Drop Shipments (Publication 121)
Out-of-State Retailers

How does the drop shipper calculate the amount of tax due?

A drop shipper may calculate the amount subject to tax based on their retail selling price of the tangible personal property plus a mark-up of 10 percent. A drop shipper can use a lower mark-up percentage if they can document the lower mark-up accurately reflects the selling price charged by the true retailer to the California consumer.

Example

If a drop shipper charges a true retailer $200, the drop shipper may collect, report, and pay tax on a retail selling price of $220 ($200 +10% markup of $20 = $220).

Example

If the drop shipper knows the California consumer purchased the tangible personal property for $210, tax may be determined based on that amount. When the drop shipper charges the true retailer $200, a mark-up of 5 percent is established ($200 + 5% mark-up of $10 = 210). A mark-up of less than 10 percent is allowable in this case because the drop shipper can document the lower mark-up accurately reflects the selling price charged by the true retailer to the California consumer.