I dropship through a foreign-owned LLC — products ship directly from China to U.S. customers. What are my tax obligations?

In a pure dropshipping model where products ship directly from an overseas supplier to U.S. customers, you have a stronger argument that your income is not ECI. The key factors working in your favor:

1. No inventory stored in the U.S. 2. No employees or agents in the U.S. 3. No physical office or warehouse in the U.S. 4. All business operations (marketing, customer service, supplier management) performed from Turkey 5. Products ship from China, not from within the U.S.

Without a fixed place of business in the U.S. and with all productive activities conducted outside the U.S., the argument for ECI is significantly weaker than for sellers with U.S. inventory.

The IRS could potentially argue that a U.S. trade or business exists based on:

1. The Shopify store is marketed to U.S. customers with a U.S.-based entity 2. The LLC itself is a U.S. entity conducting regular, continuous commercial activity 3. Some courts have found that systematic solicitation of U.S. customers can constitute a U.S. trade or business

The analysis also depends on whether any U.S. tax treaty applies. There is no comprehensive income tax treaty between the U.S. and Turkey, which means you do not have treaty protection against ECI taxation. This makes the factual analysis more important — without a treaty safety net, you rely entirely on the domestic law determination that your activities do not constitute a U.S. trade or business.

This is where many dropshippers get caught off guard. Even though you have no inventory in the U.S., you still have sales tax obligations based on economic nexus.

After the Wayfair decision, states can require sales tax collection based on your sales volume into the state, regardless of where the product ships from. If you exceed a state's economic nexus threshold (typically $100,000 in sales or 200 transactions), you must register, collect, and remit sales tax in that state.

Since Shopify is not a marketplace facilitator, you are responsible for sales tax compliance on your own. You need to configure Shopify Tax to calculate and collect the correct rates for states where you are registered.

When products ship from China directly to U.S. customers, U.S. Customs and Border Protection (CBP) rules apply. Shipments valued under $800 per package enter the U.S. duty-free under the de minimis exemption (Section 321). Most individual dropship orders fall under this threshold.

However, if any single shipment exceeds $800, the recipient may owe import duties, and customs declarations are required. As the seller, you should:

1. Ensure your suppliers use correct customs declarations 2. Inform customers about potential import duties on higher-value orders 3. Understand that CBP enforcement of de minimis shipments from China has been tightening

Changes to de minimis rules are under discussion in Congress. The rules may become more restrictive for Chinese-origin shipments in the future.

At minimum, you must:

1. File Form 5472 + pro forma Form 1120 annually (mandatory for all foreign-owned disregarded entity LLCs) 2. Maintain proper bookkeeping: revenue, COGS (supplier costs), Shopify fees, advertising expenses, and other business costs 3. Monitor sales by state for economic nexus thresholds 4. Register for sales tax in states where you exceed thresholds 5. Keep your Wyoming LLC in good standing (annual report) 6. Submit W-8BEN-E to Shopify Payments (or your payment processor)

If your income is determined to be ECI, you would also need to file an income tax return. Given the uncertainty, maintaining good records and consulting a tax professional about your specific facts is advisable.