Register after reaching nexus, not before.
4. Late registration after reaching nexus — opposite of above. Once crossing threshold, you have ~30-90 days to register. Late = penalties + back taxes.
5. Not collecting in origin state — some states (Illinois, CA in certain scenarios) have origin-based rules requiring you to start collecting even at small volumes.
6. Ignoring local sales tax — county and city have own rates. California 7.25% state + 1% local = 8.25%. Sales tax services handle this automatically.
7. Using wrong resale certificates — US supplier asks resale certificate so they don't charge you sales tax on wholesale. Incorrectly filled = double taxation.
8. Forgetting annual renewals — many states require annual renewal even with zero sales. Missing = automatic deactivation.

Important distinction: sales tax is state obligation. Federal income tax is separate issue.

Federal Income Tax

For dropshipper without US employees, without US warehouse, without US physical presence — typically no US federal income tax. You're not "engaged in US trade or business" (USTB) by standard test. Details in ECI/USTB article.

Exception: US 3PL Warehouse

If using 3PL in US (ShipBob, Flexport) with personnel and managed inventory — this is stronger USTB case. Still debatable, but riskier than pure dropship-from-overseas model.

Form 5472 — Mandatory

Regardless of federal income tax status, Form 5472 + pro-forma 1120 are annual obligation. Every transfer from US LLC to you is reportable transaction. Details in 5472 article.

State Annual Report

Wyoming $60, Delaware $300, Florida $138.75 — regardless of dropshipping operations.

Net income from US LLC dropshipping operations is declared in your home country annual return. Details in home tax declaration article.

Important points specific to dropshipping:

• Net profit (sales minus cost of goods minus fees) — this is declared income, not gross sales
• Documenting COGS (cost of goods) through supplier invoices — critical
• Paid Amazon/Shopify fees are business expense
• Paid sales taxes (if any) aren't your expense — pass-through

Dropshipping compliance is multi-jurisdictional complexity:

• Structure setup — Wyoming LLC + EIN + Mercury, optimized for dropshipping
• Sales tax strategy — analysis of your channels and volumes, recommendation marketplace-only vs own store
• Nexus monitoring setup — integration with TaxJar/Avalara at scale
• State registrations when nexus reached
• Annual Form 5472 filing for US LLC
• Home-country side declaration

We work with clients from small dropship startups ($10K-50K annually) to multi-million e-commerce operations. Contact us for a quote on our contact page.