South Dakota Sales/Use Tax — Drop Shipments Guide

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1 | August 2023 │ South Dakota Department of Revenue │ Drop Shipments Sales and Use Tax Liability Drop shipments occur when a retailer accepts an order from a customer, then places the order with a supplier, and the supplier delivers the product directly to the retailer's customer. • A typical drop shipment sale involves three parties: supplier, retailer, and customer. • Products include items and services delivered electronically. • The supplier may deliver the product in their own truck, by common or contract carrier, or over -the-counter at the supplier's location.

Drop Shipments The purpose of this tax fact is to provide general guidelines on how South Dakota taxes apply to drop shipments. It is not intended to answer all questions that may arise. The information contained in this fact sheet is current as of the date of publication. August 2023 http://dor.sd.gov/ 1-800-829-9188 Drop Shipments A business is required to have a South Dakota sales tax license and must collect and remit sales tax on taxable transactions if: • the business has a physical presence in South Dakota. If the business does not have physical presence but has more than $100,000 in gross sales into South Dakota in the previous or current calendar year, the business is required to license their business and remit applicable sales tax.

Gross sales or transactions include selling, renting or leasing products or services (including products delivered electronically) into South Dakota (SDCL ch. 10-64).

For more information on licensing requirements, review the Licensing Requirements Tax Fact. For more information on sales and use tax, review the Sales Tax Guide.

Supplier's Tax Liability - if the supplier meets the criteria listed above, the supplier that delivers products in South Dakota must collect and remit South Dakota sales tax unless their customer, the retailer, provides an exemption certificate claiming resale. • The retailer may provide their tax permit number from their state on the exemption certificate. • If the retailer provides the supplier an exemption certificate, the supplier does not owe sales or use tax. Apply for a sales tax license online or through the Streamlined system at www.streamlinedsalestax.org.

2 | August 2023 │ South Dakota Department of Revenue │ Drop Shipments Example: A supplier in Wisconsin sells a product to a retailer in Missouri. The Missouri retailer sells a product to a customer in South Dakota. The supplier in Wisconsin ships the product directly to the customer in South Dakota.

Sales Tax Application: • Point of receipt is in South Dakota so South Dakota laws apply. • Retailer is not licensed in South Dakota because the retailer does not have a physical presence and does not meet the remote seller criteria. The retailer can give the supplier a valid exemption certificate from their own state (MO in this case). • Supplier invoices the retailer for the product, plus delivery. The supplier does not charge South Dakota tax because the item was for resale. • Retailer bills the customer for the product, plus delivery. No tax is collected because the retailer is not licensed in South Dakota.

Use Tax Application: • The customer is the END USER so the customer owes SD use tax. Contact Us If you have any questions, please contact the South Dakota Department of Revenue.

Call toll-free: 1-800-829-9188 Business Tax Division Email: bustax@state.sd.us Website: http://dor.sd.gov/ Mailing address and office location: South Dakota Department of Revenue 445 East Capitol Ave Pierre, SD 57501 Sales and Use Tax Liability (cont.) Retailer's Tax Liability - if the retailer meets South Dakota's sales tax license criteria, a retailer must collect and remit sales tax based on where the product is delivered, unless an exemption applies. • The retailer does not owe sales or use tax if the customer provides an exemption certificate to the retailer. • If the retailer does not have a South Dakota sales tax license because they do not meet the criterion, they are not required to collect and remit South Dakota sales tax. Customer's Tax Liability - if the retailer does not collect sales tax, the customer must remit use tax directly to the Department of Revenue unless the customer is an exempt entity or purchased the product for resale. • To submit a use tax payment online, click here or complete the use tax form.