General Publications July 2018

"Portfolio 1340-2nd: Sales and Use Taxes: Drop Shipment Transactions," Bloomberg BNA, July 2018.

Bloomberg Tax Portfolio, Sales and Use Taxes: Drop Shipment Transactions, No. 1340-2nd, analyzes the general issues that arise from drop shipment transactions, transactions which generally involve three parties, a customer, retailer and a third party supplier who is directed to deliver the goods directly to the customer. It is the triangular structure of these transactions that raises numerous sales and use tax issues.

The portfolio addresses these issues according to three broad categories. The first category encompasses the legal issues that arise under the specific state statutes and regulations. Included are discussions of the tax treatment of the three parties to a drop shipment.

Second are constitutional issues that arise from imposing collection responsibilities on out-of-state sellers. Considered in particular are Due Process and Commerce Clause nexus issues as they relate to drop shipment transactions.

The third category, administrative and policy issues, includes discussions of registration requirements, and obtaining and maintaining exemption documents. In addition, the Multistate Tax Commission's and Streamlined Sales and Use Tax Agreement's standards regarding the taxability of drop shipment transactions are considered.

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