Your business needs you – not endless tax paperwork.

Sales tax represents a form of consumption tax. It is levied at the state and local levels at the point of sale. The supplier acts as an agent of sales tax, collects sales tax, and remits the tax to the state or local government.

Use tax serves as a complementary consumption tax to the sales tax. Concerning one transaction, the imposition of one(sales or use tax) excludes the other. The Use tax is mainly imposed on buyers who acquire goods or services from out-of-state sellers. In many cases, these out-of-state sellers aren’t obliged to levy state sales tax, so the state where the goods/service is supplied or used imposes the Use tax as a tax provision to generate tax income.

Sales tax rates are defined on the state level, not the federal level. An important fact to remember is that within a State, the cities or counties could impose their own separate sales tax rate. From the practical point of view, this means that the sales tax rate will result from the combination of the state-wide and local sales tax rates.

Currently, 45 US states and the District of Columbia have sales taxes.

Countries that have adopted VAT as the principal sales tax have, in almost all cases, one thing in common when it comes to the value of VAT rates: their rate – %, which is the same across the country. (with some exceptions, where we have distinct regions/provinces with autonomous tax policy). In the US, the situation is quite different when it comes to sales tax rates. The US, the sales tax rates are defined at the state government and local jurisdictions level. State sales tax regulations determine the scope of the transactions on which the sales tax rate applies, as well as the actual value of the rate.

Different effective and practical strategies exist for determining the valid sales tax rate for the supply in question. After determining if the supply in question is taxable under the state law where the customer is based and who is responsible for the tax collection, the supplier should be aware if some local(city, county) sales tax rate exists for the underlying supply. In cases where the answer to this is yes, the supplier should combine the state-level sales tax rate with all additional local taxes and compute this number with the net value(tax excluded) of the supply in question.

Economic nexus from the sales tax perspective is the concept introduced US-wide after the landmark Supreme Court decision in the Wayfair case. The adoption of the economic nexus is closely connected with the rise of the e-commerce sector. Economic nexus permits US states(that have adopted it) to tax out-of-state suppliers without a physical presence in the state. When the economic nexus is reached, the supplier must register, collect, and remit sales taxes.

Remote sellers cover suppliers that don’t have a physical presence in the state where the recipient is based. By this definition, the sales tax regulations mainly refer to e-commerce or digital service providers who are US-based or whose place of business is outside the US. When these suppliers(e-retailers or e-marketplace facilitators) reach economic nexus(turnover threshold and/or X amount of separate transactions), they must register for sales tax in the state where this nexus is established.

To better understand the scope of sales tax compliance, let’s divide it into the most critical elements. First would be evaluating the nexus status in the state of interest; registration; review and accuracy on the sales or use tax rates; correct tax calculation; filing of tax returns and remittance of tax.

We always look forward to potential partnerships that could enhance the quality of our services and open new horizons for our clients. Yes, the principal focus of our advisory and accounting services is the e-commerce and digital services sector. We have significant practical experience in this sector across all regions.

After being registered for sales tax, remote sellers(e-vendors or e-marketplaces) should submit the return and remit owed taxes to respective tax authorities. In most cases, the online vendors have customers across different states, meaning different tax rates, calculations, remittance, and submission periods; even the format of the return file can be distinct. In some states, the vendor is obliged also to remit a local return. Developing and maintaining the scheme for submitting returns and remittance of taxes within all specific requirements in different states is costly, time-consuming, and challenging without proper tax knowledge. This is why most non-US-based remote vendors look for third-party service providers.

We can assist you. Our tax and reporting team has many clients who have their place of business in the EU and ship goods overseas to different US states. They also offer their products through other online channels.

The initial step would be an evaluation of your turnover in these states. After concluding in what states your firm should have registered and from when, we will do the risk assessment of backdated registration, voluntary disclosure agreements, compliance costs for moving forward after registration, and other relevant parameters. There are cases where the compliance costs of the backdated registration fees are way above yearly fines in some countries.