Dropshipping California Information, Taxes, and Certificates

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This publication is for California retailers. It explains how tax is applied to drop shipment transactions. Who is responsible for it?

What is a DropShipment?

Dropshipping is when a California retailer delivers tangible personal property to a California consumer on behalf of an outside retailer. Dropshipping to California consumers means that you must report and pay sales tax on the retail price.

  • The sale was made on behalf of an outside retailer.
  • The California Certificate of Registration-Use tax or California Seller’s Permit is not valid for the out-of-state seller.

Dropshipment transactions typically involve two businesses, two customers, and two sales.

  • The true seller is an outside-of-state company that isn’t registered to collect California tax. The true retailer sells product to California consumers.
  • The dropshipper sells product to true retailers, but delivers product directly to California consumers on behalf of true retailers.
  • California’s consumer buys and receives product.

Please Note: This publication summarizes all applicable laws and regulations as they were in force at the time it was published, as noted above. There may have been changes to the law or regulations since then. If the text of this publication contradicts the law, the decision will be made based on that law and not this publication.

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When a California retailer delivers product for an out-of state retailer, who is responsible?

If an out-of state retailer has a California Certificate or Registration-Use tax certificate, they are liable for any California sales tax. If the California retailer (dropshipper) does not have a California seller’s permit, Certificate of Registration-Use tax or a California certificate of registration-use tax and the property is sold in California, then the California retailer is responsible for the tax.


California consumers order and pay for a doghouse at ABC Supplies (ABC). This out-of-state retailer is not authorized to collect or pay California sales tax. ABC purchases the doghouse from XYZ and directs XYZ in California to deliver it to the California customer. XYZ delivers a doghouse directly to the California customer on behalf of ABC. XYZ is the drop-shipper and is responsible for any sales tax due because ABC isn’t registered to collect it in California.

How does a drop shipper calculate the tax due?

One of the following is the retail price that is subject to tax for a drop-shipped item:

  • The California consumer was charged by the true retailer, not the out-of state retailer.
  • The drop shipper in California charged the out-of state retailer the same amount plus a 10 percent mark-up.

Drop shippers may determine the tax due based on the retail selling price for the tangible personal property and a 10% mark-up. If they are able to prove that the drop shipper is using a lower markup percentage, it will be possible for them to use it.

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Drop shippers who charge $200 to true retailers may collect, report and tax the difference ($200 + 10% $20 = $220)


Tax may be calculated based on the amount that the drop shipper knows about the California consumer who purchased the tangible personal item for $210. The true retailer is charged $200 by the drop shipper. This creates a mark-up at 5 percent ($200 + 5% Mark-up of $10 =210). This case allows for a mark-up less than 10% because the dropshipper can accurately document the lower mark up to reflect the selling price charged to the California consumer.

What happens if there is more than one California retailer receiving the drop shipment?

Drop shipments can involve multiple retailers. The sales tax is generally liable to the first California retailer that engages in drop shipment transactions. The in-state retailer receiving the order from an out-of-state seller is the first retailer. The true retailer is the first to know the selling price and must collect, report and pay tax accordingly.


ABC Supplies (ABC), an outside-state retailer that isn’t registered to collect or pay California use tax, sells the doghouse to a California customer. ABC purchases the doghouse from XYZ and orders XYZ’s shipping company to deliver the doghouse to California. XYZ doesn’t have a California doghouse in stock so they must purchase one from 123. XYZ orders 123 to deliver it to the California customer.

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XYZ is the drop shipper (first retailer) and owes sales tax, even though 123 (second Drop Shipper) is in California. XYZ is the California’s first retailer to engage in drop shipping transactions that begin with the purchase of the true retailer (ABC).

What sales tax does the drop shipper collect?

The permit holder should issue a resale certification to the dropshipper, if the retailer is not in the state. The drop shipper no longer has to pay tax and report once the resale certification is issued.

If the retailer is not authorized,

  • Drop shipper must report and pay the tax.
  • Drop shippers should collect the retailer tax on the retail price and report it to the California Department of Tax and Fee Administration.
  • True retailers may be able to request reimbursement from in-state consumers for sales tax they have been charged by drop shippers. This could be done by increasing the selling price or by adding an additional line to the invoice.
  • True retailers cannot issue invoices with the line “California taxes” or “California sale tax”. However, they might use similar terminology such as “California Tax paid to California drop shipper” to indicate that California tax was paid to drop-shippers. This will alert the consumer in-state that California tax was paid for their purchase.
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Tax may not apply to drop shippers who drop ship tangible personal property to California customers. Keep the California resale certificate that you received from your customer. As proof of the sale, the resale certificate must be provided to the true seller.

Taxes are not applicable to sales made to the United States Government. Dropshipping tangible personal property to the United States is exempted from tax. To relieve the drop seller from any sales tax liability, the true retail should send to the dropshipper documentation proving that the United States government is the ultimate purchaser. This transaction requires supporting documentation. Please refer to publication 102, Sales To The United States Government, for more information about sales to the United States Government.