Drop Shipments (Publication 121)

This publication is intended for California retailers and explains the application of tax to drop shipment transactions, including who is liable for the tax and why.

What is a drop shipment?

A drop shipment is the delivery of tangible personal property by a California retailer on behalf of an out-of-state retailer to a consumer in California. If you make a drop shipment to a California consumer, you are responsible for reporting and paying sales tax on the retail selling price if:

  • The sale is on behalf of an out-of-state retailer, and
  • The out-of-state retailer does not hold a California seller's permit or a California Certificate of Registration-Use Tax.

Typically, drop shipment transactions involve two businesses, two sales, and one consumer:

  • The true retailer is an out-of-state business that is not registered to collect California tax. The true retailer sells the product to the California consumer.
  • The drop shipper sells the product to the true retailer, but ships the product directly to the California consumer on behalf of the true retailer.
  • The consumer in California buys and receives the product.

Please note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted above. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, decisions will be based on the law and not on this publication.

Revision July 2021