Drop Shipments (Publication 121)
Out-of-State Retailers
Who is liable for the tax when a California retailer delivers a product on behalf of an out-of-state retailer?
When an out-of-state retailer holds a valid California seller’s permit or a California Certificate of Registration-Use Tax, the out-of-state retailer is liable for tax due on any sale made in California, even if the product is delivered by another California retailer. However, if the out-of-state retailer does not hold a seller’s permit or Certificate of Registration-Use Tax and the retail sale of the property is subject to California sales or use tax, the California retailer (drop shipper) is liable for the tax.
Example
A California consumer orders and pays for a doghouse from ABC Supplies (ABC), an out-of-state retailer who is not registered to collect and pay California sales or use tax. ABC buys the doghouse from XYZ, a California retailer, and directs XYZ to deliver the doghouse to the California consumer. XYZ delivers the doghouse directly to the California consumer on behalf of ABC. XYZ is the drop shipper and is liable for the sales tax due on the transaction because ABC is not registered to collect tax in California.
Revision July 2021