Do I Need to Charge Tax on Shopify When Dropshipping in 2025
Running a dropshipping business is exciting, but taxes can feel confusing. Many Shopify store owners ask the same question: do I need to charge tax on Shopify when dropshipping? The short answer is: sometimes yes, sometimes no. It depends on where you, your customers, and your suppliers are located.
If you’re unsure about charging sales tax, you’re not alone. Taxes are one of the biggest concerns for new dropshippers. In this guide, I’ll break it down in plain English so you understand when to charge, how to set it up, and what mistakes to avoid.
Understanding Sales Tax in Dropshipping
Taxes in dropshipping work differently from traditional retail. Since you don’t keep inventory, figuring out who charges what often creates confusion.
What Is Sales Tax in Shopify Dropshipping?
Sales tax is a small percentage added to a customer’s order at checkout. Shopify allows you to set this up automatically, but whether you must charge it depends on local rules.
Why Location Matters in Tax Collection
Your business address, your customer’s shipping address, and your supplier’s warehouse location all play a role. Tax laws usually connect to “nexus,” which means a business presence in a state, province, or country.
How Shopify Handles Tax Settings
Shopify has built-in tax tools that automatically calculate rates based on regions. You still need to tell Shopify when to apply tax and which products qualify.
Do Dropshippers Need to Collect Sales Tax?
The big question remains: do I need to charge tax on Shopify when dropshipping? Let’s explore the different scenarios.
Charging Tax in Your Home Country
If you live in a country where e-commerce tax laws apply, you’ll likely need to charge sales tax or VAT on orders shipped to customers in your own region.
Selling Across Borders
If your customers are in different countries, you may not need to charge tax immediately. However, some regions like the EU, UK, and Canada have strict rules about collecting VAT or GST even if you live abroad.
U.S. Dropshipping and State Nexus Rules
In the United States, sales tax collection depends on “nexus.” If you have a physical or economic presence in a state, you must charge tax for customers in that state. Many states also enforce marketplace rules, so Shopify may automatically collect for you.
Shopify Tax Settings Explained
Setting up taxes on Shopify is easier than you might think once you understand the basics.
Default Tax Calculations
Shopify automatically updates most tax rates by location. You just need to confirm whether your products should be taxed.
Adding Multiple Tax Regions
If you sell internationally, you can add multiple regions and let Shopify calculate each tax automatically. This ensures your store stays compliant in different countries.
Handling Tax-Exempt Products
Not every product is taxable. Some categories like clothing, food, or educational items may be exempt depending on the region. Shopify lets you mark products as tax-exempt.
Common Dropshipping Tax Challenges
Dropshippers often run into the same mistakes when setting up taxes. Knowing them can save you headaches later.
Forgetting to Register for a Tax ID
Before you collect sales tax, many countries require you to register for a tax ID. Skipping this step can cause penalties later.
Mixing Up Supplier and Store Responsibility
Your supplier doesn’t charge sales tax on wholesale orders. It’s your job as the store owner to collect it from customers when required.
Overcharging or Undercharging Customers
Setting wrong rates can lead to customer complaints or lost profits. Always double-check Shopify’s tax settings before launching promotions.
International Dropshipping and Taxes
Selling to global customers adds another layer of tax responsibility.
VAT and GST Requirements
Countries like the UK, Australia, and those in the EU require VAT or GST to be charged on digital and physical goods. Dropshippers must often register if their sales cross certain thresholds.
Customs Duties and Import Taxes
Customers may face import fees if the supplier ships from another country. It’s important to mention this in your store policies so buyers aren’t surprised.
Using Shopify Markets for Compliance
Shopify Markets helps merchants handle international pricing, taxes, and duties. This is especially useful if you dropship from China or other overseas suppliers.
Practical Tips for Managing Dropshipping Taxes
Taxes don’t need to overwhelm you if you take a simple step-by-step approach.
Keep Records Organized
Always track your sales, tax collected, and payouts. This helps during tax season and avoids mistakes with reporting.
Use Automation Tools
Shopify integrates with apps that handle tax reporting automatically. This saves time and ensures accuracy.
Talk to a Professional
Tax rules change often. Working with an accountant or tax advisor gives you peace of mind, especially if you sell across multiple regions.
FAQs About Shopify Dropshipping Taxes
- Do I need to charge tax on Shopify when dropshipping to the U.S.?
Yes, if you have nexus in a U.S. state. If not, you may not need to charge, but rules vary by state. - What happens if I don’t charge sales tax on Shopify?
You risk penalties, back taxes, and unhappy customers if authorities find you failed to comply. - Do suppliers charge me tax when I place orders?
Most suppliers don’t. You’re responsible for collecting and remitting sales tax from your customers. - Can Shopify automatically calculate VAT and GST?
Yes, Shopify can automatically apply VAT or GST rates for countries where it’s required if you set it up. - How do I know which products are tax-exempt?
Check your local tax authority’s list of exempt items. Common ones include food, clothing, and digital goods in some regions.
Conclusion
So, do I need to charge tax on Shopify when dropshipping? The answer depends on your location, your customers’ location, and tax laws in each region. Shopify makes it easier to manage taxes, but it’s still your responsibility to stay compliant.
Final Step: How AeroApps Helps You Grow Smarter
Managing a Shopify dropshipping business means wearing many hats. While you handle taxes and compliance, you also need tools that help you scale sales and create better customer experiences. That’s where AeroApps comes in.
With Aero Product Variant Options, you can customize every product with unlimited fields, swatches, and no-code controls. The Aero Form Builder lets you design professional forms to capture leads, bookings, and feedback. Using Aero Upsell & Bundle, you can boost your average order value with smart offers and personalized bundles. And with Aero Volume Booster, you run promotions like BOGO, tiered pricing, and time-limited discounts that drive revenue.
Instead of juggling multiple apps, AeroApps gives you a complete Shopify toolkit built to help you sell smarter and grow faster. While Shopify takes care of tax automation, AeroApps takes care of conversions, customer experience, and profit growth.
If you want to focus on scaling without the busywork, AeroApps is your perfect partner in building a profitable dropshipping business.
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