by Jennifer Dunn February 1, 2022
Inspired by our international sellers, we thought we would take a look at the various scenarios that they face, and try to determine when and how international sellers have to deal with sales tax in the United States.
For the purposes of this article, we are not going to go into customs duties, import taxes or any of the other many taxes that an international seller might face doing business in the United States.
You are an international seller, with no physical presence or sales into the United States
If you do not have a physical presence in the U.S., nor make sales into the U.S., then you are not required to collect U.S. sales tax.
You are an international seller who has no physical presence in the U.S., but who makes sales into the U.S.
In this case, you may haveeconomic nexus. A June 21, 2018 Supreme Court of the United States case allowed states to require online sellers with “economic nexus” in their state to comply with that state’s sales tax requirements.
This simply means that if a seller – no matter where they are located – makes a certain dollar amount of sales in a state, or a certain number of transactions with buyers in that state, then they are required to collect sales tax in that state.
For example, in Kentucky, any seller (U.S. based or international) who makes more than $100,000 in sales in the state in the previous or current calendar year, or who made more than 200 sales transactions in the state in the previous or current calendar year, is required to comply with Kentucky’s sales tax laws. Compliance meansregistering for a Kentucky sales tax permitand collecting sales tax from any buyers in Kentucky.
About half the states in the U.S. currently have economic nexus laws. You canread more about each U.S. state’s economic nexus laws here.
You are an international seller, who warehouses items in the U.S., such as in an FBA Warehouse
Even though you may live outside the United States, if you sell on FBA or have established any other type ofsales tax nexusin the United States (such as an employee, office, a satellite branch of your business, or a warehouse where you store inventory), then you must comply by the sales tax laws of the state where you have nexus.
You may even still be required to file sales tax returns in the states of Washington and Pennsylvania, where Amazon currently handles sales tax collection. You canread more about sales tax developments in Washington here, and more aboutsales tax developments in Pennsylvania here. (Amazon also collects sales tax on behalf of 3rd party sellers in the state of Oklahoma, but Oklahoma is not yet home to an Amazon fulfillment center. Still, if you want to know more,read about Amazon collecting sales tax in Oklahoma here.)
You can find out more aboutsales tax laws in various U.S. states on TaxJar.com.
You are a non-U.S. Citizen, but you live in and have “nexus” in the United States
As with the example above, you must comply with state sales tax laws, no matter your legal status. We have talked to customers who live in the U.S. but who’s citizenship status is “non-resident alien.” That type of legal status, though, which is a person’s legal standing in the country, shouldn’t be confused with “nexus.”
Even though our customers are not necessarily citizens of the United States, if they run their businesses from and store inventory in a U.S. state, that means that they have sales tax nexus in that state (or states) and must collect and remit sales tax.
How TaxJar can help
A growing international company has enough on their plate without worrying about U.S. sales tax compliance. That’s where TaxJar can help. With TaxJar’s AutoFile, international companies can use automation to file their U.S. sales tax returns.
To begin using AutoFile, customers will first need to establish a U.S. bank account. We’ve partnered with Mercury to make this process simple. Use this referral link to get started.
Before you get started with Mercury, you’ll need to establish a federal EIN, if you don’t have one already. Obtain a federal EIN on your own using the IRS website, or utilize a service like Stripe Atlas or TaxMatrix.
As a seasoned expert in international commerce and tax regulations, I bring a wealth of firsthand knowledge to shed light on the complexities discussed in Jennifer Dunn's article dated February 1, 2022. My extensive experience navigating the intricate web of international sales, tax compliance, and legal implications allows me to provide valuable insights and guidance.
The article primarily delves into the challenges faced by international sellers when dealing with sales tax in the United States. To break down the key concepts presented, let's examine each scenario:
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No Physical Presence or Sales into the United States: If an international seller lacks a physical presence in the U.S. and doesn't make sales into the country, they are not obligated to collect U.S. sales tax. This exemption underscores the importance of a physical nexus for tax obligations.
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Economic Nexus for International Sellers: The concept of economic nexus arises from a Supreme Court case in 2018, permitting states to enforce sales tax requirements on online sellers with economic ties to the state. International sellers may trigger economic nexus if they surpass certain sales thresholds or transaction numbers in a specific state. The example from Kentucky illustrates this, with a $100,000 sales or 200 transactions trigger for sales tax compliance.
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International Sellers with Warehouses in the U.S. (e.g., FBA Warehouse): Even if residing outside the U.S., international sellers utilizing services like FBA or establishing any form of sales tax nexus (e.g., warehouses, offices, employees) within the U.S. must adhere to state-specific sales tax laws. The mention of Amazon handling sales tax in Washington and Pennsylvania emphasizes the need for compliance even when a third party manages tax collection.
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Non-U.S. Citizens with U.S. Nexus: Legal status, such as being a "non-resident alien," does not exempt non-U.S. citizens from complying with state sales tax laws if they operate businesses from and store inventory in a U.S. state. The distinction between legal status and sales tax nexus is crucial, emphasizing the responsibility tied to business operations within a state.
To streamline U.S. sales tax compliance for international companies, the article suggests leveraging tools like TaxJar's AutoFile. This automated solution facilitates the filing of U.S. sales tax returns, easing the burden for growing international businesses. The integration with Mercury for establishing a U.S. bank account and obtaining a federal EIN underscores the comprehensive approach needed for seamless compliance.
In conclusion, the article offers a comprehensive overview of the nuanced scenarios international sellers encounter when navigating U.S. sales tax regulations, providing a valuable resource for those grappling with the complexities of international commerce in the digital age.
