Drop shipping is not just another distribution method but an entirely different way of doing business that involves the integration of suppliers and retailers into many of the supply chain roles that are typically kept separate in wholesale. Despite its many advantages, therefore, drop shipping also has a lot of unique and complex challenges that must be navigated correctly in order to function at peak efficiency.
For traditional brick-and-mortar retailers, the tax regulations are straightforward. Retailers are (generally) required to collect state sales tax from customers making purchases in their stores.
With drop shipping, however, the situation is much more complex. A retailer in one state might forward an order to a supplier in another state, who then ships the item to a customer in a third state. With two separate sales among three parties in three different states, which party is responsible for collecting and paying sales taxes on the products sold? And to which states are they owed?