The US market presents a vast opportunity for international businesses. However, navigating the complexities of state-by-state sales tax compliance can be a daunting
Many international businesses think they’re exempt from sales tax because they lack a permanent US presence for federal taxes. But here’s the catch: states have their own rules.
Unlike federal income tax, states often don’t recognize international treaties. This means activities that wouldn’t trigger federal tax obligations can still create sales tax responsibilities. Storing inventory in a state for delivery? That might create sales tax nexus (a fancy term for the obligation to collect sales tax).
The bottom line? States don’t care if you’re international – if you sell there, you might need to collect sales tax.
Nexus is a crucial concept in US sales tax law. It determines whether your out-of-country business has a “substantial physical presence” within a particular state, thus triggering the obligation to collect and remit sales tax on transactions within that state.
The US Constitution provides some framework for taxing interstate commerce, but individual states have the flexibility to define “substantial physical presence” differently. This means activities that create sales tax nexus in one state might not in another.
While the specific rules vary by state, some common activities that can establish sales tax nexus include:
Pennsylvania imposes a sales tax on the sales of tangible personal property and specified services within the state. This sales tax is required to be collected by the vendor who is doing business in Pennsylvania. Pennsylvania’s definition of doing business includes maintaining a stock of goods in the state.
Illinois imposes a retailer’s occupation (sales) tax on persons engaged in the business of selling tangible personal property to buyers for use or consumption and is measured by the seller’s gross receipts from such sales delivered to locations within Illinois. A retailer maintaining a place of business in the state includes having in Illinois, directly or by a subsidiary, an office, distribution house, sales house warehouse, or another place of business.
In general, maintaining inventory in a state will create sales tax nexus. However, until recently states did not have many methods to enforce these requirements on international companies. What has changed? As part of a broader effort to co-operate with state tax laws companies such as Amazon have been urging sellers to comply with state sales tax laws. Although Amazon cannot force international businesses to collect sales tax they can threaten to limit business activity with them if they do not comply.
By understanding your sales tax nexus in each state, you can ensure compliance and avoid potential penalties. Source Advisors can help you navigate this process and minimize risks.
We are dedicated to helping you navigate the complex landscape of SALT, ensuring that no state tax is overpaid in all relevant jurisdictions.
We assess your business activities to determine where you have a tax obligation. A nexus study demystifies your state tax filing requirements. showing where you should file which taxes Â
Our analysis also focuses on uncovering any overpayments or tax incentives you may be entitled to, aiming to recover refunds and improve your bottom line.
