He, guys.
Today I've got a really fun, exciting video for you all.
I'm going to talk about what tax you need to pay as an Ali Express drop shipper.
Are you all excited?
I bet you are.
But look, here's the thing.
I understand that when you're starting a new business there's a lot more fun things that
you'd rather be thinking about, like how you're gonna make so much money that you're gonna
be able to buy your dream car.
But when you make money, well, you need to pay taxes.
And if you don't pay your taxes then the feds are gonna come, knock on your door, and they're
gonna pick up both you and your car.
The car will get dropped off at the auction house and you'll get dropped off in prison.
So unfortunately, you don't actually have a choice.
If you want to reap the financial rewards of drop shipping then you need to meet your
tax obligations.
Luckily, I've actually got some pretty good news for all of you Ali Express drop shippers
out there, because believe it or not, meeting your tax obligations is actually really easy.
Now, I've really wanted to make this video after I made one two years ago called, "How
to pay sales tax when drop shipping."
In that video I scared a lot of people and made the whole tax thing sound really hard
and complicated.
Well, the only reason why it sounded hard and complicated in their video was because
of the fact that I was actually mostly talking about how to meet your sales tax obligations
when working with USA-based drop shippers.
Now if you were using drop shippers that are based in the USA, then yes, the honest truth
is that meeting your tax obligations can be quite complicated and annoying.
But if you are using drop shippers from Ali Express, then guess what?
That means that you are using suppliers that are based in China and not the USA, which
makes things way simpler.
When you first start watching this video it might seem really overwhelming.
But trust me, if you stay until the end you will see that it's a lot more simple than
you might think.
Question one.
What tax do I need to pay?
First of all, I need to preface this video and tell you guys that I'm only talking about
your tax obligations that you need to meet when you're selling to customers that are
based in the USA.
Why?
Well it's because that is what we teach on this channel.
We teach you how to start an Ali Express drop shipping store targeting USA-based customers.
And I also want to note that I am not a qualified accountant.
You should not use this advice as a substitute for a qualified accountant.
Okay, with that out of the way let's talk about one type of tax that everyone needs
to pay.
Everyone needs to pay income tax.
When you are drop shipping, you sell goods, and any money that you make as profit on those
goods counts as income and you need to pay income tax on that profit.
For the vast, vast majority of people watching this video, when you're paying income tax
you are required to pay it to your local country of residence.
So if you are living in Canada but you're drop shipping to customers based in the USA,
that doesn't matter.
You still pay income tax to the Canadian government.
And if you live in Australia, again, it doesn't matter if you are drop shipping to customers
based in the USA.
You still pay your income tax to the Australian government.
And of course, if you live in the USA, then you are required to obey the federal and the
state income tax laws and pay your income tax accordingly.
So income tax is a form of tax that everyone needs to pay.
However, there is another form of tax that not everyone will be required to.
Not everyone is required to collect and pay sales tax.
For those of you out there that don't know, sales tax is when a governing body places
a tax on goods and services sold within a jurisdiction.
So if a customer lives in the jurisdiction that you are obligated to pay sales tax in,
then you need to collect sales tax on that customer's order and then pay it back to that
jurisdiction.
So if you are obligated to pay sales tax to the state of New York, then every time a customer
that lives in the state of New York purchases an item from you, you are required to collect
sales tax on that order and then pay it back to the New York state.
In the USA, the federal government, which is the government that governs the whole of
the country, does not require you to collect and pay sales tax.
Instead, each individual state does.
So what you do is you collect sales tax and then pay it back to the state.
But don't worry, because you don't have to pay and collect sales tax for every each individual
state within the USA.
For those of you out there that are required to pay some sales tax, the chances are that
you're probably only gonna have to collect it for a single state.
You only need to pay and collect sales tax if you have nexus in a state.
So let's talk about what nexus is and how you can have it in a state.
Nexus is a legal term and it means that you have a sufficient physical presence in a state
that you now require you to collect and pay sales tax on customers that live within it.
So there you go.
To be obligated to collect and pay sales tax within a USA state, you need to have a physical
presence in it.
That means if you live outside of the USA, whether it be the UK, Australia, Canada, India,
or hey, even New Zealand, the chances are you don't have a physical presence in any
state in the USA, which means that you don't have nexus in it.
Which means that you have a slight advantage over your USA-based competitors because of
the fact that you're not obligated to collect and pay any sales tax.
Lucky you.
Feel free to gloat about it in the comments.
And if you live in one of these states, then as you probably already know, you live in
a sales tax haven.
So congratulations.
You don't have to collect sales tax.
Feel free to gloat about it in the comments section below.
If you do live in the USA and you don't live in a sales tax haven, then you basically have
nexus in whatever state you live in because living in a state is a very large physical
presence.
And if you have an office or a warehouse in another state that you don't live in, then
you'll almost certainly have nexus in that state as well.
But there are some less obvious ways that you could be deemed to have nexus in a state
by having a sufficiently large physical presence, and the truth is is that what counts as that,
the rules around it, they vary from state to state.
For instance, in some, having a remote employee based in a state constitutes as having nexus.
And it doesn't matter if that employee is for a completely different business that is
unrelated to your drop shipping one.
You'll still have nexus, which means you will need to collect and pay sales tax on purchases
made by customers that live within it.
But the honest truth is that for most of my viewers here, you are likely to fall into
one of two camps.
One, you live in the USA but you only have nexus in that state that you live in.
Two, you live outside the USA and you don't have nexus in any state.
Now if you do think that you might be an exception to this.
Maybe you've got lots of properties in multiple states or maybe you've got a large business
which spills into other ones.
Then I do suggest talking to an accountant.
They should be able to sit down and help you figure out which ones you have nexus in and
which ones don't, and the chances are at most you will have it in only a few states.
Question two, how do I collect and pay sales tax?
Okay, so you've figured out how many states you have nexus in and again, for most of my
viewers here, you'll probably only gonna have it in the state that you live in.
Now how do you collect and pay sales tax on orders made by customers that live within
them?
Luckily, if you are using Shopify then this is super duper simple.
Let me switch over to my computer and show you how to set it up.
Okay, start out by signing in to your Shopify account.
Then come and click the products button on the menu.
Come and click this check box to instantly select all of your products.
Then click edit products.
We are now entering the bulk product editor.
Now select add fields button.
Click the charge taxes.
Now you'll be able to select which products you are going to be allowed to have taxes
charged to.
I recommend selecting all of your products.
I'm gonna pause this video and select all of mine in this example store now.
All right.
So as you can see, I've gone through and selected my products.
When you've done that, click save.
Perfect.
Now come and click the settings button.
On the settings page, come and click on taxes.
Now as long as you've got a USA shipping option set up in your store, you'll be able to select
United States next to tax rates.
Now you need to enter in what state you have nexus in.
As an example, I'm entering New York.
I don't actually have nexus in New York, though.
And type in your zip code.
Then click add state.
And that's it.
Shopify will automatically collect sales tax from your customers based in that state.
Be sure to add all of the states that you have nexus in.
Now something that you may not realize is that Shopify actually takes care of some pretty
complicated stuff behind the scenes.
For instance, did you know that New York as a destination-based sales tax state, that
means that if you have nexus in it, then you need to collect tax based upon where the customer
lives in New York, and this can very drastically.
And that compares to origin-based states like Arizona where you charge sales tax based up
on where you live in.
It means in that every single customer has a flat-based rate.
So destination-based states are a lot more complicated.
So let's say that you've got a customer based in New York City.
That means that you would need to collect the following sales tax.
State tax of 4%.
City tax of 4.5%.
And the metropolitan commuter transportation district surcharge of 0.375%.
Which adds up to a grand total of 8.875% sales tax that you need to collect on every purchase
made from customers that live in New York City.
Or if a customer lived in the city of Buffalo, which is also in the state of New York, then
you would need to be collecting the following taxes.
State tax of 4% and the district tax of 4.75%, which adds up to a grand total of 8.75% tax
that you need to collect on all purchases made by customers that are based in Buffalo.
So the rate that you need to collect for all customers that live in destination-based states
is always changing, which is super confusing, right?
But take a look at this.
I did a test purchase on my Shopify store for $10 using a New York City address.
Shopify automatically calculated and added the correct sales tax, which is 8.875%.
And I did another test purchase in my Shopify store using a Buffalo address.
And again, Shopify automatically calculated the correct sales tax of 8.75%.
See?
Super duper simple.
And when it comes time to actually pay your sales tax, there is a nifty app called TaxJar,
which I strongly recommend because it really helps to massively automate the process for
you.
I will have a link in the video description on how you can get a free 30-day trial.
Please note that it is an affiliate link.
Here at Wholesale Ted, all of our YouTube videos are free and affiliate links help us
keep our videos free.
So there you go.
It turns out that something that seems really scary and hard to deal with is actually really
simple.
We'll tell you now, every day we do get asked questions on this channel that, if the person
asking them had done a little bit of research they could've quite quickly found an answer
for it.
For example, a question that we get asked all the time here at Wholesale Ted is whether
customers will actually be willing to wait two to four weeks for an item to arrive from
your Chinese supplier.
Well, if the person who asked that question had clicked through and browsed through our
videos before asking it, they would've discovered that we've actually got one that answers this
question.
And of course, if they watch through the video they'd discover that it's not a problem after
all.
Now, I'm not saying this to chastise.
My point here is that with a bit of research, questions that seem scary or seem hard usually
have really simple solutions.
Thanks for watching this video.
If you liked it, I'd appreciate if you gave this video a thumbs up and subscribe to us
here at Wholesale Ted for more great videos about selling online.
And when you subscribe, be sure to click that little notification bell next to the subscribe
button so that you don't miss out on any of our videos.
And if you have any questions, be sure to ask them in the comments section below.
Again, I'm not a qualified accountant but I will do my best.
And of course, before you go, I've got one last freebie I'd like to give you.
Here at Wholesale Ted we have a free e-book.
How to make $10,000 a month online with drop shipping.
You can find the link on how to download this absolutely free e-book in the video description
below.
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