Dropshipping Sales Tax in 2025: Your Complete Guide to Nexus, Responsibilities, and Avoiding Double Taxation

Why 2025 Changes Everything

If you're running a dropshipping business in 2025, understanding sales tax isn't optional anymore—it's mission-critical. Since the landmark South Dakota v. Wayfair Supreme Court decision in 2018, the sales tax landscape has been evolving faster than a cheetah chasing its prey across the savanna. And trust me, after years of helping entrepreneurs navigate the global eCommerce marketplace, I've seen firsthand how tax compliance can make or break a business.

The game has changed. States are hungry for tax revenue, thresholds are shifting, and the definition of "nexus" has expanded beyond anything we imagined five years ago. In 2025, Alaska eliminated its transaction count threshold, joining a growing movement toward simplified compliance. But don't be fooled—simpler doesn't mean easier.

Whether you're just launching your first dropshipping store or you're scaling to seven figures, this comprehensive guide will walk you through everything you need to know about sales tax nexus, who's responsible for what, how to avoid getting taxed twice, and what you absolutely must do to stay compliant in 2025 and beyond.

Understanding Sales Tax Nexus in the Post-Wayfair Era

Let's start with the foundation: nexus. This legal term describes the connection between your business and a state that triggers your obligation to collect and remit sales tax. Before 2018, nexus was simple—if you had a physical presence in a state (store, warehouse, office, employees), you collected tax there. End of story.

Then came the Wayfair decision, and everything changed overnight.

Physical Nexus: The Traditional Connection

Physical nexus still exists and is triggered when you have:

• Office or retail locations in a state
• Warehouse or storage facilities (including inventory stored by third parties)
• Employees or contractors working in the state
• Sales representatives or agents conducting business activities
• Property or equipment owned or leased in the state

Economic Nexus: The Modern Reality

Economic nexus is the big kahuna for online sellers. Post-Wayfair, every state with a sales tax (that's 45 states plus Washington D.C.) has enacted economic nexus laws. The concept is straightforward: if you sell enough goods or services to customers in a state, you've established a connection that requires you to collect sales tax—period.

This means you could be sitting in your Houston office (like me, aboard my yacht!), never set foot in California, but if you hit their economic threshold of $500,000 in sales, congratulations—you now have California nexus and all the compliance headaches that come with it.

Economic Nexus Thresholds by State (2025 Updates)

The majority of states have settled on $100,000 in gross revenue OR 200 transactions as their economic nexus threshold. However, 2025 has brought some significant changes, and several states march to their own drummer.

What Sales Count Toward Your Threshold?

This is where it gets messy. States calculate economic nexus differently:

• Gross Sales: Includes ALL sales—taxable, exempt, and wholesale
• Retail Sales: Excludes wholesale/resale transactions
• Taxable Sales: Only counts sales that would be subject to sales tax

For example, California includes gross receipts from all tangible personal property and digital products delivered to California customers. Arizona counts gross proceeds of sales of TPP and services, including exempt sales, but excludes marketplace facilitator sales and rentals.

Dropshipping 101: The Three-Party Tax Triangle

Before we dive deeper into who owes what, let's establish exactly what dropshipping is and why it creates such tax complexity.

In a traditional dropshipping model, there are three parties:

1. The Retailer (YOU): You market and sell products through your eCommerce store
2. The Supplier/Manufacturer: They own the inventory and fulfill orders
3. The Customer: They order from you and receive products directly from your supplier

Here's how a typical transaction flows:

• Customer places an order on your Shopify store for $100
• You collect payment and place an order with your supplier for $50 (wholesale)
• Supplier ships product directly to your customer
• You keep the $50 difference (minus expenses)

Why This Creates Tax Complexity

In dropshipping, there are actually TWO transactions happening:

The challenge? All three parties could be in different states with different tax rules. Your supplier might have nexus where you don't, or vice versa. This is where confusion—and double taxation—often happens.

Who's Responsible? Breaking Down Tax Obligations

The golden rule in U.S. sales tax: Sales tax is imposed on the final consumer. The retailer (that's you) is generally responsible for collecting tax from customers and remitting it to the state. But dropshipping muddies the waters.

The Retailer's Responsibilities (YOU)

As the retailer in a dropshipping relationship, you are primarily responsible for:

• Determining nexus: Know where you have obligations
• Registering for sales tax permits in states where you have nexus
• Collecting sales tax from customers in nexus states at the correct rate
• Filing sales tax returns on time (monthly, quarterly, or annually depending on volume)
• Remitting collected taxes to the appropriate state and local authorities
• Providing resale certificates to suppliers to avoid paying tax on wholesale purchases

The Supplier's Responsibilities

Your supplier (the dropshipper) has different obligations:

• Accepting valid resale certificates from retailers to exempt wholesale transactions
• Charging sales tax if no valid certificate is provided
• Maintaining certificate documentation in case of audit
• Understanding their own nexus obligations in states where they store or ship inventory

The Customer's Responsibilities

Customers have an obligation too, though it's rarely enforced:

• If you don't collect sales tax (because you don't have nexus), customers are technically required to pay use tax when filing their state tax returns
• Use tax is the customer's responsibility to self-report
• In reality, very few consumers pay use tax, though enforcement is increasing for business purchases

Avoiding Double Taxation: The Resale Certificate Solution

One of the biggest nightmares in dropshipping is double taxation—paying sales tax to your supplier AND collecting it from your customer. This destroys your margins and creates accounting chaos. The solution? Resale certificates.

What Is a Resale Certificate?

A resale certificate (also called a resale exemption certificate or reseller's permit) is a document that proves you're purchasing goods for resale, not for personal use. It tells your supplier: "Don't charge me sales tax—I'm going to resell this and collect tax from my customer."

Types of Resale Certificates

There are three main types of resale certificates you need to know about:

1. State-Specific Certificates: Issued by individual states, valid only in that state
2. Multistate Tax Commission (MTC) Certificate: A blanket certificate accepted by 38 states
3. Streamlined Sales Tax (SST) Certificate: For sellers registered through the Streamlined Sales Tax program, accepted in all SST member states

Which States Accept Out-of-State Certificates?

This is crucial for dropshippers. Not all states play nice with out-of-state resale certificates.

How to Obtain Resale Certificates

Critical Certificate Do's and Don'ts

What If Your Supplier Won't Accept Your Certificate?

Unfortunately, this happens. Some suppliers, especially large retailers like Target, actively discourage or refuse resale certificates because they don't want to encourage resellers. Here's what to do:

• Find alternative suppliers who are reseller-friendly
• Calculate the tax into your costs if you must use that supplier
• Ensure you're using the correct certificate for that state—many rejections are due to wrong forms
• Provide additional documentation like your business license or articles of incorporation

What's Changed in 2025: State-by-State Updates

2025 has brought several significant changes to the sales tax landscape. Here's what you need to know to stay compliant:

Alaska: Transaction Count Elimination

The biggest change this year comes from the Last Frontier. Effective January 1, 2025, Alaska eliminated the 200-transaction threshold requirement. Now, remote sellers only need to meet the $100,000 gross sales threshold to establish economic nexus.

The Broader Trend: Revenue-Only Thresholds

Alaska is part of a growing movement. More states are recognizing that transaction-count thresholds create unnecessary administrative burden. The trend is moving toward:

• Revenue-only thresholds (no transaction counts)
• Broader definitions of what creates nexus
• Stricter enforcement and auditing
• Better interstate cooperation on enforcement

Marketplace Facilitator Expansion

All 45 states plus D.C. with sales tax now have marketplace facilitator laws on the books. In 2025, we're seeing:

• Expanded definitions: States are broadening what qualifies as a "marketplace facilitator"
• Local tax responsibility: Some states are shifting local tax collection to marketplaces
• Better reporting: Marketplaces must provide more detailed seller reports

Increased Audit Activity

States to Watch in 2025

Keep your eye on these states for potential changes:

Marketplace Facilitator Laws: When Amazon Pays Your Taxes

If you're selling through Amazon, eBay, Etsy, Walmart, or similar platforms, marketplace facilitator laws are a game-changer. But they don't eliminate all your responsibilities.

What Is a Marketplace Facilitator?

A marketplace facilitator is a platform that:

• Lists products for sale on behalf of third-party sellers
• Processes payments from buyers
• May assist with order fulfillment
• Provides the infrastructure for the sale

Think Amazon, eBay, Etsy, Walmart Marketplace, Facebook Marketplace (for some sales), and similar platforms.

How Marketplace Facilitator Laws Work

In all 45 states with sales tax, marketplace facilitators must collect and remit sales tax on behalf of their third-party sellers once they hit the economic nexus threshold. The marketplace—not you—is responsible for:

• Calculating the correct tax rate
• Collecting tax at checkout
• Filing sales tax returns
• Remitting taxes to state authorities

Why You Still Need to Track Marketplace Sales

Even though Amazon collects the tax, marketplace sales still count toward YOUR economic nexus calculation. Here's why that matters:

• You might hit the $100,000 threshold through marketplace sales alone
• Once you have nexus, ALL your sales in that state require tax collection
• If you start selling on your own website, you need to know where you already have nexus
• Some states require zero returns even for marketplace-only sellers

The Multi-Channel Seller Dilemma

If you're selling on both Amazon AND your Shopify store, here's what happens:

What About Dropshipping Through Amazon?

If you're using Amazon FBA or dropshipping through Amazon, marketplace facilitator laws apply. But there's a twist with traditional dropshipping:

• If the sale happens ON Amazon's platform → Amazon collects the tax
• If you're dropshipping FROM Amazon to fulfill orders from YOUR website → YOU collect the tax
• Amazon storing your inventory creates physical nexus for you in states with Amazon warehouses

Step-by-Step Compliance Strategy

Alright, let's get practical. Here's your roadmap to sales tax compliance as a dropshipping business:

Phase 1: Discovery and Assessment (Week 1)

Phase 2: Registration (Weeks 2-4)

Phase 3: Implementation (Week 5)

Phase 4: Ongoing Compliance (Monthly/Quarterly)

Tools and Software to Make Your Life Easier

Don't try to manage sales tax manually. The complexity will bury you. Here are solutions that integrate with most eCommerce platforms:

Real-World Scenarios: Who Pays What and When

Let's walk through specific scenarios so you know exactly who's responsible in different situations.

Scenario 1: Neither You Nor Supplier Have Nexus

Scenario 2: Supplier Has Nexus, You Don't

Scenario 3: You Have Nexus, Supplier Doesn't

Scenario 4: Both You and Supplier Have Nexus

Scenario 5: Selling Through Amazon

Scenario 6: The Nightmare Scenario (Everything Wrong)

Ultimate Dropshipping Tax Compliance Checklist

Use this comprehensive checklist to ensure you're covering all your bases. Print it, save it, review it quarterly!

Final Thoughts: Making Tax Compliance Your Competitive Advantage

Look, I know sales tax compliance isn't sexy. It's not why you got into eCommerce. You started your dropshipping business to create freedom, build something meaningful, and generate income on your terms. The last thing you want to worry about is arcane tax regulations and filing deadlines.

But here's the truth I've learned coaching hundreds of entrepreneurs to seven-figure success: proper tax compliance is not a burden—it's a competitive advantage.

While your competitors are ignoring sales tax, hoping they won't get caught, you'll be building a legitimate, scalable business that can withstand audits, attract investors, and eventually sell for top dollar. Clean tax compliance is one of the first things buyers look at during due diligence.

2025 has brought changes that simplify some aspects (goodbye, transaction counts!) while ramping up enforcement in others. States are getting smarter, sharing data, and pursuing online sellers more aggressively than ever. The era of flying under the radar is over.

Remember, living on my yacht here in Houston didn't happen by accident. It happened because I treated my business like a business—with proper systems, compliance, and planning. You can't build a seven-figure eCommerce empire on a shaky foundation.

Sales tax compliance is part of that foundation. Master it now, and you'll thank yourself later when you're scaling without fear of audits, when you're sleeping soundly knowing everything is in order, and when you're selling your business for maximum value.

The path to entrepreneur heaven isn't just about revenue—it's about building something sustainable, legitimate, and valuable. And in 2025, that means getting your sales tax house in order.

You've got this. Sales tax is just another challenge to conquer on your entrepreneurial journey. Approach it systematically, use the tools available, and don't try to do everything manually. Your time is better spent growing your business than calculating tax rates.

Now go forth and sell with confidence, knowing you're building your empire on solid ground!

Veronica Jeans
eCommerce Business Consultant & Shopify Expert
Teaching from my floating office in Houston, Texas