Perspectives

US sales and use tax

A survival guide for international business

This article discusses approaches and tools that international businesses can use to proactively understand and take command of their US sales and use tax obligations.

Understanding the differences

Companies based outside of the United States are sometimes surprised by the differences between US sales and use tax and international value added taxes. Both are indirect taxes with the similar purpose of taxing consumption, and both require attention and planning on the part of the seller, but there the resemblance ends. The task of identifying states in which sales and use tax compliance is required and how to apply each state’s tax may seem daunting, but it’s not impossible. This article discusses approaches and tools that businesses can use to proactively understand and take command of their US sales and use tax obligations.

Background

  • Sales and use taxes are imposed on the sale of tangible personal property and certain enumerated services in 45 states and the District of Columbia
  • Generally, the place where possession of title passes to the customer determines where jurisdiction has the right to tax a sale of tangible personal property, while the place where the customer “receives the benefit” of a service determines which jurisdiction has the right to tax a service
  • When a sale made by a retailer is subject to sales tax, the retailer is generally required to collect the tax from the purchaser and report and remit that tax to the taxing authority
  • When an out-of-state retailer has not collected tax, a purchaser is generally required to report and remit applicable use tax directly to the taxing authority
  • When an out-of-state retailer makes sales to customers in a state where the seller has no actual place of business but otherwise has sufficient connection (“nexus”) with that state, the retailer is generally required to collect use tax from its customers and remit that tax to the state taxing authority
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