US Sales Tax
United States- Indirect Tax Guide
The United States has no national sales tax. This means that each individual state decides, how sales tax is governed. Forty-five individual states and the U.S. Capital, Washington D.C., have a sales tax. (Washington D.C. is not a state, but it operates like a state for the purposes of sales tax compliance.) Five U.S. states do not have a sales tax at all.
- 45 states and the District of Columbia collect statewide taxes. (Alaska, Delaware, Montana, New Hampshire, Oregon do not have any sales tax at all!)
- 38 states have some form of local tax, collected in part or all of the state.
The result is that there are thousands of taxing jurisdictions in the United States! Within those states and local jurisdictions. There are several other factors that determine whether your business is liable or not. Which is to say, whether your business has nexus.
What is nexus?
A sales tax nexus is a commercial connection in a state. When your business has nexus in a state. It means you’re liable for taxes there. You must register, start collecting, the whole rigmarole.
Though nexus has traditionally referred to a physical presence, as in a storefront or a warehouse. There are now multiple modern definitions that capture digital and remote commerce, too. These definitions generally hinge on the same set of factors.
Determining factors for sales tax nexus
Although there’s no standard policy, and no standard definition of “nexus”. The policies usually differ in the same ways. Certain characteristics come into play across the board. Understand these factors, and you’ll have an easier time understanding the nuances of any singular state’s law.
How much you sell of it
To protect small businesses from being overtaxed (or from crippling under sheer tax compliance). Most US tax laws include a tax registration threshold. When your local sales pass the threshold amount, your business is required to register for taxes.
A common tax registration threshold is 200 transactions or $100,000 in sales in the previous or current calendar year (in that particular state). If your business’ annual sales remain under the threshold amount, you do not have what’s called economic nexus, and you don’t need to worry about sales tax.
If you do surpass the threshold amount, then you better get moving on tax compliance in that state!
US Sales Tax Compliance
Once you know you have nexus in a state, here are the general next steps and best practices to ensure your business is on the ball.
- Get a Federal Tax ID, Employer Identification Number (EIN), if necessary. You probably already have one of these, but just in case. If you’re running a business in the US. You likely need an EIN. This is how the Internal Revenue Service tracks your business’ tax activities, such as paying business income tax.
- If you’re a US taxpayer, you can apply online and receive your EIN immediately.
- If you’re an international applicant, the IRS website gives these instructions. For full information about the EIN, check out the IRS site for Employer ID Numbers.
- Register in that state. Once you’ve registered, you’re required to comply with all parts of the tax law. To register, check the state’s tax agency website. Many states offer an online application service, some easier to use than others. (The state of New York even offers it in seven languages!)
- You need a substantial amount of information to register for a seller’s permit, including your EIN plus the personal information of any partner or other individual who’s responsible for the business.
- Some states will issue you a state tax ID, while others will simply use your EIN.
- Usually you’ll either receive your permit instantly, or within 10 business days. If you register via snail mail, it may take 2-4 weeks.
How can Non-U.S. Sellers Become Sales Tax Compliant in the U.S.?
To be honest, becoming compliant with U.S. Sales tax is quite complex for international sellers. You’ll most likely want to work with an accounting firm, who specializes in helping non-U.S. sellers get compliant. Before you get to that point here are a few actions you can take:
- Determine where you have nexus – Use the ground rules posted above to determine the states where you have nexus. If you sell via Amazon’s FBA program you can view your Inventory Event Detail report to see which states have Amazon warehouses that store your inventory.
- Register for a sales tax permit in your nexus state(s) – Here’s where most international sellers hit their first roadblock. Most states require that you have an Individual Taxpayer Identification Number (ITIN) to register for a permit. In addition, many states have online systems that cannot handle sales tax permit applications from outside the U.S. and you may be required to call the state to register or fill out a paper sales tax form and mail it to the state.
- Open a U.S. bank account – Most states only accept sales tax payments using Automated Clearing House (ACH) transfers from a U.S. bank, which means you may be required to open a U.S. bank account. Opening a U.S. bank account will normally require either you or a business representative to be physically present when opening the account.
Fortunately there are multiple sales tax experts who have years of experience in helping international online sellers get sales tax compliant in the U.S.
Register in the Multiple States with One Application
Avoid filling out a separate online or PDF application for each state. Our simple master application will collect all the information we need to get you registered in every state.
Complete Registration Process
Our team will review your sales tax application for accuracies (to minimize filing frequency and past return issues), get you registered with the state (either online or by mail is required), and follow up with the state to obtain your license. All applications will be processed within 3-5 business days.
Tax Account Completed
All state tax accounts will be completed which may involve a PIN, code, or permit number from the state. You will be ready to file your sales tax returns with one of our software partners or e-commerce accountants.