International E-Commerce: When do I need to pay US Sales Tax?

International E-Commerce: When do I need to pay US Sales Tax?

You’re a small, family-owned business that manufactures consumer goods. In the last couple of years, innovative new products you’ve created plus a global e-commerce boom have prompted you to start selling internationally. So far, you’ve dipped a toe into several international markets, using e-commerce marketplaces and it’s going well, particularly in the US, where sales are starting to boom – your 3PL has been sending orders out all over the country.

You haven’t paid sales tax in the US… and you know you’ll need to at some point. How do you work it out?

US sales tax is levied in almost all 50 states, but at different rates and under different rules. Your business could be liable for sales tax in the US, irrespective of where in the world you’re located. It doesn’t help that the US has one of the most complex tax systems in the world.

Sales tax in the US is levied at the state level and 45 states and the District of Columbia (Washington D.C.) have a sales tax. Five states Alaska, Delaware, Montana, New Hampshire and Oregon – do not have a sales tax. To complicate matters further, 38 states have some form of local tax, collected in part or all of the state.

When must e-commerce sellers collect tax?

Whether or not you have to collect sales tax in a particular jurisdiction depends on whether you have sales tax nexus” in that location and also on what you sell. In this case we’re talking about physical retail products – the rules that apply to taxation of SaaS products, digital products and online courses are different.

What is “sales tax nexus”?

Sales tax nexus means that you have a ‘significant connection’ to a particular state or district and it applies regardless of whether you are based in the U.S. overseas. If you have a sales tax nexus in a U.S. state, then the state requires you to collect sales tax from customers in that state.

Certain activities are considered to create a nexus. These include:

As an international e-commerce merchant, your first step is to work out whether your business has a sales tax nexus in each of the states you’re selling to.

If you think you may have sales tax nexus in a state, it’s a good idea to check with state’s the taxing authority to determine whether or not you do if you are required to pay sales tax in that state.

This awesome interactive map shows you taxes rates by state and lets you click through for comprehensive information.

What comes next?

If you establish that nexus exists, it’s time to get compliant. Your next step is to register for sales tax, and then collect and remit the taxes. You’ll typically be liable initially for sales tax in the state where your business is registered, unless it’s one of the states that do not levy sales tax. If your ‘home’ state charges sales tax, then you will probably have “nexus” in the state.

Kick-start your international market entry today

curve-icon-image.png
Get in touch to book an introductory call and kick-start your international market entry strategy today.
Facebook
Twitter
LinkedIn
Pinterest
Reddit
Email

Looking for market entry advice?

We’d love to hear from you! Get in touch to book an introductory call to find out how we can help.

Business Beyond Borders: Take Your Company Global

Business Beyond Borders: Take Your Company Global is the latest book from international business strategist, Cynthia Dearin. Get your copy today!

business_beyond_borders_take_your_company_global_book_section_image
The Manufacturers Ultimate Guide to International Expansion [2022]
Everything you need to know about taking your business global in 2022 and beyond.

You Might Also Like...

GET IN TOUCH

LET'S CONNECT

We’re excited to hear that you’re considering going global. Tell us a bit about your international expansion goals and a member of our team will get in touch.

Essential information is marked with an asterisk (*)

Let's Connect

We’re excited to hear that you’re considering going global. Tell us a bit about your international expansion goals and a member of our team will get in touch.

cookie-policy-iconv

This website uses cookies to enhance your browsing experience. By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.

It's time to #GoGlobal

Sign up for the latest insights into international market entry

Thanks for subscribing!

Tell us a bit more about yourself so we can tailor the content we send you