The Highlights
- If you’re an international business that meets state sales tax thresholds, you may have to collect sales tax in the state.
- You’ll need to sign up for a sales tax permit to collect and remit sales taxes.
- Businesses need a sales tax permit in each state where they have a nexus.
- You can avoid penalties and fines by automating your state tax filing.
If you’re running an international business, you know tapping into the US market can be a real game-changer for your bottom line. The rumors are true, but with a great market comes great responsibility. Figuring out US sales taxes for international sales should be a top priority for you if you’re looking to grow in the market.
How do US ecommerce sales tax rules work? Do you even need to collect sales tax as a foreign business owner selling in the US? Get the quick fix with this RJM Tax Exemption blog.
What is US Sales Tax, and How is it Different From VAT?
If you’re a business owner residing outside the United States, you’re probably familiar with the concept of a Value Added Tax (VAT). Most countries that use a VAT sales tax for ecommerce businesses follow a centralized tax structure determined by their federal government, such as Germany, Australia, and Canada.
The US follows a different playbook.
The US has no centralized sales tax at the federal level. Instead, this responsibility is delegated to the state and local levels. States are free to determine their own sales tax rates with a few exceptions (the NOMAD states).
What This Means For You
The fact that each state can set its own sales tax rates adds a whole new level of complexity that your business has to contend with. A state like Delaware charges no statewide sales tax, whereas others might go as high as 10-11.5%.
A state-by-state system ultimately means you could have to collect sales tax for an ecommerce business even without a physical presence in the state if you cross certain thresholds. This could be a set number of transactions or a certain amount of annual revenue.
Do You Have To Collect Tax If You’re Selling in the US?
It depends, but the answer is usually yes. Let’s take three typical cases to understand US sales taxes for international sales:
- No Physical US Presence, But You Do Sell to US Customers: If you’re a small to mid-sized business, you’re most likely in this boat. If you’re selling to US-based customers, you might be required to comply with state sales tax regulations.
It all comes down to thresholds set by different states. For example:- Kentucky’s economic nexus threshold is 200 separate transactions or $100,000 in annual revenues.
- Alabama’s threshold is $250,000 in annual revenues.
- California’s threshold is $500,000 in gross annual revenue.
If you’re selling to customers in the US and are unsure of your nexus for sales tax for an ecommerce business, we strongly recommend consulting a sales tax expert for a personalized strategy.
- No Physical US Presence, and You Don’t Sell to US Customers: You don’t have to collect sales tax at all.
- You’re a Non-Citizen Who Owns a Business in the US: Regardless of your citizenship status, if you’re managing inventory and selling to customers in the US, you most likely have to comply with your state’s sales tax regulations. Note that US ecommerce sales tax rules might change, and you should stay informed of the latest amendments before making a tax-related decision.
How to Handle US Sales Taxes for International Sales
Whether you’re on BigCommerce or Shopify, you can follow these steps to handle sales taxes for your ecommerce business like a pro.
Determine Your Tax Nexus
This is the first and potentially most vital step to get right. You’ll need to identify your economic nexus before you can start filing sales taxes properly. To do this, you’ll need to go over your sales data to identify states where your business has crossed the threshold and may have a nexus.
Note that mistakes at this stage can result in penalties and fines down the line. If you’re unfamiliar with the US business landscape, you can easily avoid errors by working with top-rated ecommerce tax experts like RJM.
Register For a Sales Tax Permit
If you’re meeting a state threshold for sales tax for your ecommerce business, you need to register for a sales tax permit.
This permit, also known as a sales tax license, will authorize your business to collect and remit sales taxes to local tax authorities. Failing to register in time will lead to penalties and even interest on unpaid dues, so earlier is better here.
The registration process for permits for US sales taxes for international sales will naturally vary from state to state. You’ll typically need to submit basic details like:
- Your business’s name and legal structure
- EIN or a foreign tax ID
- Business address (this doesn’t necessarily have to be in the US)
- Sales volume in the state
- The type of products sold by your business
If you’re getting a permit to collect sales tax for your ecommerce business, you may have to pay a small fee depending on the authority you’re filing with. Texas doesn’t charge for a sales tax permit, while New York charges $7.
Collect and Remit Taxes
All that’s left to do now that you understand US ecommerce sales tax rules is to collect and remit.
Set up your ecommerce platform to collect sales tax at the correct rate based on each customer’s location. This functionality should be built-in if you’re using a major platform, but you can always use apps and plugins to add and extend that functionality if needed. You’ll have to account for state, county, and city taxes, which can all vary in a given state.
If you’re selling through a party like Amazon, they can even handle tax collection for you.
Lastly, you’ll have to remit sales tax for ecommerce businesses to your local authority on time to steer clear of penalties. Remember to keep records for future audits! If you’re worried about filing on time, you can easily automate tax filing with RJM.
Become a Truly Global Seller with RJM
Still worried about navigating US sales taxes for international sales? We don’t blame you. You can save a ton of time and money by getting a personalized tax strategy from RJM and automating your sales tax filings. We’ll collect and file on time so you can focus on building the best version of your business. Get a consultation today.
Frequently Asked Questions
What is an economic nexus?
An economic nexus is more or less just a legal threshold that requires businesses to collect and remit sales tax if they meet it. This threshold can change significantly from one state to the next, so you’ll need to know exactly where you’re selling to.
Do I need to register for a sales tax permit as an international seller?
You might be required to collect sales tax for ecommerce businesses even as an international seller if you meet state thresholds. You do not have to collect sales tax if you don’t have a physical presence in the US and don’t have an economic nexus in a state. US ecommerce sales tax rules can change, so you should look up the latest information before proceeding.
Do I need to register for a permit if I’m selling through a marketplace?
Yes, in some cases. Marketplaces like Amazon and eBay are authorized to collect sales tax on your behalf. However, you’ll need to register for a permit in states like Florida if you exceed $100,000 in independent sales (through your own website, for example).
