The dropshipping model has become increasingly more popular because of the ease and flexibility with which entrepreneurs can start and run their online businesses. With dropshipping, the main question is a matter of who collects the consumption tax from the end customer. Is it you, the retailer, or the dropshipper who delivers the order?
In this blog, we are trying to answer all the tax-related questions regarding dropshipping business in the USA.
What tax do I need to pay for my dropshipping business in the USA?
When Dropshipping, there are two types of tax you need to pay:
- Income tax
- Sales tax
As a business owner, you’re required to pay both taxes.
AliExpress import tax: I should pay duties on AliExpress products?
When you buy products from companies that are not located in your home country, your transaction will be regulated by a series of trade regulations issued by the country you reside in. Depending on the location of the factory or of your supplier, from whom you purchased the goods, the rules could be those pertaining to regional trade or international trade.
The best way to deal with the customs duties with the dropshipping
The main tip in dealing with customs duties and tax issues is to be fully transparent in stating your products are coming from some other country. There is no reason for you to hide you are sending a commercial item and keeping it a secret will only spell disaster for your customers and company in case the customs office find out about it. For example, if you are dropshipping from China then do not try to systematically under-declare the value since the customs authorities often inspect and compare items’ prices. Then these small tax problems in dropshipping become a big problem if traced back to you.
As a new importer, you must be aware that US Customs imposes tariffs on all imported goods valued at $800 or more. Values below $800 are tax-free. However, since June 30, 2018, the United States has increased the tariff on China’s 50 billion goods by 25%. Even if you declare less than $800, US Customs still has the right to request a formal customs clearance. As long as Customs suspects that the low value of the shipment is to avoid compliance with certain relevant laws, the goods may be denied a tax exemption.