Expert sales tax consultation for full compliance

The critical differentiation between Value-Added Tax and U.S. Sales Tax should be drawn based on how and when the tax is applied within the supply chain and who bears the costs of the tax. 

VAT is a multi-stage tax applied at each distribution or production level of goods or services. Each business part of the VAT chain charges, collects, and remits VAT to the revenue authorities. U.S. sales tax is a single-stage tax applied only at the last point of sale. The vendor collects and remits the tax to the authority while the consumer bears the costs.

The initial point that an economic operator should consider when determining if it is mandated to register to collect and remit sales tax is the establishment of nexus in the concerned state.

There are different types of nexus(connection) that the business can establish in US states, and based upon which it is obligated to register for sales and use tax. There is no unified definition of the nexus between US states. Each state has its interpretation. This is very important to remember because the economic operator could be obliged to register in one state but not in another, even if it has the same type of presence.

Following the complexity of the US taxability rules, based upon the existence of more than 11,000 tax jurisdictions, implementing verified and up-to-date tax calculation systems is, by default, a challenging task for e-commerce vendors. Based on the defragmented sales tax rates systems, which are distinct first on the state level, then on the local levels(cities, counties, municipalities), the existence of flexible software solutions for determining the correct rate in a short time ratio is highly recommendable for cross-states operating business.

So far, 45 US states and the District of Columbia have implemented sales and use tax. 

The first step you should take as a business owner is to evaluate your economic presence in the State of your concern. From a practical standpoint, it means getting closely familiar with the sales tax rules and regulations in the states in which you make your supplies. If physical nexus, affiliate nexus, or other type of nexus isn’t reached, then the last but equally important economic presence nexus should be devalued.

If your business hasn’t triggered the conditions for applicability of physical nexus, the economic nexus should be evaluated. Critical differences exist between how the economic nexus is interpreted in distinct US states. Mainly, the economic nexus is based on the gross turnover that a business makes in the state of destination and/or the number of separate sales transactions made towards the clients residing in the destination state.

We would say it’s of pivotal importance. The sales tax is a transactional tax in its nature. Using adequate tax calculation tools mainly determines if the business has collected proper transactional tax that should be remitted to responsible tax authorities.

The partial answer to your question comes from the US sales tax framework. Based on the defragmentation and non-existence of the federal sales tax regime, there is no uniform approach in the manner in which the sales tax is calculated for shipping and delivery fees for e-commerce sales. In some States, the tax should be applied on the taxable base that includes both shipping and delivery fees, and in some other cases, these additional costs could be excluded from the tax base.

We surely do. We currently have more than a few clients operating as marketplace facilitators in different US states. We handle the entire sales tax compliance process for them in some states, while in others, we cooperate with our partners to be able to cover the whole sales tax compliance framework.

Sales tax holidays represent a specific type of benefit for retailers and customers. During the sales tax holiday period, some items could be sold without levying the sales tax on the tax base. Different types of supplies are covered by this statewide benefit, and they fall in different periods of the year. There are statewide thresholds when it comes to the applicability of this benefit, e.g., for specific groups of clothes/footwear and upon USD 120 per item or per receipt. It depends on the state-based requirements.

There is no uniform answer to this question. It depends on different factors, and a transparent answer can only be given after reviewing your business model, revenue, exposure in various states, and number of customers. If you have significant revenue and you are rapidly expanding your customer base, we would suggest the usage of credible third-party service providers that could follow the pace of your expansion and that could, in a short-time frame, successfully deploy their solution to your environment.

We would gladly discuss potential collaboration on mutually beneficial projects with you and your team. We are an internationally driven business with many partners in different countries and regions.