A brief Guide to US Sales Tax for E-Commerce Sellers
Selling into the vast and lucrative US market is a thrilling prospect for ecommerce sellers worldwide. However, amidst the excitement, it's crucial to recognize the importance of complying with US sales tax laws. Failure to do so can lead to legal entanglements, hefty fines, and even the suspension of business activities in certain states. In this article, we will delve into the essentials of US sales tax compliance, covering everything from understanding sales tax to navigating economic nexus and marketplace facilitator laws.
What is sales tax?
Sales tax is a levy imposed on the sale of goods and services. Unlike value-added tax (VAT), which is common in many other countries and applied at multiple stages of production, sales tax in the US is typically only collected at the final point of sale to the end consumer.
It's important to note that there is no national sales tax in the US. Instead, sales tax is governed at the state and local government level. Currently 45 states and Washington, D.C. have a sales tax and many local jurisdictions within most of these states have a local sales tax. Only four states (Delaware, Montana, New Hampshire, and Oregon) do not have a sales tax (Alaska?technically doesn’t have a state sales tax either but it does have local sales tax).
Sales tax rates and regulations vary significantly from state to state and even within local jurisdictions, making compliance a complex endeavor for ecommerce sellers operating across multiple regions.
Economic nexus
In the past, the concept of nexus, or the connection between a seller and a taxing jurisdiction, was primarily based on physical presence. However, economic nexus laws have emerged as a game-changer, particularly following the landmark Supreme Court ruling in South Dakota v. Wayfair, Inc. (2018). Economic nexus laws consider factors such as sales revenue or transaction volume within a state to determine whether a seller is obligated to collect and remit sales tax. This means that even if you do not have a physical presence in a state, you may still be required to comply with sales tax obligations if you meet certain economic thresholds. To date, all 45 States and Washington D.C. have introduced economic nexus thresholds, typically of a transaction value of USD 100,000 per year or a transaction count of 200.
Marketplace Facilitator Laws
In an effort to streamline sales tax compliance and ensure the collection of tax revenue, many states have implemented marketplace facilitator laws. These laws shift the responsibility for collecting and remitting sales tax from individual sellers to online platforms or marketplaces such as Amazon or eBay. As a result, if you sell through one of these platforms, the burden of sales tax collection and remittance may fall on the marketplace rather than on you as the seller. While marketplace facilitator laws offer some relief to individual sellers, it is essential to understand the nuances and requirements specific to each platform and jurisdiction.
In addition, if you sell through marketplaces and other channels into a state, you may still be required to register in that state and collect tax on sales which are not taxed by a marketplace facilitator.
Registering for sales tax and ongoing compliance
If you establish a nexus in a state, whether through physical presence or economic activity, you will be required to register for a sales tax permit with the state's taxing authority. The registration process varies by state but generally involves completing an application, providing business information, and obtaining a sales tax permit. Sellers will also need to register with the Internal Revenue Service (IRS) to obtain a Federal Employment Identification Number (FEIN) before they can apply for any sales tax permit.
Once registered, you must collect the appropriate amount of sales tax from customers at the time of sale, maintain accurate records of sales tax collected, and remit the tax to the relevant state taxing authority on a regular basis.
Staying compliant also means staying informed about changes in tax rates, regulations, and filing requirements, as well as maintaining proper documentation to support tax filings and audits.
Conclusion
In conclusion, while the prospect of tapping into the US market holds immense promise for ecommerce sellers, navigating the intricacies of US sales tax compliance is essential for long-term success. By understanding sales tax fundamentals, economic nexus, marketplace facilitator laws, and the steps for registration and compliance, ecommerce sellers can manage the complexities of US sales tax laws with confidence and ensure their continued growth and success in the US market.
Still not sure? Tax Desk offers a complete US sales tax compliance solution to help you sell into the US market and minimize your compliance burden and cost. Send us an email at [email protected] for further information or visit https://www.taxdesk.com/us-sales-and-use-tax-compliance/
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?Useful Links
?1. Sales Tax Registration Processes
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2.???? States with or without marketplace facilitator laws
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3.???? Information needed for registration
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4.???? Sales tax rate at state level?
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5.???? Tax Desk Services & Pricing?
FEIN application (if needed) – USD 350 per application
State registration – USD 350 per registration
Sales Tax calculation and filing: ?USD 65 per report
State deregistration – USD 350 per deregistration
Absolutely agree, navigating US Sales Tax can be complex! ??Remember, as Warren Buffett said, the more you learn, the more you earn. Keep pushing boundaries! #ECommerceGrowth ??