If you're planning to start a dropshipping business, you need to understand the legal requirements for setting up and running your business. Most dropshipping companies need a sales tax ID or a reseller certificate from their state's tax department. In some jurisdictions, there may also be local sales taxes. Business licenses are also necessary for dropshipping companies, although the requirements can vary from state to state.
To legally ship products or sell them online in the United States, you must request an employer identification number or sales tax identification number. This applies whether you're selling on an online marketplace like Amazon or eBay, or on a platform like Shopify where you can customize your store. In the early stages of drop shipping, an employer identification number (EIN) is not required, but it becomes necessary later for tax purposes. Because dropshipping suppliers don't charge you taxes on the items they sell to you, it's likely that you, as a dropshipping store owner, will have to charge taxes on the products you sell to your customers.
To give you an idea of what this looks like in practice, let's say you have a direct shipping business for jewelry and your name is “George Adams”. In this case, you would need to get both an employer identification number and a sales tax identification number. It's important to consult a tax professional about what your sales tax obligations will be as a direct shipper. Different countries have different requirements and laws for permits and licenses for direct shipping and online sales.
If your dropshipping business doesn't comply with the laws applicable to your business, you may be subject to fines. To get started with dropshipping, you also need to understand what seller permits and licenses your online business might need. For example, if you're going to operate your dropshipping business in the United States, you should understand that some states don't have a state sales tax. In the United States, a limited liability company (LLC) is a type of corporate structure that protects its owners from being held personally responsible for the obligations of the company.
