The Hidden Sales Tax Rule That Caught Me Off Guard as a New Dropshipper
When I launched my online store, I expected challenges—marketing, product sourcing, maybe the occasional return. But Minnesota sales tax? That caught me completely off guard.
I’m based in Seattle, selling home gym equipment online. My fulfillment partner (a U.S.-based brand) ships directly from Minnesota. So when Shopify flagged a tax alert for that state, I was confused. What does Minnesota have to do with me?
Turns out, everything, if your supplier stores inventory there.
What I Didn’t Know About Nexus
When you’re dropshipping, it feels like your business is fully online. But in the eyes of the state, if your products are stored in a Minnesota warehouse, you have a “physical nexus.”
In simple terms, that means Minnesota considers you responsible for:
Registering for a Sales Tax ID
Collecting sales tax from customers in MN
Filing and remitting that tax regularly
⚙️ Shopify Made Me Aware
Shopify alerted me with a message like: “You may be required to collect sales tax in Minnesota.”
But here’s the important part: Shopify won’t let you collect sales tax in that state unless you’ve officially registered and entered your Sales Tax ID.
What I Did Next (And You Should Too)
Once I realized I couldn’t ignore this, I dove into research mode. I didn’t want to get hit with penalties, back taxes, or any issues that could snowball later. If you’re in a similar spot—maybe using a U.S.-based supplier or a third-party logistics service (3PL)—you should take these steps right away to stay compliant:
Confirmed nexus laws with the Minnesota Department of Revenue
Registered for a Sales Tax ID online (super quick process)
Entered my tax ID into Shopify under Settings → Taxes
Set calendar reminders to file taxes quarterly (even if there’s just one order)
Why This Matters for You
If you're new to Shopify, dropshipping, or eCommerce in general, here's what you should check ASAP:
Ask your supplier: Where is your inventory stored?
Do a quick check for sales tax obligations in those states
Don’t collect tax until you’re registered with the state
Use tools like Shopify Tax, TaxJar, or Avalara to automate reporting
Pro Tip: Dropshipping Isn’t 100% “Hands-Off”
Yes, you don’t ship the products yourself—but state governments don’t care. Where your inventory physically exists matters. And if you're using U.S.-based suppliers, chances are you'll have tax nexus in at least one state.
This isn’t legal advice—just a hard-earned lesson from someone who's still figuring it out.
🔚 Final Thoughts
If you’re running a lean Shopify store like me, every little detail counts. Don’t let sales tax catch you off guard. Knowing where your inventory lives can save you a headache (and possibly some fines) down the road.
Got questions about dropshipping or tax setup on Shopify? Leave a comment or DM me. I’m happy to share everything I’m learning as I grow this business step by step.
