Navigating US sales tax can be complex due to its decentralized structure. Unlike VAT or GST systems, sales tax in the US is managed at the state and local levels. Whether you’re a domestic or foreign seller, understanding your obligations is crucial for compliance and avoiding penalties. Here’s a simplified summary of the key points every business should know:
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Sales Tax Basics
US sales tax is a consumption tax applied only to the final consumer purchase. It’s managed at state and local levels, not federally like VAT in Europe or GST in Australia. -
State and Local Variations
45 states and D.C. impose statewide sales taxes, and 38 allow local taxes. Each jurisdiction sets its own rates and rules, creating a fragmented compliance landscape. -
What’s Taxable and What’s Not
Tangible products are generally taxable. Professional services are usually exempt, but exceptions exist. Digital goods and software have varying rules, depending on how they’re delivered and classified. -
Common Exemptions
Items like food, medicine, or resale goods may be exempt. Exemptions also depend on buyer type (e.g., nonprofits, government) or use (e.g., for resale or manufacturing purposes). -
Understanding Nexus
“Nexus” is a tax connection to a state. It can be physical (office, employee) or economic (sales volume). Having nexus means you must register and collect tax in that state. -
Economic Nexus Thresholds
Many states set thresholds (commonly $100,000 in sales or 200 transactions). Crossing these requires registration and compliance, even if you don’t have a physical presence in the state. -
Streamlined Sales Tax Agreement (SSUTA)
SSUTA simplifies compliance in 24 states by offering unified registration and filing. It helps businesses manage obligations across member states, although individual rates and deadlines still apply. -
How to Comply
Steps include getting an EIN, registering for sales tax, tracking customer location, collecting correct rates, issuing proper invoices, and filing returns — even if you made no sales. -
Non-US Seller Obligations
Foreign businesses selling to US customers are not exempt from sales tax laws. The 2018 Wayfair decision allows states to enforce compliance on remote sellers with economic nexus. -
Automating Sales Tax with Quaderno
Tools like Quaderno automate threshold tracking, rate calculation, invoicing, recordkeeping, and alerts for tax changes — helping businesses stay compliant while saving time and reducing human error.
Source: www.quaderno.io
