A drop shipment is a sale where a retailer accepts an order from an end-consumer and then places the order with a third party (e.g. a print on demand manufacturer or print api platform) and instructs the third party to produce and then deliver the item to the customer. 

When it comes to sales taxes, the drop shipping fulfilment model is made particularly complex due to issues of nexus, product sourcing, customer location, and the location of our dropshipping print labs. 

Simplified, our drop shipment sales tax model involves:

  1. Retailer (You) taking the end-customer order and charging appropriate sales taxes;
  2. Retailer (You) placing the order with the drop ship platform (Prodigi);
  3. Drop shipping platform (Prodigi) charges Retailer (You) with the appropriate sales taxes for that specific order (Prodigi determines these automatically based on each order’s specific delivery criteria);
  4. Platform (Prodigi) places the order with the manufacturing lab;
  5. Manufacturing lab (Partner or Prodigi) charges Platform for order and applies the correct local sales taxes for the order; 
  6. Manufacturing lab (Partner or Prodigi) contracts with a courier partner to deliver the product to the customer.
  7. Courier company invoices Manufacturing lab (Partner or Prodigi) for shipping service and applies correct local sales taxes to shipment invoice. 

If the Retailer (You) have nexus in the State where the sale occurs, the Retailer (You) collects sales tax from the end-customer, even if the retailer engages a third-party drop shipping platform or print lab to manufacture and deliver the product.

Prodigi will only ever responsible for the sales tax nexus of any platform transactions if the Retailer (You) are using our payment gateway services (e.g. via our mobile SDKs) and we are acting as the Merchant of Record (see "How are sales taxes handled when Prodigi acts as the Merchant of Record?").

GUIDANCE WARNING: Please note that the above guidelines do not constitute tax, legal, or other professional advice and must not be used as such. It is the sole responsibility of all Prodigi clients to comply with all legal and sales tax requirements for issuing sales tax or VAT invoices in respect to your sales transactions. If you are unsure as to what the contents of an invoice you issue to your customers should be, we suggest that you contact your tax advisor. Prodigi cannot assist you with any legal or tax advice as we’re not accountants or legal experts, and we stress that none of the above may be taken as professional advice.