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US sales tax - avoiding common mistakes by foreign sellers

  • Dec 30, 2020 | Richard Asquith

Foreign (‘remote’) businesses selling goods to US businesses or consumers are having to learn the rules of sales tax quickly as states rollout their new legislation following the 2018 Wayfair Supreme Court ruling.

It’s all too easy to assume it is simply a matter of just following the rules of international VAT: one % rate x sales price, followed by adding-up the total at month-end for the return. But it is the complex details of sales tax which can undo your remote business, and leave you open to heavy fines or disappointed customers.

Below are the most common mistakes remote businesses make when it comes to sales tax, and how Avalara can help you to avoid them.

  1. Getting the rates and boundaries wrong

    There are over 12,000 tax jurisdictions in the US – including states, counties and cities - and rates change frequently.

    Use an automated rate tracker solution such as Avalara’s AvaTax. This will help get the precise rate for each customer and reduce audit risks.

  2. Mismatches of the rates with your products

    Ensuring you understand which of the thousands of rates apply to your products – taxability– is a perplexing and distracting quagmire.

    Avalara can help tie your goods or services to our automated product tax codes. This means your US taxability rules are always up-to- date, mitigating any potential fines.

  3. Ignoring the nexus rules

    Following the Wayfair ruling, the states are rewriting their nexus rules, and registration thresholds, at a blistering pace. With states inconsistent in their design, it is becoming a major bureaucratic headache.

    Our Nexus Study service can provide an in-depth analysis of your state- by-state obligations. It can also provide up-to-date thresholds so you can be alert to when it’s time to register in the next state.

  4. Mistakes on form filing and missed payments

    Making misdeclarations on the myriad of forms is a red- flag to the tax authorities – a trigger for an audit. As are tracking the different payment dates and multiple cash transfer routines.

    Avalara’s Return service automates away the worries of filing and getting the tax declared properly. We can also help consolidate as single payment for you to pay all the different states’ taxes you owe.

  5. Missing or invalid exemptions

    A frequent cause of fines. A peculiarity of sales tax is that some business, distributors or other entities can present you with an exemption certification – meaning you don’t charge them tax. However, not tracking this properly makes you liable for any missing tax.

    If you have a limited number of exempt customers, you can keep a track of their exemption certificates within AvaTax. But, if it starts growing, then consider Avalara’s CertCapture add-in to automate the capture, validation and maintainnce of up-to-date certificates for the different tax jurisdictions.

  6. Forgetting consumer use tax

    Another of the most common causes of unpaid taxes identified in audits. Whilst you may be focused on sales tax, you are also on the hook for consumer use tax.

    AvaTax, our sales tax calculation software will automatically spot missed or miscalculated consumer use tax. This includes completing self-assessments on withdrawals from your own stocks.

Not challenging tax audits

Tax authorities typically make estimated assessments of tax due, with interest and short payment deadlines. Often this has little resemblance to your actual transactions.

Avalara can easily pull supporting transactions and exemption certificates for you to help ensure you are able to support audit appeals. We can also point you towards the local guidance for quick appeals.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.
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