How to Start a Dropshipping Business
Starting a dropshipping business means choosing a structure, finding a reliable supplier who ships directly to your customers, and registering for sales tax, often using a resale certificate when buying from the supplier. Even though you never hold inventory, you're still the seller of record to your customer, so the FTC's shipping-time and refund rules apply to you, not just your supplier.
By LLC Register · Last reviewed October 2, 2026
Comprehensive Guide
Choose a Legal Structure
Because you're legally the seller to your customer even though a third-party supplier fulfills the order, liability protection matters in dropshipping the same way it does in any e-commerce business. See how to choose a business structure for the full comparison between a sole proprietorship, LLC, and corporation.
Find and Vet a Reliable Supplier
Your entire customer experience, shipping speed, product quality, and accurate inventory, depends on a supplier you don't directly control, which makes supplier vetting the most important early decision in dropshipping. Order samples yourself before listing a product, confirm the supplier's actual average shipping time rather than a best-case estimate, and have a backup supplier identified for your core products in case one becomes unreliable.
Set Up a Formal Supplier Agreement
Where possible, get clear terms in writing covering pricing, who handles returns and defective items, how backorders are communicated, and what happens if the supplier can't fulfill an order. A dropshipping relationship with no written terms leaves you exposed to a supplier's unilateral changes in price, stock, or service quality.
Register for Sales Tax and Use a Resale Certificate
Register for a sales tax permit in your home state, and in any other state where your sales create nexus, the same as any e-commerce business. When you purchase inventory from your supplier that you intend to resell, most states let you provide a resale certificate so you aren't charged sales tax on that purchase; you instead collect sales tax from your own customer at the time of sale. Confirm your specific state's resale certificate process, since using one incorrectly, such as for a purchase not intended for resale, can create liability later.
Apply the FTC's Shipping Rule to Your Business, Not Just Your Supplier
Because you're the seller of record, the FTC's Mail, Internet, or Telephone Order Merchandise Rule applies to the time you commit to your customer, not your supplier's internal processing time. If you don't state a specific shipping time, the rule defaults to 30 days. If your supplier's actual fulfillment regularly takes longer than what you've advertised, or longer than 30 days with nothing stated, you're required to get the customer's consent to a new date or issue a refund, regardless of whose delay caused it.
Price for Your Actual Margin
Dropshipping margins are often thinner than holding your own inventory, since the supplier's price, plus payment processing fees and any advertising cost, come out of your sale price before profit. Calculate your actual per-order margin carefully before committing to a pricing strategy, rather than assuming a markup percentage automatically yields a sustainable business.
Handle Returns and Customer Service Directly
Even though the product ships from your supplier, your customer's return, refund, or complaint comes to you first. Set clear expectations with your supplier about their own return policy to you, and decide your customer-facing return policy independently, since it doesn't have to mirror your supplier's terms exactly as long as you can honor what you promise.
Set Up Accounting That Separates Supplier Cost From Revenue
Track what you pay your supplier separately from what you collect from customers, including sales tax collected, so your actual margin is clear rather than obscured by combined transaction totals. See how to set up business accounting for the general setup.
Practical Considerations
A Single-Supplier Business Is a Fragile One
Relying on one supplier for most of your catalog means a single disruption, a stockout, a price increase, or a quality issue, can affect your entire business. Diversify suppliers for your core products where practical, even if it adds some complexity to managing the relationships.
Branding and Trademark Issues Can Arise From Supplier-Sourced Products
Some dropshipping suppliers source products that unintentionally infringe on another brand's trademark or copyright. Research a product's origin before listing it, since you, not the supplier, are the one a customer or rights holder will contact first.
Advertising Platforms Have Their Own Rules
Beyond the FTC's general rules, platforms used for dropshipping ads commonly have their own policies on product claims, shipping time disclosures, and prohibited products. Review your specific advertising platform's policies separately from the general legal requirements described here.
Customer Trust Is Harder to Win Without a Physical Inventory Presence
Some customers are wary of longer shipping times or unfamiliar supplier branding on packaging. Being transparent about realistic shipping expectations upfront tends to produce fewer disputes than an optimistic estimate that doesn't hold up.
This Is Not Legal or Tax Advice
Resale certificate rules, sales tax nexus, and consumer protection requirements vary by state and carry real penalties for misuse. Talk to a tax professional about your resale certificate and nexus obligations before you start selling.
Sources
The official sources used for this article.
FTC: Mail, Internet, or Telephone Order Merchandise Rule | ftc.gov/legal-library/browse/rules/mail-internet-or-telephone-order-merchandise-rule |
|---|---|
Texas Comptroller of Public Accounts: Sales and Use Tax Permit | comptroller.texas.gov/taxes/permit |
SBA: Choose a business structure | sba.gov/business-guide/launch-your-business/choose-business-structure |
Created by: LLC RegisterLast reviewed October 2, 2026
Updated: October 2, 2026
Frequently Asked Questions
Do I need to collect sales tax if my supplier ships directly to the customer?
Yes, generally. You're the seller of record to the customer, so sales tax registration and collection obligations apply to your business based on where your customer is located and where you have nexus, regardless of where the supplier physically ships from.
What is a resale certificate and do I need one for dropshipping?
A resale certificate lets you buy inventory from a supplier without paying sales tax on that purchase, since you'll collect sales tax from your own customer instead. Most states offer this for a business that registers for a sales tax permit and buys goods specifically intended for resale.
Am I responsible for shipping delays caused by my supplier?
Yes, from your customer's perspective. The FTC's shipping-time rule applies to the commitment you made to your customer, not your supplier's internal timeline, so a supplier delay that pushes you past your stated shipping time, or past 30 days if none was stated, still requires the customer's consent to a new date or a refund.
How do I vet a dropshipping supplier before listing their products?
Order samples yourself to check quality, confirm their actual average fulfillment time rather than a marketed best case, and get clear terms in writing on pricing, returns, and how they'll communicate a stockout or delay before you commit to listing a large catalog from them.
Form your business with LLC Register
$99 a year for a registered agent, with LLC formation in year one and annual report filing included. State fees are passed through at cost.
