What is a drop shipment?
A drop shipment occurs when a business buys an item from a seller “S” (that does not have the item in stock). The seller then orders the item from another business “M” (usually a manufacturer) and has that business deliver the item directly to the buyer.
Should the manufacturer charge the Washington buyer sales tax on the item purchased?
In this case, M is making a wholesale sale to S, therefore, M is not required to collect sales tax on that sale even if M delivers the goods to S’s customer (the buyer) in Washington. M needs to document the wholesale nature of the sale by obtaining one of the following from S:
If M has nexus with Washington, M would owe wholesaling business and occupation (B&O) tax on the drop shipment delivered to the Washington buyer.
If S has nexus with Washington, S would owe retailing B&O tax and would required to collect and remit sales tax from the Washington buyer.