US sales tax for foreign companies
For foreign businesses selling goods into the US there is a complex set of Federal and local state US Sales Tax obligations. In particular, the varying powers to levy taxes at different rates on a range of transactions makes US tax compliance one of the most complex in the world.
Below is a summary of some of the key issues foreign companies selling into the US should consider, including the scope, calculation, tax return requirements and local variations. You can check US State Sales Tax rates here.
Scope of US Sales Tax - Nexus
The 50 US states are broadly free to charge sales tax on businesses with a local permanent establishment, or ‘nexus’, in their territory. This is typically employees and/or premises within the state. Additionally, having a significant commercial tie to a state may trigger a taxable nexus. For example, selling through an agent. Increasingly, states review intangible nexuses, including licensing trademarks within the state. Many other states are now looking more generally at just the levels of sales, with an eye to taxing out-of-state online retailers. Many states are looking to implement an 'Amazon' US Sales Tax on online retailers.
Sales Taxing State
For retailers in single states, the Sales Tax liability is straightforward. However, retailers selling in multiple state face a complex question over the apportionment of taxable income. There is no current agreed apportionment method, which makes the Sales Tax division a challenge. Increasingly, states are re-assessing their share of a sale with a multi-jurisdictional split on a sales basis where retailers have no or limited in-state nexus. This risks creating double taxation across the states.
When completing reporting, many states will require full declarations of income earned in-state, and in other US states or worldwide.
Sales Tax Taxing jurisdictions
In addition to state-level taxation, many cities and other taxing bodies or regions have the right to levy Sales Tax or Use Taxes. There are in fact many thousands of taxing jurisdictions in the US, making it possibly the most complex tax regime in the world.
Internet sales tax on out-of-state retailers
Until recently, most out-of-state e-retailers were not paying any Sales Taxes on their transactions with consumers in another state. However, with the growth of major online retailers, such as Amazon, this is changing. A number of states have started to unilaterally charge Sales Tax on out-of-state e-commerce websites to equalise the competitive environment for their local offline and online retailers.
In May 2013 the Federal Marketplace Fairness Act was introduced to give states the full powers to levy Sales Tax on these sales. It has since passed through the Senate. There is still much opposition to the bill.
Latest American news
February 18, 2019
Wyoming is to require marketplaces to collect out-of-state Sellers’ sales tax from 1 July 2019. This is based on the 2019 South Dakota v Wayfair Supreme Court ruling, imposing ‘economic nexus’ sales tax liabilities on sellers not located in a state for the first time.
January 16, 2019
The New York state tax department published on 15 January 2019 guidance on the immediate requirements for out-of-state sellers to register and charge Sales Tax.
January 3, 2019
Texas has become the latest US state to implement Sales Tax obligations on out-of-state (non-resident) merchants. This follows the 2018 South Dakota vs Wayfair Supreme Court ruling obliging remote sellers without a presence in a state to charge and remit local Sales Tax.