Avalara Resource Center

Manufacturers, Distributors, and Taxes

Beyond use tax and exemption certificates

Ecommerce, drop shipping, globalization, and other factors have brought manufacturers and distributors closer to consumers. With expanded reach comes expanded revenue — and expanded sales and use tax responsibilities. Product and services taxability as well as nexus rules have changed in many states, which could affect how you tax or exempt supply chain transactions.

Why manufacturers and distributors should care about tax compliance

Being further along in the supply chain doesn’t insulate you from the pains of transaction tax management. In fact, the path to compliance can be far more complicated. Specific challenges include:

  • Selling to resellers or retailers
  • Product taxability, use tax, and direct pay permits
  • Drop shipping, freight, and delivery
  • Installation, parts, and repairs

It’s a complex process, requiring constant attention. Automation can free you from this burden, and provide certainty and confidence you’re doing it right. Get help making sense of it all with our resources.

Tax Compliance Quality Process Guide
Manufacturers and Sales Tax: New Channels, New Rules

Most common reasons manufacturers and distributors get audited
Manufacturers and distributors are attractive targets for auditors — landing at #3 and #4, respectively, among the top five most heavily audited industries. Areas that can lead to trouble, both triggering audits and making them especially costly, include drop shipping, exemptions, use tax, and nexus, among others. Use our resources to help you better understand the audit risks specific to your industry or business activities.

Take the risk out of managing tax exemption documents

Managing paper exemption and resale certificates puts manufacturers and distributors in a precarious position. If a certificate is missing or invalid and an audit ensues, it’s the manufacturer or distributor who pays the fines on top of the uncollected tax. Moving to a paperless system drastically decreases the risk inherent in the process and greatly increases ease and efficiency. Learn more about certificate management using our resources.

Do wholesalers and suppliers have to manage sales tax on drop shipments?

Ship directly to a consumer on behalf of a reseller, and you may insert yourself into the sales tax equation. Once you are on the hook to collect and remit sales tax (i.e., you have nexus), you are responsible for tracking the taxability and filing rules in each individual jurisdiction where you collect. There are 12,000+ taxing jurisdictions in the U.S. alone, and complexities multiply when you ship to another country. Even the shipping costs themselves may be taxable. Use our resources to better understand the tax implications of drop shipping.