When sellers from outside the United States start to make sales within its borders, they’re often taken aback by one of the most idiosyncratic taxes in the world: sales tax.
Like the far more common VAT, sales tax is a transactional tax applied at the time of purchase — but that’s where the similarities end. Applied only to the end user of the items sold, sales tax does not apply to wholesale purchasers and has no system of credits to be claimed at each stage of the supply chain.
Here’s where it gets complicated: each US state sets its own rules for sales tax rates, exemptions, and product taxability, and many of those states allow local districts — some as small as a few businesses — to set their own additional taxes and rules. In all, there are over 12,000 sales tax jurisdictions, and the correct tax rate can be different even for two houses next door to one another, or two products next to one another on the same shelf.
When you expand into the US, odds are, you won’t need to collect tax in every one of these jurisdictions. Your business only needs to collect tax in each state when it has nexus there — the US government’s term for a close enough connection to trigger tax obligations. Each state sets nexus rules differently, but having remote employees in the US, using US warehouse space, or attending US trade shows could create a collection obligation for your company.
If you think this sounds too complicated to get right, you’re not alone. Every year, states collect hundreds of millions of dollars from sales tax audits that reveal errors in collection practices. To get it right, automate with an appropriate tax solution. Such programs help you, to automatically determine rates and product taxability, plus file returns with a few button clicks — giving you the power to expand into the US without the compliance hassles. For more information, check out this white paper or visit www.avalara.com today.
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Whitepaper US Sales TaxPrior to joining Avalara in January 2014, Sacha Wilson spent more than 20 years in sales management at companies such as Amazon, Arcelor-Mittal and several dotcom startups. 11 years of this was spent at Amazon.co.uk building and managing sales, account management and marketing teams for Amazon Marketplace, FBA, Amazon Payments and Product Ads. He brings a depth in understanding of ecommerce and the tax issues facing businesses involved in global trade.