States have many answers, few standards on taxation of drop shipments

One of the most fertile grounds for state tax audit assessments of companies that do business in more than one state is the simple drop shipment. A simple business transaction, the drop shipment can become a nightmare of complexity from a sales and use tax standpoint. Many states, hungry for revenue, will hold a drop shipper responsible for taxes on items shipped into their jurisdiction even if the actual seller is not required to collect taxes on that sale. Some states require that manufacturers and distributors remit tax on the sale price of the drop shipped items—information the drop shipper may not be privy to since its customer made the actual sale and is not likely to want the manufacturer or distributor to know what it is selling items for. Into these murky waters CCH’s editors for Sales & Use Tax Alert waded with noted sales tax expert Diane Yetter. Together, they created and compiled a survey of states using specific scenarios to learn what the exact policy of states would be on drop shipments. The scenarios were chosen for their real-world nature and all of the answers were reviewed by Yetter and, in some cases sent back for clarification by the states. In the August 1 issue of Sales & Use Tax Alert, CCH’s editors provide an executive summary of the results of this survey, which is printed in full in the new book from CCH, Drop Shipments: Taxation, Compliance and Planning.

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This story is from the CCH’s monthly Focus on Tax newsletter, which provides advise and guidance on federal and state tax issues for tax and accounting professionals.

Read this article from CCH’s Journal of Taxation of Financial Products.

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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