Section 35.01.02.022 - DROP SHIPMENTSSections 63-3615A, 63-3619, 63-3620, 63-3621, & 63-3622, Idaho Code
01.In General. Drop shipments refer to shipments made by a seller to someone other than its buyer. For example, a Manufacturer produces Product X. The Retailer is a distributor of Product X. The Customer, which does business only in Idaho, is the ultimate buyer and consumer of Product X. The Customer places a purchase order with the Retailer. The Retailer, having no inventory in stock, places a purchase order with the Manufacturer. The Retailer directs the Manufacturer to ship the product directly to the Customer in Idaho. The Manufacturer, however, bills the Retailer for the product and receives payment from the Retailer. The Retailer bills and receives payment from the Customer. The nature and use of Product X is not within any of the specified exemptions contained in the Idaho Sales Tax Act. The Manufacturer may or may not be required to have an Idaho seller's permit. If the Manufacturer sells directly to the Customer without the presence of a retailer, the Manufacturer is acting as a retailer and the transaction is not a drop shipment. (3-31-22)02.Parties to the Contract. The Idaho sales tax is imposed upon sales transactions. Since there is no sales transaction between the Manufacturer and the Customer, the Manufacturer will not be required to collect and remit sales tax from the Customer. (3-31-22)03.Sales Tax Responsibilities of the Permitted Manufacturer. If the Manufacturer is required to have a valid Idaho seller's permit, it has sales tax responsibilities as to the sales transaction between itself and the Retailer. (3-31-22) a. If the Retailer has an Idaho seller's permit, it will be necessary for the Retailer to provide the Manufacturer with a resale certificate evidencing its intentions to resell Product X. If the Retailer does not provide the resale certificate, then the Manufacturer charges Idaho sales tax on the sale of tangible personal property sold to the Retailer and delivered in Idaho. If the Retailer provides a resale certificate, the Retailer then charges the Customer Idaho sales tax and remits the tax to the Commission together with a proper return. (3-31-22)b. If the Retailer is not required to have an Idaho seller's permit, a resale certificate from the Retailer to the Manufacturer is unnecessary. If the Retailer has no nexus with the state of Idaho, it can accrue no sales tax liability and the sale between the Manufacturer and the Retailer is not subject to the jurisdiction of the Commission. The Manufacturer must obtain evidence of this fact in the form of a letter from the Retailer stating that they have no nexus in Idaho or by any other clear and convincing evidence. The Customer's use or consumption of Product X within Idaho will cause it to accrue a use tax liability. The Customer will be required to file a use tax return and report and remit the use tax on the purchase of Product X. (3-31-22)04.Sales Tax Responsibilities of the Unpermitted Manufacturer. If the Manufacturer does not have and is not required to have a valid Idaho seller's permit, it has no sales tax responsibilities as to the sales transaction between itself and the Retailer. (3-31-22)a. If the Retailer has an Idaho seller's permit, the Retailer charges the Customer Idaho sales tax and remits the tax to the Commission together with a proper return. (3-31-22)b. If the Retailer is not required to have an Idaho seller's permit, the Retailer is under no responsibility to collect Idaho sales tax from the Customer. The Customer's use or consumption of Product X within Idaho will cause it to accrue a use tax liability. It will be required to file a use tax return and report and remit the use tax on the purchase of Product X. (3-31-22)c. The matrix below outlines the sales tax responsibilities of the Manufacturer: | Retailer (Permitted) | Retailer (No Permit Required) | Customer |
Manufacturer (Permitted) | Obtain ST-101 or Collect Tax | Obtain Letter of No Nexus or Collect Tax | Do Not Collect Tax from Customer / Use Tax Owed by Customer |
Manufacturer (No Permit Required) | Do Not Collect Tax | Do Not Collect Tax | Do Not Collect Tax from Customer / Use Tax Owed by Customer |
(3-31-22)
05.Sales Tax Responsibilities of the Retailer. If the Retailer is required to have a seller's permit, it is responsible for collecting sales tax from the Customer. If the Retailer is not required to have a seller's permit, it is not responsible for collecting sales tax form the Customer. The Customer is responsible to pay use tax to the State of Idaho if purchased from an unpermitted retailer. (3-31-22) a. The matrix below outlines the sales tax responsibilities of the Retailer: | Manufacturer (Permitted) | Manufacturer (No Permit Required) | Customer |
Retailer (Permitted) | Provide Valid Resale Certificate | None | Collect Tax from Customer |
Retailer (No Permit Required) | Give Letter of No Nexus | None | Do Not Collect Tax from Customer / Use Tax Owed by Customer |
(3-31-22)
06.Resale Certificate. If either the Manufacturer or the Retailer is engaged in interstate commerce, the resale certificate which the Retailer provides to the Manufacturer may be in the form prescribed for uniform exemption certificates by the Multistate Tax Commission if the rules set forth in Rule 128 of these rules are met. (3-31-22)Idaho Admin. Code r. 35.01.02.022