What Tax Do I Need to Pay when Dropshipping with Aliexpress?! [UPDATED VIDEO]


He, guys. Today I’ve got a really fun, exciting video
for you all. I’m going to talk about what tax you need
to pay as an Ali Express drop shipper. Are you all excited? I bet you are. But look, here’s the thing. I understand that when you’re starting a new
business there’s a lot more fun things that you’d rather be thinking about, like how you’re
gonna make so much money that you’re gonna be able to buy your dream car. But when you make money, well, you need to
pay taxes. And if you don’t pay your taxes then the feds
are gonna come, knock on your door, and they’re gonna pick up both you and your car. The car will get dropped off at the auction
house and you’ll get dropped off in prison. So unfortunately, you don’t actually have
a choice. If you want to reap the financial rewards
of drop shipping then you need to meet your tax obligations. Luckily, I’ve actually got some pretty good
news for all of you Ali Express drop shippers out there, because believe it or not, meeting
your tax obligations is actually really easy. Now, I’ve really wanted to make this video
after I made one two years ago called, “How to pay sales tax when drop shipping.” In that video I scared a lot of people and
made the whole tax thing sound really hard and complicated. Well, the only reason why it sounded hard
and complicated in their video was because of the fact that I was actually mostly talking
about how to meet your sales tax obligations when working with USA-based drop shippers. Now if you were using drop shippers that are
based in the USA, then yes, the honest truth is that meeting your tax obligations can be
quite complicated and annoying. But if you are using drop shippers from Ali
Express, then guess what? That means that you are using suppliers that
are based in China and not the USA, which makes things way simpler. When you first start watching this video it
might seem really overwhelming. But trust me, if you stay until the end you
will see that it’s a lot more simple than you might think. Question one. What tax do I need to pay? First of all, I need to preface this video
and tell you guys that I’m only talking about your tax obligations that you need to meet
when you’re selling to customers that are based in the USA. Why? Well it’s because that is what we teach on
this channel. We teach you how to start an Ali Express drop
shipping store targeting USA-based customers. And I also want to note that I am not a qualified
accountant. You should not use this advice as a substitute
for a qualified accountant. Okay, with that out of the way let’s talk
about one type of tax that everyone needs to pay. Everyone needs to pay income tax. When you are drop shipping, you sell goods,
and any money that you make as profit on those goods counts as income and you need to pay
income tax on that profit. For the vast, vast majority of people watching
this video, when you’re paying income tax you are required to pay it to your local country
of residence. So if you are living in Canada but you’re
drop shipping to customers based in the USA, that doesn’t matter. You still pay income tax to the Canadian government. And if you live in Australia, again, it doesn’t
matter if you are drop shipping to customers based in the USA. You still pay your income tax to the Australian
government. And of course, if you live in the USA, then
you are required to obey the federal and the state income tax laws and pay your income
tax accordingly. So income tax is a form of tax that everyone
needs to pay. However, there is another form of tax that
not everyone will be required to. Not everyone is required to collect and pay
sales tax. For those of you out there that don’t know,
sales tax is when a governing body places a tax on goods and services sold within a
jurisdiction. So if a customer lives in the jurisdiction
that you are obligated to pay sales tax in, then you need to collect sales tax on that
customer’s order and then pay it back to that jurisdiction. So if you are obligated to pay sales tax to
the state of New York, then every time a customer that lives in the state of New York purchases
an item from you, you are required to collect sales tax on that order and then pay it back
to the New York state. In the USA, the federal government, which
is the government that governs the whole of the country, does not require you to collect
and pay sales tax. Instead, each individual state does. So what you do is you collect sales tax and
then pay it back to the state. But don’t worry, because you don’t have to
pay and collect sales tax for every each individual state within the USA. For those of you out there that are required
to pay some sales tax, the chances are that you’re probably only gonna have to collect
it for a single state. You only need to pay and collect sales tax
if you have nexus in a state. So let’s talk about what nexus is and how
you can have it in a state. Nexus is a legal term and it means that you
have a sufficient physical presence in a state that you now require you to collect and pay
sales tax on customers that live within it. So there you go. To be obligated to collect and pay sales tax
within a USA state, you need to have a physical presence in it. That means if you live outside of the USA,
whether it be the UK, Australia, Canada, India, or hey, even New Zealand, the chances are
you don’t have a physical presence in any state in the USA, which means that you don’t
have nexus in it. Which means that you have a slight advantage
over your USA-based competitors because of the fact that you’re not obligated to collect
and pay any sales tax. Lucky you. Feel free to gloat about it in the comments. And if you live in one of these states, then
as you probably already know, you live in a sales tax haven. So congratulations. You don’t have to collect sales tax. Feel free to gloat about it in the comments
section below. If you do live in the USA and you don’t live
in a sales tax haven, then you basically have nexus in whatever state you live in because
living in a state is a very large physical presence. And if you have an office or a warehouse in
another state that you don’t live in, then you’ll almost certainly have nexus in that
state as well. But there are some less obvious ways that
you could be deemed to have nexus in a state by having a sufficiently large physical presence,
and the truth is is that what counts as that, the rules around it, they vary from state
to state. For instance, in some, having a remote employee
based in a state constitutes as having nexus. And it doesn’t matter if that employee is
for a completely different business that is unrelated to your drop shipping one. You’ll still have nexus, which means you will
need to collect and pay sales tax on purchases made by customers that live within it. But the honest truth is that for most of my
viewers here, you are likely to fall into one of two camps. One, you live in the USA but you only have
nexus in that state that you live in. Two, you live outside the USA and you don’t
have nexus in any state. Now if you do think that you might be an exception
to this. Maybe you’ve got lots of properties in multiple
states or maybe you’ve got a large business which spills into other ones. Then I do suggest talking to an accountant. They should be able to sit down and help you
figure out which ones you have nexus in and which ones don’t, and the chances are at most
you will have it in only a few states. Question two, how do I collect and pay sales
tax? Okay, so you’ve figured out how many states
you have nexus in and again, for most of my viewers here, you’ll probably only gonna have
it in the state that you live in. Now how do you collect and pay sales tax on
orders made by customers that live within them? Luckily, if you are using Shopify then this
is super duper simple. Let me switch over to my computer and show
you how to set it up. Okay, start out by signing in to your Shopify
account. Then come and click the products button on
the menu. Come and click this check box to instantly
select all of your products. Then click edit products. We are now entering the bulk product editor. Now select add fields button. Click the charge taxes. Now you’ll be able to select which products
you are going to be allowed to have taxes charged to. I recommend selecting all of your products. I’m gonna pause this video and select all
of mine in this example store now. All right. So as you can see, I’ve gone through and selected
my products. When you’ve done that, click save. Perfect. Now come and click the settings button. On the settings page, come and click on taxes. Now as long as you’ve got a USA shipping option
set up in your store, you’ll be able to select United States next to tax rates. Now you need to enter in what state you have
nexus in. As an example, I’m entering New York. I don’t actually have nexus in New York, though. And type in your zip code. Then click add state. And that’s it. Shopify will automatically collect sales tax
from your customers based in that state. Be sure to add all of the states that you
have nexus in. Now something that you may not realize is
that Shopify actually takes care of some pretty complicated stuff behind the scenes. For instance, did you know that New York as
a destination-based sales tax state, that means that if you have nexus in it, then you
need to collect tax based upon where the customer lives in New York, and this can very drastically. And that compares to origin-based states like
Arizona where you charge sales tax based up on where you live in. It means in that every single customer has
a flat-based rate. So destination-based states are a lot more
complicated. So let’s say that you’ve got a customer based
in New York City. That means that you would need to collect
the following sales tax. State tax of 4%. City tax of 4.5%. And the metropolitan commuter transportation
district surcharge of 0.375%. Which adds up to a grand total of 8.875% sales
tax that you need to collect on every purchase made from customers that live in New York
City. Or if a customer lived in the city of Buffalo,
which is also in the state of New York, then you would need to be collecting the following
taxes. State tax of 4% and the district tax of 4.75%,
which adds up to a grand total of 8.75% tax that you need to collect on all purchases
made by customers that are based in Buffalo. So the rate that you need to collect for all
customers that live in destination-based states is always changing, which is super confusing,
right? But take a look at this. I did a test purchase on my Shopify store
for $10 using a New York City address. Shopify automatically calculated and added
the correct sales tax, which is 8.875%. And I did another test purchase in my Shopify
store using a Buffalo address. And again, Shopify automatically calculated
the correct sales tax of 8.75%. See? Super duper simple. And when it comes time to actually pay your
sales tax, there is a nifty app called TaxJar, which I strongly recommend because it really
helps to massively automate the process for you. I will have a link in the video description
on how you can get a free 30-day trial. Please note that it is an affiliate link. Here at Wholesale Ted, all of our YouTube
videos are free and affiliate links help us keep our videos free. So there you go. It turns out that something that seems really
scary and hard to deal with is actually really simple. We’ll tell you now, every day we do get asked
questions on this channel that, if the person asking them had done a little bit of research
they could’ve quite quickly found an answer for it. For example, a question that we get asked
all the time here at Wholesale Ted is whether customers will actually be willing to wait
two to four weeks for an item to arrive from your Chinese supplier. Well, if the person who asked that question
had clicked through and browsed through our videos before asking it, they would’ve discovered
that we’ve actually got one that answers this question. And of course, if they watch through the video
they’d discover that it’s not a problem after all. Now, I’m not saying this to chastise. My point here is that with a bit of research,
questions that seem scary or seem hard usually have really simple solutions. Thanks for watching this video. If you liked it, I’d appreciate if you gave
this video a thumbs up and subscribe to us here at Wholesale Ted for more great videos
about selling online. And when you subscribe, be sure to click that
little notification bell next to the subscribe button so that you don’t miss out on any of
our videos. And if you have any questions, be sure to
ask them in the comments section below. Again, I’m not a qualified accountant but
I will do my best. And of course, before you go, I’ve got one
last freebie I’d like to give you. Here at Wholesale Ted we have a free e-book. How to make $10,000 a month online with drop
shipping. You can find the link on how to download this
absolutely free e-book in the video description below.

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