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Tax Treaties and U.S. Sales Tax Nexus: What Foreign Sellers Need to Know

author photo of Sylvia F. Dion

How the U.S. sales tax rules apply to foreign (non-U.S.) companies that sell to customers in the United States can be complex and confusing! For some foreign sellers, the U.S. transaction based sales tax is very different from the consumption based model followed in many countries. Additionally, some foreign sellers may not realize that 45 of the 50 U.S. states, and the District of Columbia, impose their own state sales tax. Foreign sellers may also be surprised to find out that the definitions, rules and rates are not the same in all of the states or that many local governments, such as the individual cities within the states, can also impose a sales tax.

But for many foreign sellers – in particular those that are familiar with international tax concepts and U.S. federal tax treaty protection – it may come as an even bigger surprise to discover that in general, the U.S. states do not recognize tax treaties that have been entered into between the United States and a foreign country (bi-lateral tax treaties).

That’s right! Because U.S. states are not a “party to” bi-lateral tax treaties, even if a foreign seller is not subject to U.S. Federal income tax, the foreign seller could be subject to the sales tax laws of the various U.S. state and local governments.

So, in my post today, I will start off with a discussion of a very important tax treaty concept – the Permanent Establishment (“PE”). The definition of a PE is significant, in particular because there are certain activities or functions that a foreign seller can have in the U.S. which will not create a PE (“acceptable” activities) and will protect the foreign seller from U.S. federal income taxation.

However, these very same activities are the types of activities that could require a foreign seller to have to comply with the sales tax laws of the state where those “acceptable” activities occur. And so, I will also explain why even “acceptable”activities can create a sufficient connection or “nexus” for U.S. sales tax purposes. (Note, that when I use the term “foreign seller” I am referring to any type of foreign entity – a corporation, partnership or other type of legal entity – that is incorporated or formed in a country other than the United States and which makes sales to U.S. customers.)

What is a Permanent Establishment?

One reason countries enter into bi-lateral tax treaties is to reduce the double taxation that can occur when the same income is taxed by both countries. For instance, a foreign seller from a country that has entered into a bi-lateral treaty with the United States and that engages in business activity in the U.S., will not be subject to U.S. Federal income taxation unless the company has established a PE in the U.S. Even though each bi-lateral treaty is unique (the U.S. has tax treaties with about 65 countries), practically all treaties follow the same definition of a PE found in Article 5 of the Organization of Economic Cooperation and Development ("OECD") Model Treaty Convention.*

In general, a PE is defined as a “fixed place of business” through which a foreign entity's U.S. business is wholly or partially carried on. Examples of a fixed place of business include a place of management, and/or a branch, office, factory, workshop or place where natural resources are mined or extracted. Employees or dependent agents who regularly exercise their authority to enter into contracts in the U.S. that are binding on the foreign entity also create a PE. Even though having "fixed place of business" would generally create a PE, there are several activities that a foreign entity can engage in that will not create a PE. Some of these activities include:

  1. Renting or leasing a facility solely for storing, displaying or delivering the foreign entity's inventory;
  2. Maintaining the foreign entity's inventory for the purpose of storage, display or delivery;
  3. Maintaining the foreign entity's inventory solely for the purpose of processing by another enterprise;
  4. Maintaining a fixed place of business solely for the purpose of purchasing goods or collecting information for the taxpayer;
  5. Maintaining a fixed place of business solely for the purposes of carrying on any other preparatory or auxiliary activity;
  6. Carrying on business though a broker, general commission agent, or any other independent agent, provided the person is acting in the ordinary course of their business as an independent agent.

“Acceptable” PE Activities and Sales Tax Nexus

Early in my post, I mentioned that states are not "parties to" or "bound by" bi-lateral tax treaties. This means that even if a foreign seller engages in an activity that does not create a PE (and does not subject the foreign seller to U.S. Federal income taxation) these same activities can subject a foreign seller to a state’s sales tax laws.

In the U.S. we use a term called “nexus”, which means a “connection or tie”. When we say that a business has “nexus” to a particular state, this essentially means that the out-of state (or out-of-country) business has a sufficient connection to a state to allow that state to subject the business to the state’s tax requirements. For sales tax, the requirements that an out-of-state (or out-of-country) business can be subject to include being legally required to collect sales tax on sales to customers in the “nexus” state.

Explaining the concept of nexus and how nexus affects foreign sellers is another complex topic – and one that I plan on devoting an entire post to in the future. There is also a very significant development occurring in the U.S. right now, which involves the potential enactment of a Federal proposal called the Marketplace Fairness Act. If this proposal becomes final law, it could have a huge impact on foreign sellers. I plan to cover this topic in a future post as well.

However, for this post, foreign sellers should know that having a physical presence, such as owing or leasing warehouse space, or maintaining inventory in a state will create a sufficient connection for sales tax nexus to apply. Actually, every activity listed above as “acceptable” for avoiding a PE, is one that would create sales tax nexus in practically every state. Incidentally, many state sales tax laws specifically say that “maintaining, occupying, or using, through a subsidiary or agent, an office, place or distribution, sales or sample room, warehouse, or storage point” in their state creates nexus.

Another activity that many state sales tax laws say creates nexus is engaging independent contractors who act in an agency capacity. So while an independent agent might not create a PE for a foreign seller, an independent agent will most likely create sales tax nexus in any state in which they represent the seller even if they are not working exclusively for the foreign seller.

Conclusion

The U.S. sales tax rules are complex even for U.S. based companies – and can be even more confusing for foreign sellers. The fact that states are not a “party to” a bi-lateral tax treaty entered into by the U.S. government may be surprising to some foreign sellers who have assumed that avoiding a PE means that they will also avoid state sales tax requirements. But the very activities that are "acceptable" and will avoid a PE, like keeping inventory in a state, or using independent agents, are activities that will require a foreign seller to register and collect sales tax on sales to U.S. customers in the nexus states. And while some foreign sellers may believe that the states will not become aware of their U.S. selling activity, states are becoming more aggressive about identifying “non-compliant” foreign sellers, such as by looking at customs information on shipments. Yes, a bi-lateral tax treaty does not protect a foreign seller from the U.S. sales tax rules!

If you’re a foreign seller (in any industry) who wants to get a better understanding of the U.S. sales tax laws and how they apply to foreign sellers, then I invite you to follow my “Sales Tax for Foreign Sellers” posts here at SalesTaxSupport.com. And if you have certain topics that you would like to learn more about, or if you have a question or comment, please leave me a message in the comment section below.

*Note: In 2006, the United States Treasury Department reissued its U.S. Model Income Tax Treaty, which is a starting point (from the U.S. perspective) for negotiating an income tax treaty with a foreign country. The definition of a PE in the OECD Model Treaty Convention and the 2006 U.S. Model Income Tax Treaty are almost identical.

About the Author: Sylvia F. Dion, MPA, CPA, is the Founder and Managing Partner of SALT Consulting firm, PrietoDion Consulting Partners LLC. Sylvia has been covering Internet Sales Tax developments for SalesTaxSupport’s Issues blog since 2011. Sylvia is also the “U.S. Sales Tax for Foreign Sellers” contributor for SalesTaxSupport’s Industry blog and the “Massachusetts Sales Tax” contributor for SalesTaxSupport’s State blog. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at sylviadion@prietodiontax.com or at 978-846-1641.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “U.S. Sales Tax for Foreign Sellers” posts by Sylvia F. Dion, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

127 Responses to Tax Treaties and U.S. Sales Tax Nexus: What Foreign Sellers Need to Know

  • Posted by Jack on April 30, 2017 5:21pm:

    Hello - Is an independent sales agent based in U. S. selling for a New Zealand company required to collect sales tax from the U.S. purchaser? (When item is ordered on company's website, it is manufactured in New Zealand and shipped to U.S. Independent sales agent is based in Georgia). Thank you for your help!

    • Posted by Author photo of Sylvia F. DionSylvia Dion on May 6, 2017 6:49pm:

      Jack,
      Thank for reading my post and for your comment.

      The independent sales agent in Georgia may be creating a a physical presence in Georgia for the New Zealand company which means that the Georgia independent sales representative may be creating nexus for the New Zealand company. If the New Zealand company ships orders to a Georgia customer, then the New Zealand company is required to register and collect sales tax on sales to Georgia customers and to file a Georgia sales tax return and pay Georgia sales tax.

      Hope this helps. Thank you again for your comment.

  • Posted by Paul on April 19, 2017 2:31am:

    Dear Sylvia,

    your article is very helpful and interesting. Unfortunately it made me aware of a potential tax issue for my company, which is based in Austria. Our products are completely manufactured in Austria and directly shipped to our US costumers. We (Austrian legal entity) have employed an US Citizen (lives in CA) to support us as a kind of Sales agent / Key account towards our US customers, but has no power of attorny to conclude contracts for our Austrian based company. Is such construct already a PE and are we at risk to pay any US taxes to our US business? And if not, how far can we go with our US activities before being at risk... fixed local office space for our US employee, DUNS number, etc.
    Thanks already in advance for your feedback and guidance.
    Best Regards
    Paul

    • Posted by Author photo of Sylvia F. DionSylvia Dion on May 6, 2017 7:37pm:

      Paul,
      Good day and thank you for kind comment and your question.

      First, I understand that you are concerned with knowing whether having an employee in the US might create a US Permanent Establishment (PE) for your Austrian company. Because PE issues are quite complex, I generally cannot give an exact answer on PE questions in a blog reply but I can tell you that the more you are doing in the US (such as renting office space) and the greater the level of authority you are granting to the US employee (such as allowing the employee to negotiate and approve contracts), the more likely it will be that your Austrian company has created a US PE (which would risk loss of treaty protection). For this reason, I would STRONGLY recommend obtaining the proper tax advise from a US tax advisor (I do advise in this area). Also, I should note that having the employee in California creates sales tax nexus and a requirement for your Austrian company to register for and collect and pay California sales tax.

      If you are interesting in professional tax advise in this area, please feel free to contact me at my services page: http://www.salestaxsupport.com/sales-tax-directory/services-and-consultants/prietodion-consulting-partners-llc/

      Thank you again for your comment. Have a nice day.

  • Posted by Sanjay on April 18, 2017 9:17am:

    Hi Sylvia,

    This is a great post! I have a question and would really appreciate your comments. I have a company that is incorporated in British Columbia in Canada. I have obtained EIN by calling IRS for my foreign entity (Canadian Corporation). I am planning to start 2 websites related to the dropshipping business model that will be hosted on the Shopify platform. I am planning to sell physical good pon both these websites that will be sourced from U.S manufacturers and wholesalers. Whenever a customer places order on my website, the manufacturer/wholesaler will ship the item to the customer. I have 2 questions realted to this situation as below:
    (1) Do I need to apply for a resale permit being a Canadian corporation doing business with U.S suppliers and wholesalers for my dropshipping business model mentioned above? If yes, how can I as a Canadian Corporation apply for resale permit in all of the 50 U.S states?
    (2) How much time does it normally take to receive a resale certificate or reseller permit from the state once the application is filed?

    I would really appreciate your response on this query. Thanks!

    • Posted by Author photo of Sylvia F. Dionsylviadion on May 6, 2017 7:54pm:

      Sanjay,
      Good day! Thank you for your kind comment and your question.

      First, I have to emphasize that the drop-ship rules are some of the most complex sales tax rules - not just for foreign sellers but for US sellers as well. So, I'll give you a VERY HIGH LEVEL overview - which is that the manufacturers and suppliers that will be shipping product to your customers will be required to charge YOU sales tax unless you can provide them with a valid resale certificate for each state where they ship orders (to your customers) IF the manufacturers/suppliers have nexus in your customer's state. The rules vary by state but in many states, you (as the retailer) MUST be registered in that state in order to be able to provide the manufacturer/supplier with a valid resale certificate. Here is a blog article I wrote for the Massachusetts blog category on this topic. I think you might find it helpful in explaining this issue: http://www.salestaxsupport.com/blogs/state/massachusetts/ma-exemption-certificates-drop-shipper-catch-22/

      In order to obtain a resale certificate/permit for a state, you must register as a sales tax vendor in that state - which can take anywhere from a few days to several weeks depending on the state.

      Advising you any further is really beyond what I can do in a blog reply because this is a complex topic, but if you are interested in my professional service, please feel free to reach me through my services page. http://www.salestaxsupport.com/sales-tax-directory/services-and-consultants/prietodion-consulting-partners-llc/

      Hope this help. Thanks again for the comment/question.

  • Posted by Chloe on January 27, 2017 9:15am:

    Hi Sylvia,

    The charity that I work for in the UK are exhibiting in the USA this year at a convention. We want to sell some books on our stand.

    I have downloaded the treaty you mention below and will start to pick my way through it.

    I wondered if we will need to register for sales tax when we exhibit? We are already being taxed on the import of our products, the cost of the stand, the items on the stand etc.

    The process for tax applications seems really confusing and I don't have a FEIN or SSN to put into the application systems. We also don't want to end up with permanent tax status in the US!

    What are your thoughts?
    Thank you
    Chloe

    • Posted by Author photo of Sylvia F. Dionsylviadion on February 2, 2017 8:33pm:

      Chloe,
      Good day. Thank you for reading my post and your question/comment.

      I work with many non-US eCommerce sellers, including many from the UK, and as part of the state registration process, I obtain an EIN for the UK entity. Obtaining an EIN by itself is not going to create a permanent establishment in the US.

      Generally, the states, including New York, will require your business to have an EIN to register for a sales tax permit (and usually, the event organizer will require all participants to be registered for a sales tax permit in the state of the event/exhibit). If participating in this convention is the ONLY activity you will have in the U.S., then I would suggest calling the New York Department of Taxation and Finance, asking for assistance with registration and requesting to be able to register for a sales tax permit without obtaining an EIN (Here is the New York phone number contact webpate: https://www.tax.ny.gov/help/contact/#phonenumbers) Best of luck at the convention.

  • Posted by Ted on December 14, 2016 6:40am:

    Hi,

    Dear Ms. Sylvia

    Thank you very much for your article. It is one of the best and on this theme, but I still have some questions that I do not find answers anywhere.

    We are compay from Europe and would like to import some products from China to USA and store them in some fulfilment warehouse. This fulfilment warehouse will pick and pack products as soon we get an order from costumer and send product directly to their address.

    If i understand correctly, if we use a fulfillment warehouse in california, we must collect sales tax for products sold to costumers with address in CA, because we have NEXUS in CA and should also register entity in CA.

    1.) But my question is: what if we use fulfilment warehouse in one of the state without sales tax. ( Alaska, Delaware, Montana, New Hampshire or Oregon). Do we then need to register in one of those states. Do we have to collect some taxes in those or other states then?

    2.) Do we need to establish some company in US if we make sales there or do we need some sort of registartion ?

    3.) if yes, what is the most economical way to do something like this. Especialy I am really afraid that monthly costs for having entity in US or if we should collect and report sales tax are to big to be affordable on the beginning. (accountant, software for collecting tax, reporting tax....)

    4.)how can we import product to usa if we do not have company there. Is this possible?

    I hope that you will be able to clarify my concerns, because i really do not find any useful informations on internet.

    Thank you very, very much for your time in advance.

    Ted

    • Posted by Author photo of Sylvia F. DionSylvia Dion on January 1, 2017 2:05pm:

      Ted,

      Thank you for reading my post and for your very kind comment - it is sincerely appreciated. Also thank you for your questions.

      There is certainly a lot to know/consider when deciding to sell to U.S. consumers. You have certainly identified some of the key issues to address before starting to sell in the U.S. - such as whether you (your company) will have nexus in any state in which you decide to store / fulfill your product from (you will). However, there is so much more to know. Whenever I receive inquiries such as yours I suggest setting up a time for a private tax consultation with me. This is really best the way to address your specific questions and receive specific guidance. If you're interested, contact me directly at sylviadion@verizon.net I will provide you information on my fee for the consultation and the process. Again, it appears you would like some specific guidance - which I would be happy to provide. Thanks!

  • Posted by Steve on November 30, 2016 5:46pm:

    Hello, we are new company in Florida started to do the middleman services (broker) for European customers in car business. If I am invoicing the services like car storage, transport and brokering the purchase of a car, do I have to charge the EU client for any tax?

    • Posted by Author photo of Sylvia F. DionSylvia Dion on December 13, 2016 11:47am:

      Steve,
      Thanks for your question/comment. As this blog really deals with U.S. sales tax and how it impacts foreign (non-U.S.) sellers that sell to U.S. customers, I don't have an answer on whether EU VAT will need to included in your invoices to your European customers. I would suggest contacting a company such as this company in the UK: Simply VAT https://www.simplyvat.com/

      Best of luck.

  • Posted by Steve on November 30, 2016 5:45pm:

    Hello, we are new company in Florida started to do the middleman services (broker) for European customers in car business. If I am invoicing the services like car storage, transport and brokering the purchase of a car, do I have to charge the EU client for any tax?

    • Posted by Author photo of Sylvia F. DionSylvia Dion on December 13, 2016 1:27pm:

      Steve,
      I believe I you submitted your comment/question twice. Please see my response to your comment/question above. Thanks!

  • Posted by Aditya on November 30, 2016 1:28am:

    Hi Sylvia,

    I have found your articles on Sales Tax matters extremely useful.. Thank you.... I have a query for which I am yet to come across an answer... As an international seller, Amazon requires that you provide either a return address within the US or a return envelope in case of any returns... I was just wondering, if I were to provide a return address in the US from where the goods are either shipped back to me or resold, would this fall under the category of "warehousing" of goods and hence create a nexus in the state? I presume, if they are shipped back, there would be no tax, as no sale has occurred, but would I have inadvertently created a nexus which would require me to start reporting sales tax in the state on future shipments?

    Thanks,
    Aditya

    • Posted by Author photo of Sylvia F. DionSylvia Dion on December 13, 2016 1:37pm:

      Aditya,
      Thank you so much for your kind comment and your question.

      From what you describe, it appears that the goods that are shipped back or returned will not really be warehoused but just kept for a very short time while they are transitioned back to you or to some other place. So in this situation, as long as the goods are not really being warehoused, but are just "passing through" the location before they are sent back to you or somewhere else, this would by probably not create nexus. But if the returned goods will remain in the state for more than a short period and it is intended that they will actually be stored there, then yes, nexus could be created.

      I hope this helps.

  • Posted by Edoardo on November 29, 2016 3:08am:

    Hello Sylvia, great I really appreciate your blog which is full of good information. I would like to present my case. As an Italian company we would like to store our products in a fulfillment WH in the US (not necessarily FBA) in order to shorten the logistic with our customers. Products would then be sold using a b2b or b2c portal. As far as understood this implies we will have a nexus with the state where the WH is located and would need to collect sale taxes there. This would also apply for any good sold into a different state, correct (note that we might rely on agents to serve b2b customers (actually retailers) so only some sales will be solicited)?
    Which taxes should we pay in connection to the WH? As far as I understood goods should be imported and custom duties paid to be stored in a fulfillment WH. One question arises. Which value should we consider when applying for custom clearance? The manufacturing cost, a wholesale price (b2b) or an estimated selling price (b2c - which could vary in time)?
    Your guidance is highly appreciated.
    Edoardo

    • Posted by Author photo of Sylvia F. DionSylvia Dion on December 13, 2016 2:08pm:

      Edoardo,
      Thank you for your kind comment and your question.

      As this is a blog focused on explaining U.S. sales tax to foreign sellers, I do not have an answer for you on the value that should apply for customs purposes. I would suggest contacting the U.S. Custom and Border Patrol Agency for more information. https://help.cbp.gov/app/answers/detail/a_id/407/~/determining-value-on-commercial-invoices-for-cbp-purposes Also, here is a good document from the CBP on valuing your good for customs. https://www.cbp.gov/sites/default/files/documents/icp001r2_3.pdf

      I hope they are able to assist you.

  • Posted by Edoardo on November 29, 2016 2:41am:

    Hello Sylvia,
    your blog is really interesting and full of good information, great job. I would like to submit my case. We are an Italian company and would like to store our products in a fulfillment WH in US (not necessarily FBA but anyway manged by a local 3PL) to shorten logistcs and then serve customers with a b2b/b2c website.
    as far as i understood storing goods in a state implies to have a nexus with that state so we should collect sale taxes, correct? Should we also collect sales taxes for any sale outside that specifc state (the invoice would be between the company and the constomer - no third party involved), right?
    Which taxes should we pay with regards to the WH?
    When importing goods to the WH which value should we declare for custom duties purposes ( the manufacturing cost, a standard wholesale price or an estimated selling price - which could vary any time)?
    Thank you

  • Posted by KARA on November 21, 2016 11:19am:

    Hi,
    I am trying to find an answer to a question for one of our clients. We have a US IT company client who is going to be a reseller of a software (internet cloud product) to a Canadian client. The seller of the software is requiring the client to fill out a Canadian reseller application and also to obtain a business tax registration number from Canada. What are the tax implications of this? Do they need to collect tax on this monthly software subscription provided to the client? Do they have to now file a tax return in Canada and what returns? Thanks for your help. It seems to be very vague when it comes to re-sellers.

    • Posted by Author photo of Sylvia F. DionSylvia Dion on November 26, 2016 12:45pm:

      Kara,

      Thank you for your question/comment. I do handle Canadian registrations and filings, and can tell you that if your US IT company client is required to register for a Business Number (BN), obtaining a BN by itself will not cause your US IT client to have to file a Canadian GST/HST tax return - that requirement would be created by registering for a GST/HST account. And whether your US IT client would have to register for GST/HST purposes is another issue. I would strongly recommend contacting the Canada Revenue Agency directly at +1-800-959-5525 (Canada and United States) or +1-613-940-8497 (if calling from outside Canada the US). Note that these are the numbers for the non-resident office that handles the registration of non-Canadian corporations. They should be able to provide you with more information.

      Sylvia

  • Posted by Noelle on November 11, 2016 7:59pm:

    Hi Sylvia,
    I am manufacturing hair products and I distribute them in the US all states to wholesalers and also intend to sell to international distributors. I am very confused because we will be collecting resale certificates from the U.S. ones so do we still have to pay sales taxes in the other states? How about the international ones? Please advise.

    • Posted by Author photo of Sylvia F. Dionsylviadion on November 26, 2016 12:58pm:

      Noelle,
      Thank your for your question/comment.

      Unfortunately, this is a complex issue for which I cannot give you give you an exact answer - however, I can give you some general guidance.

      You say you are going to sell to international distributors. If your shipping terms are F.O.B origination and/or you are transferring the products to the international distributor and this transfer of the property occurs in the U.S, then this could be considered a sale in which you would need to obtain a resale certificate. BUT if you are turning the product over to a common carrier (UPS, Fedex) who is then shipping the product to the international distributor overseas, then there would not be a requirement to collect a resale certificate from your international distributor customer.
      Sylvia

  • Posted by Victoria on November 5, 2016 8:31am:

    Hi Sylvia,

    I am a foreign company who would like to import goods into the us to sell online. My fulfilment centre is based in Missouri and I understand from your wonderful posts that it constitutes a nexus with that state. My question is on custom Brokers- My customs broker is a big company with offices in many states, the one I am intending to use for my first shipment is the New York office. Does that mean I have a nexus with New York?
    If I do, is it only New York or all the states the logistics company is in? Also, I may change customs broker each shipment, say the next shipment is one based in just California , does that mean there's no more nexus to New York then? When do I stop charging sales tax to the New York customers, is it from the time I change broker or when that shipment of goods handled by the New York broker sells out? If my custom broker uses a third party trucking company to transport my goods, does that mean I have a nexus with the state that trucking company is based in too?
    My other question is on destination based tax- if the state I have nexus with is destination based tax, does that therefore mean that regardless of whether I have a nexus in the state my customer is in, I have to charge them sales tax based on their state's rates and remit that to the state I have nexus with? If I have nexus with more than one destination based tax, then who gets the sales tax? It doesn't sound right so I think I have the destination base tax concept wrong and need your help to clarify this.
    Thank you so much, hope to hear from you.

    • Posted by Author photo of Sylvia F. DionSylvia Dion on November 26, 2016 1:24pm:

      Victoria,

      Thank you for your kind comment and your question.

      First, you are correct that you have nexus in Missouri if you have inventory is stored and fulfilled from Missouri. Using a customs broker will not by itself create nexus UNLESS the customs brokers is storing your inventory for more than a temporary period. For example, if your customs broker also owns warehouse facilities and stores your inventory for more than just the time needed to prepare it for shipment to its ultimate location, then the customs broker would create nexus for you (because they are storing your inventory).

      Now regarding your question on destination based sourcing. Destination based sourcing means that sales tax is based on the state the order is SHIPPED TO. But sales tax would only be charged if you had nexus in the ship-to state and are registered to collect sales tax in that state. Currently you say you have your product only in Missouri and have no nexus in any additional state. If an order is shipped from Missouri to a customer in ANOTHER destination based state, there would be no requirement to charge that customer sales tax since your company does not have nexus in the SHIP TO state.

      I hope this was helpful.
      Sylvia

  • Posted by Francisco on October 26, 2016 9:44am:

    Hello Sylvia

    We are a german corrugated board manufacturer specialized in the automotive industry and have a patented design for a box. We are working with an American company to produce these boxes for us in the US and deliver directly to our clients in different states, as a german company selling outside germany we are tax exempt and we understand that b2b transactions in the US are also tax exempt but there is some paperwork involved, could you please advise us?

    • Posted by Author photo of Sylvia F. DionSylvia Dion on October 28, 2016 9:30pm:

      Francisco,
      Thank you for reading my post and your comment/question. I work with international (non-U.S.) businesses from many parts of the world (including many from Germany) and there is certainly much to understand about the implications of "doing business" in the U.S.

      You mentioned that you will be using a manufacturer in the U.S. to produce your boxes and deliver them to your U.S. customers. I wrote a blog article on how the use of a toll manufacturer in the U.S. can create a sales tax responsibilities for foreign businesses.
      http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/toll-manufacturers-sales-tax-nexus/

      Another issue is that the manufacturer will be drop-shipping the finished product to your U.S. customers which can also create sales tax responsibilities for your German company. And yes, if you engage in B2B transactions (selling to wholesalers or distributors who will sell to final consumers), your German company would also have documentation requirements to comply with.

      These are all complex topics. Therefore, if you are interested in a tax consultation, please feel free to contact me directly at sylviadion@verizon.net or sylviadion@prietodiontax.com.

      Sylvia

  • Posted by Atul on September 29, 2016 12:26am:

    Dear Sylvia

    Nice blog. Gives lots of valuable information.
    I have a very specific query.
    We are India based company and have received an order from a USA based company. We will supply some parts from India and Europe but major part will be fabricated ( Stainless Steel) in Springfield, Missouri and will be delivered to final customer in Greeley, Colorado. Final customer is not the one which placed order on us. Under this scenarion, will our supplier in Missouri charge some taxes from us. If yes, what they will be and what percentage.
    Hoping to hear from you soon,

    Best Regards
    Atul Gupta

    • Posted by Author photo of Sylvia F. DionSylvia Dion on October 2, 2016 2:56pm:

      Atul,

      Good day and thank you for your kind words and for your comment.

      Although I cannot give you a specific answer in this blog reply, I can give you general guidance. (You may have noticed the disclaimer below which states that all information on the website, including information in the blog categories is "for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship.")

      The general guidance is this. It sounds like what you are describing is a drop-ship situation where the U.S. manufacturer (using parts you supply from Europe and India) will manufacturer a product that will be shipped to USA based company. If the USA based company is your customer and you direct the manufacturer to drop-ship the final product to the USA customer, the U.S. manufacturer will be required to charge YOU sales tax based on the customers "ship to" state (which may be a state other than Missouri) unless you provide the manufacturer with a resale certificate for the state the customer is located in. But in order for you to be able to provide the U.S. manufacturer with a valid resale certificate you will need to be registered for sales tax in customer's state.

      As you can see, these are complex rules - thus, if this is significant concern for your company, you may want to consider a fee based consultation to discuss this further. If your interested, you can find my contact details by clicking on my name right under the blog post title.

      Thank you again.

      Sylvia

  • Posted by Michel on September 13, 2016 10:15am:

    Hello, I'm a mexican company, I want to import form TEXAS to Mexico chemical products, how do I qualify to not paying the texas sales tax?

    • Posted by Author photo of Sylvia F. Dionsylviadion on October 2, 2016 4:05pm:

      Michel,

      Gracias por su pregunta. Por desgracia, no estoy segura de cuál es la naturaleza de su pregunta. Si va a importar los productos químicos de Texas a México entonces no tendría que pagar impuesto sobre las ventas a la importación a México. Mi recomendación es ponerse en contacto con la oficina de la Contralora de Texas (Texas Comptroller) para más información. Aquí es el número (presione el número 1 para español) +800-252-5555.

      Sylvia

  • Posted by Mary on September 13, 2016 6:27am:

    Hi Sylvia,

    Thank you for the interesting article.
    I have a similar question with one that has been previously put by another person here but has never been answered.

    I manage a UK company and we are organising conferences in the UK with international clients (delegates from international companies and institutions). Now we plan a one-off conference in the USA in Michigan. It is a two-days event. All administrative work will be done from the UK and all payments will be received in the UK. Only the location where the event will take place is the USA. My questions are:

    - Is our UK income for this specific event taxable in the USA? Do we have to pay corporation tax in the USA and if yes, are there specific treaties between the countries to avoid double taxation?
    - Are we liable to USA sales tax? Or the equivalent of VAT?

    I would appreciate any help on this.

    Thanks
    Mary

    • Posted by Author photo of Sylvia F. Dionsylviadion on October 2, 2016 4:58pm:

      Mary,
      Hello and thank you for your question/comment.

      Let's start with your first question. One thing I am very careful about doing is "rendering a professional opinion" in a reply especially when it comes to questions on whether a non-U.S. based company is subject to U.S. corporate income tax. I can, however, provide you general guidance and point you to some resources. First, yes, there is a treaty in effect between the U.S. and the UK which may avoid double taxation on the same income. You can find the original treaty and any subsequent Protocols and Technical Explanations at this webpage: https://www.irs.gov/businesses/international-businesses/united-kingdom-uk-tax-treaty-documents. In general, there are several issues that need to be considered when determining whether your U.S. income would be protected from U.S. taxation by the treaty: 1) Would your activity be considered engaging a U.S. trade or business 2) does it rise to the level of a U.S. Permanent Establishment and 3) can the provisions of the provisions of the treaty be satisfied (e.g., is the treaty invoked). Whether the treaty is satisfied can be quite a complex analysis. If this is a significant issue for your company, I would suggest getting the proper guidance either from a tax advisor in the UK or here in the US (I consult in this area).

      No onto your other question about whether a VAT equivalent would apply. Please note that we do not have a VAT in the U.S. (Here's my prior blog post on this topic: http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/comparing-us-sales-tax-to-vat/) However, as the organizer of a conference that will occur in Michigan, there is a good likelihood you may required to register for Michigan sales tax purposes. I would strongly encourage you to contact the Michigan Department of Treasury's sales tax division at: +1-517-636-6925 and inquire as to your Michigan registration responsibilities.

      Best of luck with the conference.

  • Posted by John on September 3, 2016 3:27pm:

    Why would a US company, based in Arizona, ask its Canadian seller to pay the state tax connected with its purchase of product or services from that Canadian company?

    • Posted by Author photo of Sylvia F. DionSylvia Dion on September 3, 2016 8:48pm:

      John,
      Thanks for your question/comment. I believe that what you are wondering is why a Canadian seller would be required to charge sales tax to a purchaser in Arizona, correct?

      First, in order for the Canadian seller to have an obligation to charge an Arizona sales tax to a purchaser in Arizona, the Canadian seller would have to have "nexus" to Arizona. This essentially means the Canadian seller would need to have a physical presence, such as inventory being stored in Arizona, or an employees, a physical location or some other activity that Arizona law would say requires the Canadian seller to register for, charge and collect Arizona sales tax. (The fact that this is a Canadian company is not relevant to Arizona because the state of Arizona is not a party to the US/Canada tax treaty). So if the Canadian seller has nexus to Arizona, then according to Arizona law, the seller must charge and collect sales tax from the Arizona customer. So "nexus" is the reason why a Canadian seller might be required to collect sales tax from an Arizona purchaser.

      I hope this helps.

      • Posted by John on September 4, 2016 8:27am:

        Thanks for your timely response. It's even weirder. This US company wants the Canadian company to pay its sales tax – I don't understand that from a tax perspective

  • Posted by S on August 25, 2016 4:05pm:

    Dear Sir/Madam,

    I am the chair of the Canadian based company and we organize scientific conferences in Canada and Europe. We are going to move some of our conferences to USA for 2016. I would be very grateful if you kindly answer the following questions which I believe it would be very helpful for our company:
    -- Should we get any permissions to organize a conference in USA?
    -- Should we pay tax in USA for our related income?
    -- Should we charge our participants (most of them would be the university students and professors) to the sale tax of USA? So, should we collect those taxes and return it to USA government?

    It should be added that all administration activities will be done in Canada and location of the conferences would be in USA.
    Thank you very much for your cooperation.

    Regards,
    Seyed

  • Posted by Nabil on July 18, 2016 9:34am:

    Hi Sylvia,
    I'm so happy I found this article.
    We are an E-commerce company in Morocco “we provide a support and advertise for some US affiliate companies”. Do we need to feel up W-8 form with each US company or is better to work with invoices? We don’t have to pay for US taxes??
    Note: We provide only services

    • Posted by Author photo of Sylvia F. Dionsylviadion on July 30, 2016 9:41pm:

      Nabil,
      Thank you for reading my post and your very kind comment.

      If you have U.S. customers and you are a Morocco entity, then yes, you will need to provide a W-8BEN-E to each of your U.S. customers (if they are following proper procedure, they should be requesting a W-8BEN-E before they issue payment to your company).

      Regarding your question on whether you have to pay U.S. taxes - this is a highly complex question as there are many factors that might impact whether your Morocco entity would have to pay U.S. taxes. Thus, I would suggest seeking the advise of a U.S. tax advisor knowledgeable in this area for guidance (I do advise clients on this topic).

      Hope this helps.

      • Posted by Nabil on July 31, 2016 2:15pm:

        i would love to get the advise from you.. what should i do? please send me your office number?

  • Posted by MANISH on July 14, 2016 4:37am:

    we are wholesaler of base oil. we are registered in indiana state under sales & use tax. we import material from india & sell in new york . then what is the effect of sales & use tax in indiana state ?

    • Posted by Author photo of Sylvia F. Dionsylviadion on July 30, 2016 9:50pm:

      Manish,
      Thank you for your question/comment. Please note that it is not possible to get you an absolute answer to your question as there are various factors that would need to considered. However, I can give you general guidance - which is that if your company is registered for sales & use tax in Indiana then you are obligated to pay use tax on any purchases used in your business in Indiana if your supplier did not charge Indiana sales tax. You are also required to charge Indiana sales tax on orders delivered into Indiana unless the customer can provide you a valid resales or exemption certificate.

      Hope this helps.

  • Posted by Hitendra on June 10, 2016 1:51pm:

    Our firm is registered in india as a partnership firm. Now we want to sell our products like steel signages, brass name plates/plaques, printed photo frame etc.through our website which is under construction. we plan to get registration in delaware or wyoming as suggested by myusacorporation.com..now tell me how we are liable to pay sales tax/income tax or any other in delaware..? what are the % of tax on our selling price..? we should get our online payment through paypal..give your best advice..thanks.

  • Posted by Hitendra on June 10, 2016 1:51pm:

    Our firm is registered in india as a partnership firm. Now we want to sell our products like steel signages, brass name plates/plaques, printed photo frame etc.through our website which is under construction. we plan to get registration in delaware or wyoming as suggested by myusacorporation.com..now tell me how we are liable to pay sales tax/income tax or any other in delaware..? what are the % of tax on our selling price..? we should get our online payment through paypal..give your best advice..thanks.

  • Posted by Francis on May 24, 2016 11:20pm:

    Hi, we are a Hong Kong office. We will ship clothes from China to United States at shipping term of LDP. That is, we will arrange goods from port of China to port of entry in U.S., say Los Angeles, and clear customs. Our independent U.S. customs broker will then contract U.S. Buyer for goods delivery. Pls advise if we need to pay any tax in U.S.
    And how about if trade under LDP plus warehousing in U.S.. That is, goods will be sent to our independent warehousing/distribution company in U.S. first. And after receiving order by U.S. buyer, our Hong Kong office will ask our independent warehousing/distribution company in U.S. to deliver goods to U.S. buyer’s stores. Pls advise if we need to pay any tax in U.S. in this case.

    • Posted by Francis on July 12, 2016 12:27am:

      Hi Sylvia

      Really love this site's content and want to have a preliminary information about our tax status of above transactions. We are about to receive sales orders from our customers and pls advise if we need to pay tax in U.S. Thank you so much.

  • Posted by Jessica on April 20, 2016 12:24pm:

    Great post! I have a quick question. We are in MN and our buyer is in Germany. They want us to drop ship our product to Florida. Is there a form that German customers can give us to exempt them from the Florida sales tax? We DO have nexus in Florida.

    • Posted by Raph on May 8, 2016 5:51am:

      Hi Sylvia,

      Absolutely love the site, I can't tell you how important and valuable all this information is for a small business like mine. One day I hope to be able to return the favor. I had a question about Nexus. I run a small Canadian website about to start shipping to the USA. We're going to use Shopify and their payment processing. Do you know if payment processor or web server location has successfully been used to establish Nexus for any foreign sellers? In a hypothetical situation where it does, should we basically just avoid the one state where those servers might be located? Thanks so much,

      Raph

      • Posted by Author photo of Sylvia F. Dionsylviadion on May 9, 2016 4:49pm:

        Raph,
        Thank you for reading my post and your comment/question.

        You bring up an excellent point - one that many non-U.S. sellers are not aware of (and one that would be good idea for a future blog post ;) One thing I often advise on is that creating nexus in a state can happen in many "less than obvious" ways and owning, storing or even sharing an internet server in a state is one of the newer ways that states are trying to attribute nexus to out-of-state (and that includes out-of-country) sellers. So to answer your question, yes, you may want to avoid transacting business in a state where your payment processor and/or internet servers are located.

        Hope this helps.
        Sylvia

    • Posted by Author photo of Sylvia F. Dionsylviadion on April 23, 2016 9:05pm:

      Jessica,
      Thank you for reading my post and for your comment. This is great question - and topic I often explain to my foreign clients.

      As I noted in my post, the states are not a party to or bound by a tax treaty that the U.S. government enters into. This means that your German customer is treated no differently than your U.S. customers who directs you to drop-ship product to their customer located in Florida. You're required to charge the German customer Florida sales tax unless the German customer can provide you with a Florida resale certificate (Florida Form DR-13). The German customer would need to be registered with the Florida Department of Revenue to be able to provide the resale certificate. There is no other documentation that your German company can provide. So basically, you will need to charge your German customer Florida sales tax on the order you drop ship to their Florida customer.

      I hope this helps. Please let me know if you have any additional questions.

  • Posted by Maria on March 15, 2016 4:09am:

    Hi Sylvia.

    We are a Spanish company and we are going to sell shoping furniture and INSTALLATION of them (about one week) in NY city, . The installation is going to be done by an American subcontractor located in Florida.
    1,- Subcontractor will invoice us (to Spanish company), which tax applies (sales tax, witholding tax,...)?
    2,- Must we apply taxes in the final invoice to the American customer (sales tax, witholding tax,...)?
    3,- Other requirement?

    Thanks a lot for your support.

    Isabel

    • Posted by Maria on March 23, 2016 3:54am:

      Muchas gracias por la información. Es un alivio encontrar información fiscal de EU, ya que en Europa los impuestos son muy diferentes,
      ¿ Qué es un nexo ? ¿ Cómo podemos conocer si debemos estar registrados en EU (los montajes no exceden de un mes)?
      Un saludo

      • Posted by Author photo of Sylvia F. Dionsylviadion on March 23, 2016 8:42pm:

        Maria, Gracias! Un nexo significa una conexión. Este término es utilizado por los estados para describir cuando una empresa de fuera del estado (o extranjera) ha realizado una conexión con el estado que requiere la entidad para registrarse. Puesto que usted dice que su proyecto en New York solamente durará un mes o menos, entonces puede que no sea práctico para registrarse. En este caso, es posible que desee informar a su cliente de que deben pagar los impuestos que se deben directamente a Nueva York.

    • Posted by Author photo of Sylvia F. DionSylvia Dion on March 22, 2016 5:38pm:

      Isabel,

      Gracias por leer mi post y por su comentario. Usted explica que el subcontratista llevará a cabo la instalación y facturará su empresa española. El subcontratista deberá cargar el impuesto sobre las ventas si el subcontratista se basa en New York y si el servicio que ofrece está sujeto a el impuestos de New York. (Sólo impuesto sobre las ventas se aplicaría no una retención fiscal.)

      Ustedes no pueden cargar impuesto sobre las ventas a su cliente en América si su empresa española no está registrada en New York. Sí, la venta de los muebles está sujeto al impuesto sobre las ventas de New York, pero si ustedes no cargan al cliente el impuesto sobre las ventas, el cliente todavía tiene que pagar el impuesto a New York. Sin embargo, es possible que su empresa española tiene nexo en New York y quizás debe estar registrada para poder cobrar el impuesto a las ventas. Si tiene cualquier otra pregunta, por favor hágamelo saber.

  • Posted by Guido on February 16, 2016 3:42am:

    Hi Sylvia,

    I'm joining Mike in thanking you for the valuable information you give us in this blog!

    We are a German corporation and want to sell license keys for our pre-written software to customers in the U.S. via an online shop. This should not be taxable in my understanding. However, the software itself is being pre-installed on an operating system of a big vendor, which also has PEs in the U.S. Would this count as nexus for us in every state this vendor has nexus?

    Best regards,
    Guido

    • Posted by Author photo of Sylvia F. DionSylvia Dion on February 21, 2016 7:49pm:

      Guido,

      Thanks for reading my blog post and also for the very nice comment! It is greatly appreciated.

      Now on to your question. The first thing to keep in mind is that the requirement to charge and collect sales tax is based whether you (your company) has nexus in any state. Also, keep in mind that a non-U.S. company that does not create a PE in the U.S. can still have sales tax nexus. (Here's one of my prior blog posts on this topic: http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/tax-treaties-us-sales-tax-nexus-foreign-sellers/ )
      But while you might assume that your lack of physical presence in any state means you have no nexus/no tax collection requirement, you note that your vendor will have your software installed on an operating system. Would this be installed on a server in a data center in the U.S.? If yes, then having your software stored on a U.S. server could be a nexus creating activity. So it's not so much that the vendor has nexus - it's that your software may be located on a U.S. server creating nexus for your business. Another thing to know is that many states subject the sale of pre-written software to sales tax regardless of the method of delivery (downloaded, hosted solution).

      In general, you have some facts that indicate your German company might have sales tax nexus and that your company could be selling a taxable product.

      Please let me know if you'd like more assistance with this issue (sylviadion@verizon.net)

      Thanks again!
      Sylvia

  • Posted by Mike on February 3, 2016 9:55am:

    Hi Sylvia,

    What fantastic value you offer on this blog. I'm sure I speak for all the readers by saying thank you for clearing the 'fog' for us.

    I am a British citizen (resident in the UK) who will be selling through amazon.com next month using my UK Limited Company. As I understand it I will need a FEIN Number and an ITIN to register for sales tax.

    In one of your articles you helpfully provide a telephone number to obtain a same day EIN. Is there a similar service to obtain an ITIN quickly or is the only option to submit a paper application?

    Thank you so much for your valued assistance.

    Kind regards

    Mike

    • Posted by Author photo of Sylvia F. DionSylvia Dion on February 5, 2016 9:00pm:

      Mike,
      Thank you for reading my blog post and for the very kind comment. I am happy to be able to clear the "fog" on U.S. Sales Tax - definitely a complex topic. Now onto your question. One of my upcoming blog articles for the "U.S. Sales Tax for Foreign Seller" blog will touch on the topic of the ITIN. I'll give you advance warning - which is that you are most likely not eligible for ITIN and if you apply for an ITIN you application will most likely be rejected. (And no quick number to call, application must be on paper form.) The IRS has very strict requirements on issuing ITINs and unless you meet those strict requirements, they will not assign you an ITIN (obtaining an ITIN just to register for sales tax is not a valid reason for an ITIN). Without the ITIN, it is more involved for a foreign seller to register for a sales tax permit or business license (helping foreign companies with the sales tax registration process is one of the services I provide to foreign sellers). Again, i'll be touching on this topic in a future post as i get the question on how to obtain an ITIN often (but have to explain that a foreign seller generally isn't eligible for one). If you need assistance with the registration process feel free to contact me at: sylviadion@verizon.net.
      Thanks again!

      • Posted by Mike on February 22, 2016 1:33am:

        Many thanks Sylvia for your continued help which is much appreciated. I look forward to reading your future article on ITIN's. Meantime my strategy will be to apply for registration as I become liable for Nexus through the various Amazon warehouses in the USA. I will certainly make use of your services if I run into difficulties. With gratitude. Mike

  • Posted by Charlie on November 7, 2015 1:18pm:

    Hi Sylvia,

    I am a sole proprietor from EU (Slovenia) and I am starting to selling on Amazon.com and using FBA services. When I opened my Amazon Seller Account I signed the W8-BEN form because my country has a bi-lateral treaty with US. I already sent my inventory from EU to prep company in New Jersey and after that prep company will send my inventory to FBA in Whitestown, Indiana. In my seller account I have choosen Amazon service, so I can send my inventory only in one Amazon warehouse and Amazon will split/send my inventory through their diferent FBA warehouses in US. As I understand your excellent explanations on this blog, I as a international seller will have to collect taxes in every state where Amazon will deposit my inventory for sending it to customers. About all explained I have a few questions for you:

    1. Do you maybe know how can I find out in which US states does Amazon deposit my inventory so I can find out for which states do I have to collect and pay taxes?Maybe this is visible through Amazon seller central but I am not shure.

    2. How often do I have to pay taxes (monthly, every quarter)?

    3. What is the correlation between states sales tax and federal taxes or VAT in EU? What I mean by that is if I pay sales taxes to every state in US where Amazon deposit my inventory, do I also have to pay VAT in my EU country? Can I get one of them back?

    4. Regarding sales tax in US states is there any threshold when I as an internationall seller have to start paying taxes or do I have to pay the sales taxes from the beggining (with the first item sold in the whichever state where I have nexus)?

    5. Do I have nexus in my case also in New Jersey where I sent my inventory to prep company to over prep them and send them in my name to Amazon Fullfilment Center in Indiana?

    6. Do I have to get Tax Payment Identification number (TIN) in the US from the IRS?

    7. What is the simplest way to get one (TIN) for me as a non US resident?

    Thank you.

    • Posted by Author photo of Sylvia F. Dionsylviadion on November 8, 2015 7:29pm:

      Charlie,

      Thank you for reading my post and for your comment. From reading your many questions, it sounds like you may benefit from a tax consultation. Your questions are very specific and unfortunately, I cannot answer them all in a reply. However, I have written other blog posts here at SalesTaxSupport that should answer some of your questions. Those posts include:
      • Do International Sellers Registering for Sales Tax Need a U.S. EIN? http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/international-sellers-registering-sales-tax-us-ein/
      • International Sellers and U.S. Sales Tax Registration: 3 Key Issues http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/international-sellers-and-u-s-sales-tax-registration/
      • U.S. Sales Tax for Amazon FBA International Sellers http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/amazon-fba-international-tax/
      • Comparing the U.S. Sales Tax to a VAT http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/comparing-us-sales-tax-to-vat/

      I think you may find these additional posts helpful. If you are interested in a consultation, please feel free to contact me at sylviadion@verizon.net.
      Sylvia

  • Posted by Steve on October 23, 2015 6:21pm:

    Hi Sylvia. Excellent article.

    We have a Hong Kong company offering mobile application development services. My understanding is that there is no tax treaty between Hong Kong and USA.

    We do not have any presence in the US and all our work is performed here in Asia. We would simply invoice our US client for services.

    I am confused, Would we need to pay federal income taxes in the US if we take on this client?

  • Posted by Linssey on October 10, 2015 9:53am:

    Hi Sylvia!

    Amazing article and so insightful, you are truly a great help for all us out there! Question: A foreign B2B EU company was approached by a US based company. For meetings and research - I would have to go the US quite often, however (due to visa limitations) all intellectual products are created in the EU. EU asks for Income tax, not sales TAX since the receiving company is in the US. Who needs to pay the sales tax? The US based company or the EU company? Thanks so much!

    • Posted by Sylvia on October 24, 2015 9:00am:

      Linnsey,
      Thank you for reading my blog article and your kind comment. It is sincerely appreciated!

      Now on to your question. I will give you a very general answer (as I'm afraid your question doesn't provide as much detail as needed). So, the first point is that there must be a sale of either a product or a service to consumers or clients the U.S. in order for sales tax to apply. However, IF the foreign company is making sales to U.S. consumers/clients there are a few more issues to consider: Does the foreign company have nexus in any state in the U.S. Nexus can be created in many ways - you as an employee of the EU company traveling to the U.S. could be creating nexus for your EU based employer. Having inventory in a state or using a fulfillment agent in a state can created nexus even for a foreign based company. So nexus must exist, then as I just mentioned, there must be a sale of taxable products or services. Adding another complexity to this situation is that B2B sales are often exempt from sales tax because they are considered sales for resale - however, special rules apply which require proper documentation for the sales to be exempt. And yes, the requirement to collect sales tax (if it if due), or obtaining the necessary documentation (if the B2B sale is exempt) falls on the EU based company - but only if the EU based company has nexus. This is complex stuff indeed! But I do hope this helps! If you'd like to consult further, please feel free to send me an email at: sylviadion@verizon.net

  • Posted by Ross on June 2, 2015 5:24pm:

    Hi Sylvia - first up, thank you for the awesome content - I've been reading through it and the depth of knowledge you're providing is amazing - I can only imagine how long it takes.
    I run a seasonal business across 2 categories
    1. Individual sales to customers
    2. Larger orders for big customers
    I had bee thinking about using Amazon FBA but sounds like if I ship from Amazon, I need to get registered for sales tax. If I take an order and Amazon and ship from outside the US, do I need to register for US sales tax?
    For larger orders, based on what you've set out above, sounds like unless I setup a PE in the US I don't need to charge sales tax ie. just ship from manufacturing country directly to customer. If I understand this correctly, this would mean that the customer is not required to pay any sales tax (we're based in Europe so zero-rate sales tax for orders outside the Europe). Just wanted to confirm if this is correct or if there are any limitations in terms of value on this.
    Finally (and sorry if this is getting long) - if we did decide to use Amazon FBA and need to register for sales tax, I assume we'd need to start charging sales tax on larger orders too.
    Greatly appreciate ay help
    Thanks again

    • Posted by Sylvia on June 7, 2015 12:54pm:

      Ross,
      Good day! And many thanks for the kind comment! Now, to answer your questions. If your company is shipping directly from Europe to U.S. customers and your company does not have “nexus” in any state, then your European company will not be required to register to collect sales tax in any state. However, I must caution that businesses (including international businesses) are often surprised at how easily “nexus” to a state can be created. If you consider selling via Amazon.com and fulfilling your orders via Amazon FBA - you will be creating nexus in states where your goods are stored/ orders fulfilled from (though, as I point out in my post, this will not necessarily create a PE in the US). However, something less obvious, such as your European company using sales reps in the U.S. would also create nexus – regardless of whether the reps are employees or independent contractors. Having nexus in a state would technically require your European company to register to collect sales tax in the nexus state or states. Just in case you didn't see these posts, I've just wrapped up a 3-part series on this topic. http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/amazon-fba-international-tax/, http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/international-sellers-and-u-s-sales-tax-registration/, http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/international-sellers-registering-sales-tax-us-ein/
      Also, one of my main services is advising U.S. AND international business on nexus – where they have nexus, what action steps need to be taken, registering in the states, etc. If you are interested in a consultation, please feel free to contact me at sylviadion@verizon.net.

  • Posted by Maryse on May 29, 2015 12:56am:

    Good afternoon,
    We are a Canadian company and we are looking to expand our sales to the US market. We would like to know if we need to charge sales taxes. You will find below the 2 scenarios that we presently have:
    Scenario 1: Internet Sales (Website):
    If we sell our products on our Website and we get an order from either an end-user or a company located in the US, should we be charging sales taxes? Our products are shipping from Canada. Would it be different if we were to stock our products in a fulfillment facility in the US? Would it make a difference if we were to advertise our products in a magazine in the US?
    Scenario 2: Selling to companies in the US:
    If we were to get into an agreement to sell our products to an wholesaler or a retailer located in the US, would we need to be charging sales taxes? Would it make a difference if we were to advertise our products in a magazine?
    Thank you!

    • Posted by Sylvia on June 7, 2015 10:04am:

      Maryse,
      Good afternoon and thank you for your question. If your company is shipping directly from Canada to U.S. customers and your company does not have "nexus" in any state, then your Canadian company will not be required to register to collect sales tax in any state. However, I must caution that businesses (including international businesses) are often surprised at how easily "nexus" to a state can be created. Stocking your product in a U.S. warehouse would almost certainly create nexus in the warehouse state. However, something less obvious, such as your Canadian company using sales reps in the U.S. would also create nexus - regardless of whether the reps are employees or independent contractors. Also, our states are all independent governments - so the laws are not always the same from state to state. So whether advertising would create nexus in any state would really depend. You mention sales to wholesalers - again, what would be important is first determining where your Canadian company has nexus. If nexus exists in any state, then this creates another set of requirements, such as collecting exemption or resale certificates from your wholesale customers. One of my main services is advising U.S. AND international business on nexus - where they have nexus, what action steps need to be taken, registering in the states, etc. If you are interested in a consultation, please feel free to contact me at sylviadion@verizon.net.

  • Posted by Christina on May 28, 2015 5:22am:

    We operate a large 3 day fashion conference in CT. We have a question about our international sellers. We know our national sellers need to get a CT Sales and Use Tax permit (as we do), but we are unsure what to tell our international sellers. They do not have stores in the US, and they are only coming over for our event to sell goods they are bringing along with them. Do they need to get a permit, and do they need to pay tax? Also, do we need to pay tax for our online sales? We don't ship anything out - it's a ticket sale. I attempted to call the CT Tax dept. directly, and they informed me of an admission tax of 10% that I need to apply, but I think they confused us with a carnival, which we are not. Thanks.

    • Posted by Sylvia on May 31, 2015 5:26am:

      Christina,
      Thank you for your comment! Technically (legally) each of your vendors are supposed to register to collect Connecticut sales tax at your event - even your international (non-U.S. vendors). The Connecticut registration form, CT REG-1, asks specifically if the registering entity is "selling at a craft show, flea market, fair, or other venue in Connecticut or selling over the Internet." In general, all states (that impose a sales tax) have this registration requirement even if the vendor is only in the state temporarily for an expo/trade show/craft fair, etc. I work with many international (non U.S.) clients that sell over the internet to U.S. consumers - and it is not easy, plus time consuming – for international vendors to register with the various states. Most states will not allow a non-U.S. vendor to register for a sales tax permit via their online registration system (which is the quickest way), which means the registration has to be done via paper form and it could take several weeks for the states to process the paper application. So certainly, this presents an issue. But basically, as event organizer you should be informing your international sellers that they are required to obtain a Connecticut sales tax permit if they plan to participate in your conference. Also, as far as your sales tax collection requirement - you will also need to register, collect and remit sales tax on your online sales to customers in any state in which you have sales tax nexus. Organizing and holding an event in Connecticut would very likely create CT sales tax nexus.

  • Posted by jason on May 23, 2015 7:18pm:

    awesome post!!
    have a query and would be great if u can get some feedback from you on it.
    assumption: Hong Kong entity. Source either from China and/or U.S. for goods and sold via mainly Amazon using FBA and/or its own website (also uses Amazon FBA) in the U.S.
    my understanding is that Sales Tax will be applicable.
    but would a corporate tax / withholding tax be applicable in my situation? my generel assumption is the Hong Kong company pay Hong Kong tax in Hong Kong and no federal/withholding tax in the U.S..
    thanks in advance !!! cheers ~~

    • Posted by Sylvia on May 25, 2015 6:58am:

      Jason,
      Thank you for the kind words!
      Now, to answer your question. Whether you import your goods from China, from within the U.S. or from another country - your Hong Kong entity will have sales tax nexus in the states where the inventory is stored and fulfilled from if you use Amazon FBA.
      Regarding whether federal corporate tax and/or whether withholding on payments from Amazon would apply depends on several factors. First, the U.S. and China do have tax treaty in effect (See: http://www.irs.gov/Businesses/International-Businesses/China---Tax-Treaty-Documents) therefore, the first consideration would be whether the provisions of the treaty protect your Hong Kong entity from double taxation on income effectively connected with a U.S. trade or business. Another consideration is whether your entity's activities in the U.S. give rise to a Permanent Establishment (PE). If they DO, then even if the treaty would normally protect your entity from U.S. federal taxation, your entity could still be subject to U.S. taxation. Finally, whether federal withholding is required also depends on a couple of factors such as the provisions in the bi-lateral tax treaty and whether IRS Form W-8BEN-E have been properly completed and provided to the payor (Amazon). Please keep in mind that this is general guidance as it is not possible to provide an absolute answer without a in-depth consultation. Thank you again for the question - a very good one!

      • Posted by Jason on May 25, 2015 4:17pm:

        Hi Sylvia,
        thanks for the reply.
        Regarding double taxation - China treaty does not apply to Hong Kong (http://www.irs.gov/Individuals/International-Taxpayers/Tax-Treaties----Items-of-Interest)
        1. In terms of PE. This is one area of interest that I would like to give further deliberation.
        On the assumption
        A) Hong Kong entity.
        B) Source either from China and U.S. for goods
        C) Sold via Amazon FBA
        - would this give rise to PE or not?
        2) I guess withholding tax is very much linked to PE since it connected to federal tax as per my understanding. I am right to say that if there is no PE, all I need to do is to provide the properly completed form to Amazon and withholding tax will no longer be applicable?
        Thanks in advance :)

        • Posted by Jason on June 2, 2015 4:40pm:

          Hi Sylvia - following up on the query above.
          Would apprecaite any feedback that you can provide.
          Thanks again
          - Jason

  • Posted by Cathy on March 26, 2015 3:16am:

    Hello Sylvia,
    Thank you so much for your article. I have a customer that insists there is no possible way a FOREIGN corporation can collect and pay sales tax! We are a UK company with a W8BENE with not PE. They have listed sales tax on their PO but refuse to pay us the tax saying we should never have invoiced them the tax because there is no possible way that a UK company can pay the US state sales tax? We do pay sales taxes to States and have for some time. Who is correct?
    Thank you so much
    Cathy

    • Posted by Sylvia on April 8, 2015 12:17pm:

      Cathy,
      Thank you for reading my post and your question. Based on my read of your comment - you are absolutely correct. I have several UK clients that sell on Amazon.com and warehouse their inventory in Amazon warehouses in the U.S. These UK clients (all are UK companies) have nexus in the various states where their inventory is fulfilled from (i.e., where the Amazon warehouse is located) and are registered to collect sales tax if an order is shipped to a customer in those same states. Like your company, they also do not have a PE in the U.S. - but a foreign company can avoid having a PE but still have sales tax nexus. So again, I would say you are correct - a UK company can absolutely be required to charge and collect sales tax from its U.S. customers. I hope this helps!

  • Posted by Nicholas on March 14, 2015 5:49am:

    Sylvia, Thank you for this fascinating article.
    My business often ships goods on approval to clients in the US. As the sale is agreed after receipt of goods I believe this would create a sales tax nexus in the purchaser's state?
    Are we able to import the goods at cost seeing as we retain ownership until point of sale and the place of supply is in the US or do we need to import the goods at retail value so as not to incur corporate income tax?
    Thanks, Nicholas

  • Posted by International on February 7, 2015 2:53am:

    […] addition to my last post, I also wrote another related post (which was actually my first post in this “U.S. Sales Tax for Foreign Sellers” blog). […]

  • Posted by Brahim on December 12, 2014 2:47am:

    Hi Sylvia,
    I need your help please if possible..,I am Brahim Benchemmar manager of a Moroccan company specialized in manufacture & export of a wide range of Moroccan handcrafts. We plan to participate as exhibitor in JOGS Tucson Gem & Jewelry Show in Tucson, Arizona).
    I would like to have your kind support in what taxes should I pay for may sales in this trade show, and if are they paid before trade show (on importation invoice value of goods) of after the show or within the show.
    I will be very gratefull for you for any help, and any information from you will be highly appreciated
    Thank you very much.
    Brahim Benchemmar
    Manager
    Agadir, Morocco

    • Posted by Sylvia on December 14, 2014 11:30am:

      Brahim,
      Thank you for reading my article and for your comment. First, the general answer is that you would be required to charge and collect the Arizona state and local sales taxes that would apply to the sales that you make at the show. The applicable taxes would be collected at the time of sale and remitted to the State of Arizona after the event. However, you must be properly registered to collect Arizona taxes. (You cannot collect taxes without being registered.)
      I noticed that you mentioned that you will be exhibiting at the JOGS Tucson Gem & Jewelry Show in Tucson, Arizona. Often when an exhibition of this type, the promoter/organization will provide guidelines to exhibitors on what they are required to do. I took a look at the JOGS Tucson Gem & Jewelry Show website and under the section for EXHIBITORS/IMPORTANT INFORMATION, there is a link for "Obtaining Special Events License" which takes you to this page: http://jogsshow.com/exhibitor-manual/special-events-license/ Here you will see more information about obtaining an Arizona Department of Revenue Special Events license and a link to the special Arizona Department of Revenue form that must be completed. Helping companies get registered with Arizona Department of Revenue is a service I provided. However, you may want to contact the exhibitor to ask whether they are assisting their exhibitors with this necessary step.

  • Posted by Billy on October 30, 2014 2:01am:

    Hi Sylvia - Great article! How about this hypothetical? A company has operations located in China (all employees and manufacturing facilites). Through a reorganization, the ultimate 100% parent of this Chinese entity becomes a Delaware (US) entity with two individual owners, one a US citizen and the other a foreign citizen. The Chinese subsidiary manufactures a consumer product that it sells over the internet to customers throughout the US. What is the sales tax analysis? Are there structuring approaches to limit/mitigate them?

    • Posted by Sylvia on December 1, 2014 10:33pm:

      Billy,
      Good day! Thank you for reading my article and for your comment. Great hypothetical! I'll give you some high level thoughts. First, the rules vary from the state to state - so, as I often to say to my clients, the answer to a specific situation really depends the specifics facts and circumstances and the specific state's rules. In your hypothetical, the Chinese subsidiary COULD end up with sales tax nexus due to the corporate affiliate relationship with their parent and the parent's activities in the various states. In addition to blogging on U.S. Sales Tax for Foreign Sellers, I am also the e-Commerce/Internet Tax blogger for SalesTaxSupport's Issues blog and the Massachusetts Sales Tax blogger for SalesTaxSupport's State blog. Anyway, a few months back I wrote a post on the Issues blog that discusses several things, including how some states have implemented laws that say if a corporate affiliate (a parent, subsidiary, brother-sister corporation) has nexus in a state, then the nexus is attributed to the out-of-state (or out-of-country) retailer. Here's a link to the post: http://www.salestaxsupport.com/blogs/sales-use-tax/internet-tax-ecommerce/amazon-laws-not-created-equal/
      So again, on a high-level, I can tell that the Chinese subsidiary internet seller could end up with nexus in various states. Regarding structuring/approaches to limit/mitigate this result - in addition to blogging here at SalesTaxSupport.com, I'm the managing partner of a tax consulting firm and assist both U.S. and international clients with nexus, structuring and many other issues. So while I can't comment on structuring and strategies here on the blog, I'd be happy to assist your company with these issues. You'll find my contact information on my bio page (under my name above) or you can reach me directly at sylviadion@verizon.net.

  • Posted by Robert on September 4, 2014 5:16am:

    Hi Sylvia,
    I'm so happy I found this article. When you look at international literature it always focuses on the PE only.
    Our business is to manufacture monitoring systems in Germany. When we sell to a customer in the US we would ship the parts and pieces separately and then an engineer would travel to the US for 1-2 weeks to do the final installation, configuration and testing of the system directly at the customer site. Usually we only have 1-2 project per state per year, so the total time spent in a state is maybe 20 days max.
    Per international tax law this would only be a PE if the installation goes on for at least 1 year but how about NEXUS?
    Thanks,
    Robert

    • Posted by Sylvia on September 5, 2014 1:30am:

      Robert, Thank you for reading my blog article and your comment! First, I have to agree with you that so much of what you read focuses on the PE threshold, which as I mention in my article, is important for FEDERAL taxation but offers no protection from STATE taxation.
      To answer your specific question, the activity that you describe would very likely be viewed as nexus creating activity not only for sales tax nexus but for other types of state taxes also, such as a state's corporate income, franchise or other business taxes. You see, service type activity, such as installation, configuration and testing at a customer/client site by your own employee is almost always viewed by states as sufficient to create nexus for these other state business taxes. State tax nexus is definitely a complex issue for foreign companies that are doing business in the U.S. States aren't bound by a bi-lateral treaty that our foreign government enters into - so foreign taxpayers are subject to each state's specific laws. And activity that might seem to minimal is often seen as sufficient enough to create nexus in the view of many states. I focus on all areas of state taxation, with nexus being a specialty focus of mine, so please feel free to contact me directly with any additional questions at sylviadion@verizon.net (You can also find my contact information on my bio page here at SalesTaxSupport.com)

  • Posted by What on August 20, 2014 6:19am:

    […] Sellers” for SalesTaxSupport.com’s Industry blog. A while back I wrote a post that dealt with Tax Treaties and U.S. Sales Tax and explained that just because an international seller is from a country that has a tax treaty […]

  • Posted by U.S. on August 18, 2014 11:35am:

    […] I first started blogging about U.S. Sales Tax for Foreign Sellers, I wrote a blog post about tax treaties and U.S. sales tax nexus and explained what foreign sellers need to know.  I thought that this would be an important topic because many foreign sellers believe that they […]

  • Posted by Avinash on August 11, 2014 1:10pm:

    I have the following queries regarding taxes applicable in Monroe, North Carolina:
    1. Sales and Use Tax: Is this tax applicable on imports from other country also. (Import of Equipment/Machine from India to Monroe, NC for pharmaceutical manufacturing)
    2. Local County Tax: Is this tax applicable on Import of Equipment/ Machine from India to Monroe, North Carolina
    3. Privilege Tax: Does equipment/machine imported from other countries meant for pharmaceutical manufacturing fall under this category ?

  • Posted by Nick on August 10, 2014 11:01am:

    Hi Sylvia,
    Fantastic post, thank you very much.
    I have a question regarding income tax (rather than sales tax) for foreign sellers that I hope you can please answer...
    I understand that having stock kept at a third party warehouse in the US does not count as PE for a foreign seller, but would having a custom product manufactured by a third party contract manufacturer in the US count as PE for my overseas entity (New Zealand limited liability company) for the purposes of US income tax?
    We intend to have a product manufactured to our specifications in the US and then sell it in the US on Amazon and our own Amazon-hosted website, using FBA in both instances (or maybe another third party logistics provider). I understand that we will need to collect and pay some sales tax in this situation, but it seems that we will be free from paying US income taxes due to the int'l tax treaty between our countries.
    I would rather not have to register a company in the US if I can avoid it.
    Thanks very much in advance for your assistance. :)

    • Posted by Sylvia on August 11, 2014 7:10am:

      Nick, Thank you for reading my post, your kind comments and for your question. By the way, I focus on all areas of state taxation - sales tax, income tax, franchise tax, employment tax - so I definitely offer some thoughts. As you noted, simply housing inventory in a third party warehouse and using a fulfillment service, e.g., Amazon's FBA service, would not create a PE in the U.S. In this situation, the U.S./New Zealand treaty protection against U.S. federal taxation would apply. But using a U.S. based manufacturer is a little different than just importing finished goods into the U.S. for ultimate sale to U.S. customers. Even though simply maintaining inventory in the U.S. solely for the purpose of processing by another enterprise would not create a PE (number 3 in the section on What is a PE above), purchasing, owning or providing equipment used in the custom manufacturing or having employees or dependent agents/contractors oversee the custom manufacturing in the US COULD create a PE. So it really depends.
      But you mentioned that you'd rather not have to register a company in the U.S. if you can avoid it. Keep in mind that importing the finish goods and having orders fulfilled by a third party fulfillment service WOULD create a requirement to register your foreign entity for sales tax collection purposes in the various states where the inventory is situation. (By the way, I saw you left a comment on my "Toll Manufacturing" post. I'll take a look at your question there and add a few more thoughts.)

      • Posted by Nick on August 13, 2014 3:43pm:

        Hi Sylvia.
        Thank you very much for your response.
        We will not purchase, own or provide equipment used in the custom manufacturing, nor will we have employees or dependent agents/contractors oversee the custom manufacturing in the US. We will just tell the contract manufacturer what goods we want made, pay a deposit for these goods, and then pay the remainder of the bill for the goods upon their completion. Am I correct then in thinking that doing this would not create PE?
        My apologies - in my previous post I said I would rather not have to register a company in the US if I can avoid it. That was unclear. What I should have said is that I would rather not have to set up a US company if I can avoid it. I have no problem with having to register my foreign company in the US.
        I will check out your other response also. Thanks again! :)

  • Posted by Nadi on July 30, 2014 6:53pm:

    Hi, Sylvia,
    I am a non US resident and have a registered business in my country, I do not have a business registered in the US. I would like to start selling product through amazon warehouse, and from what I understood this counts as nexus - so I would have to collect and remit sales tax if I sell to a customer within the state I have nexus in. So, my question is pretty simple - If I need to remit sales tax, that means I would need to get a sales tax permit and in order to get that permit I must register my business in that state, which basically means I would need a US COMPANY (LLC or C- Corp? or i would be able to register my foreign business in that state and get a sales tax permit. In other words, can a Foreign company register to get a sales tax permit and start collecting and remitting sales tax in multiple states, or I would have to register a US company for that? Thanks

    • Posted by Sylvia on August 11, 2014 7:18am:

      Nadi,
      Thank you for you comment/question. You are correct in that selling through Amazon's marketplace and using Amazon's Fulfillment by Amazon (FBA) service will create nexus for your company and a requirement to register to collect tax. However, you do NOT need to create a U.S. Company (LLC or C Corporation) to sell on Amazon or to register. This is a service that I offer - I help foreign companies get registered in the various U.S. states. So, yes, you can register your foreign company. It is a little more complicated and time consuming to register a foreign company, but it can be done. Please let me know if you have any additional questions.

  • Posted by Ami on July 29, 2014 8:39pm:

    Hi we are looking to send our Pinball machines to Chicago via a carrier in bulk - they will then sit in a warehouse (we will pay rent on our little corner). We will then ship our machines out individually when the machines are sold across the whole of the US.
    My questions are: Are we nexus? And do we have to register in Illinois to collect the sales tax?
    Do we have to charge sales tax based on the final destination state to our customers once the machine leaves?
    What is the easiest way of establishing correct sales tax fees or is this something that the purchaser deals with?
    Any help on this matter would be super as we are struggling with this mine field!
    Many thanks in advance.

  • Posted by Max on July 24, 2014 10:27pm:

    Hi Sylvia,
    thx tor this article!
    As we start FBA Business via our Swiss company it is essential for us to know if we are obliged to sales tax. on one hand there is no PE in the states, but our goods are with Amazon.
    Due to your article we would be, but what about the ITFA? we found that at Amazon Website and were quite sure, that sales tax will not hit us!?
    rgds
    Max

    • Posted by Sylvia on August 1, 2014 2:27am:

      Max,
      Thank you for reading my article on and for submitting your questions. Regarding your first question - yes, if your company has inventory in an Amazon warehouse and is using Amazon's Fulfillment by Amazon (FBA) service to fulfill orders to U.S. customers, your company has created "nexus" to the various states where the inventory is located. As I mentioned in the article, the states are not a party to the tax treaties that our U.S. government enters into, so even if you avoid establishing a PE in the U.S. - this is not relevant for the state sales tax laws.
      As far at the Internet Tax Freedom Act goes - there are many things occurring regarding this legislation. First, there is a proposal that has been passed by our House of Representatives, called the Permanent Internet Tax Freedom Act (PITFA). I wrote a blog post in the e-Commerce/Internet Tax section of the SalesTaxSupport Issues blog on this topic. Here's a link: http://www.salestaxsupport.com/blogs/sales-use-tax/internet-tax-ecommerce/permanent-internet-tax-freedom-act-closer-to-law/
      In that blog post I explain in quite a bit of detail what the PITFA is all about and what it would do. We have ALSO have had a very recent development where some of our Senators decided that they would introduce a new bill which combines the PITFA and another federal bill called the Marketplace Fairness Act (MFA). (I'll be writing a new post on this topic for SalesTaxSupport.com soon, so do check back.) If you're not familiar with the MFA, it would require out of state AND out of country sellers to collect tax on sales to customers all over the U.S. This requirement would apply even if the foreign seller did not have "nexus" in a state. As I said, this is definitely a development that could have implications for foreign sellers so do stayed tuned.
      But yes, as an Amazon FBA seller you are required to register for, collect and remit sales tax. Please let me know if you have any other questions.

  • Posted by Frank on July 3, 2014 5:40am:

    Excellent article, and I think you have answered my questions already, but just to be sure...
    We are a Canadian company that currently sells a product line in Canada, and we are interested in selling a similar product in the US as follows:
    • Ship from factory in China to “Shipwire” warehouse in Los Angeles (Shipwire is a storage/logistics fulfilment warehouse).
    • Ownership will remain ours through the process, until the item is sold via our Shopify website, and routed from Shipwire to the customer.
    • We would be soliciting business in all states and delivering via multiple carriers to end users.
    1) Are we responsible for collecting individual sales taxes from the customer based on their delivery location?
    2) Is it additionally complicated based on Softlite being a Canadian entity?
    3) Should we consider a third-party API such as Avalara to proactively address these concerns?
    4) Are sales through Amazon or Ebay subject to the same tax concerns?
    5) Is there a set-up which would offer a less complex tax situation? For example would it be less complicated if we set-up in a non-sales tax state – or alternately a state with less complex sales tax (than CA)?
    Thanks for your assistance!
    Frank

    • Posted by Sylvia on July 11, 2014 6:50am:

      Frank,
      Thank your reading my post and for your comment! The first thing I will point out is that shipping your product inventory to your fulfillment/logistics agent in California, Shipwire, is a situation that will create a sales/use tax collection responsibility. This is because California (as well as other states) take the position that owning inventory in the state (you mentioned you retain ownership) and using a third-party fulfillment service constitutes a "physical presence" nexus in the state. (This is very typical scenario that many foreign Amazon FBA sellers are dealing with. In their case, they are finding that they have nexus and requirement to collect in every state from which their product is fulfilled.) As I noted in the blog article, a bi-lateral Tax Treaty (in this case, the U.S./Canadian tax treaty) will not protect your Canadian company from the state tax rules since our US states are not a party to a treaty that our federal government enters into. Now, regarding your specific questions, here are some high-level thoughts (Note, I've numbered my answers in the same order as your questions):
      1. Whether your company has nexus in any particular is really what will drive whether there is a collection duty. If there is, then, in general, the tax rate (or tax rates) is based on the “ship-to” or delivery location.
      2. As I mentioned a foreign company is treated the same as a U.S. formed or incorporated entity in terms of being subject to the U.S. sales tax rules.
      3. Regarding the use of a sales tax solution, such as Avalara. If your Canadian company does indeed have to collect sales tax in many states, you’ll want to consider some type of sales tax software solution. The sales tax returns for many states are quite complex as it is not just the State that imposes a sales tax but the multiple jurisdictions may tack on their specific sales tax rates also. So while a solution provider, like Avalara, won’t give you tax advice on whether you need to collect and where, they can deal with the tax calculation and collection that comes after your get registered.
      4. Yes, the same concerns would apply. If you use Amazon’s Fulfillment by Amazon (FBA) Service in addition to Shipwire’s fulfillment service, you have the same situation I described above – where having your product inventory in a state and using a fulfillment agent definitely creates nexus. Another issue is if you sell through Amazon, Ebay and directly through your site, you are now a multi-channel seller - and states only want one return and one tax payment that combines all your monthly (or quarterly or annual) activity regardless of how many platforms you sell through or on. Here again, a sales tax solution can help manage this consolidation process.
      5. There might be some other ways to manage the overall tax complexity of doing business in the U.S. Being in a non-sales tax state (and I assume you mean either setting up an office or fulfilling your product out of a no-sales tax state) would alleviate the requirement to collect in that state (since there would be no sales tax to collect) but this would not alleviate the nexus issue in other states where you are soliciting sales. There are also other non-sales tax issues that come into play when dealing with doing business in the U.S. For instance, being in a state like California would mean your Canadian company would also have to file a California combined corporate income tax return. So definitely lots to consider
      One final point is that you mention that you will be soliciting sales all over the country. Here again is an activity that is highly likely to create nexus for your Canadian company. I help foreign companies deal with these exact type of issues, so please feel free to contact me directly. You can find my contact information at the end of the blog post.

  • Posted by Aleem on June 26, 2014 8:39am:

    I live in Trinidad and operate my own business. I have been buying printer inks and toners from major Miami based distributors since 2005 for export to run my business. All of my purchases go to my freight forwarder in Florida which they ship to me. Recently Amazon have implemented a sales tax for items sold and shipped to Florida. I would like to know if someone like myself living international can apply for a sales tax exempt certificate for the state of Florida. I spoke with the Florida Department of Revenue and they said that it was not possible. There must be a way for none Florida residents doing business in the USA to be exempted for these taxes. Please let me know if and how this is possible.
    Thank you kindly
    Aleem Ali

    • Posted by Sylvia on June 30, 2014 3:20am:

      Aleem,
      Thank you for your comment. In general, in order for you to be exempt from the Florida sales tax you must provide your vendor a Florida Annual Resale Certificate that has been issued to your business by the Florida Department of Revenue (FDOR). To do this you must register with the FDOR. (More information can be found at this link: http://dor.myflorida.com/dor/taxes/annual_resale_certificate_sut.html ) Even if you are making the purchases for resale, you cannot claim the "sale for resale exemption" unless you are registered. This same requirement applies to Florida residents who are doing business in the US. Since the Florida residents are based in Florida, they are most likely registered with the FDOR. I advise many foreign companies and explain that just because a company is overseas/international, they are not exempt from the U.S. sales tax laws.

  • Posted by Sylvia on June 25, 2014 5:48am:

    Natalia,
    Thank you for reading my post and for your comment. You have presented an excellent question and one that deals with one of the more complex areas in U.S. sales tax - whether hosting your e-books on a U.S. server will create sales tax nexus. Unfortunately, this is not an easy answer (even the states themselves do not have clear answers on this issue) and one that would require much more in-depth research. What I can tell you is that recently BloombergBNA, a reputable tax research service here in the U.S., conducted a survey where BloombergBNA asked state tax officials many questions about nexus creating activity (the Survey results are over 300 pages long!). Some of those questions included whether leasing space on a server, sharing space on a server, or using a web-hosting service would create sales tax nexus. Many states did say these types of activities did create sales tax nexus. I often help companies with issues like these. If you would like more assistance, please feel free to contact me directly. My contact information can be found at the end of the post.

  • Posted by Natalia on June 9, 2014 11:12pm:

    Dear Sylvia,
    Great article and replies alas I still have doubts whether sales tax would apply to our situation.
    We are a Bulgarian Ltd planning to sell ebooks to US consumers. We shall buy server hosting services from the U.S. based company. The ebooks will be sold via a web portal hosted on this US (?) server.
    Is buying of server hosting services constituting a nexus ? If so, in which state should we pay the sale tax ? In the state where the US company is based, in the state where the servers are located or maybe in the states where the purchasers of ebooks reside ?
    Thank you in advance for your assistance !

  • Posted by Sean on June 2, 2014 8:01pm:

    Hi Sylvia,
    I have been selling on Amazon FBA (Fulfillment By Amazon) for a few months. I live in Australia, and have a company entity, also based in Australia.
    I was under the impression that US tax doesn't apply to me since I'm from overseas. But after reading your article, I'm no longer sure.
    Using Amazon FBA, I get products shipped in to Amazon warehouses, and they handle the order processing and delivery for me.
    To your knowledge, does this create a nexus that requires me to register for sales tax in every US state, even though I'm outside the US?
    Regards, Sean

    • Posted by Sylvia on June 3, 2014 6:02am:

      Sean,
      Hello and thanks for reading my post and submitting your comment.
      I hate to be the bearer of bad news, but using Amazon's FBA service and having your inventory stored in an Amazon warehouse absolutely creates nexus in the states where your product is stored. (But not in every state, only where the inventory is fulfilled out of.) Even though the U.S. and Australia do have a tax treaty in effect, http://www.irs.gov/Businesses/International-Businesses/Australia-Tax-Treaty-Documents , our states are not a party to this treaty. So even though you may be able to avoid U.S. FEDERAL taxation, the various state requirements still apply to your Australian company. I have helped several foreign Amazon FBA sellers get into compliance with the U.S. sales tax rules, so please do not hesitate to let me know if you have any further questions.

      • Posted by Sean on June 3, 2014 1:16pm:

        Thanks for your helpful response Sylvia. I will look up your contact details and email you for further assistance.

  • Posted by Scott on June 2, 2014 1:28am:

    Silvia
    Thank you for a great article. I have not had dealings with clients selling to the US but have very recently been approached. They are an ecommerce business that sells via the internet direct ot cosumers in various states. They ship direct to address's and have no warehouse/ presence in the US. Will they still fall into the Nexus or are they ok to just sell to the customers. The level of turnover is expected to be £40k per annum but could increase.
    Thanks
    Scott

    • Posted by Sylvia on June 3, 2014 5:54am:

      Scott,
      Hello and thank you for your comment. It sounds like your foreign client will ship everything direct to customers from overseas, correct? If they do NOT ship direct to a U.S. warehouse or use the services of a fulfillment agent in the U.S., then their selling activity most likely will not create nexus. Where you need to be careful is if they are doing OTHER things in the U.S. like using the services of a sales agent, or contracting with marketing affiliates that post web-links on their U.S. website which direct the customer to the foreign seller's website. Those are nexus creating activities also. So, in reality, there are other issues to consider - but yes, if they selling and shipping direct from their foreign location to the U.S. customers they probably would not have nexus.

  • Posted by Liubov on May 20, 2014 1:02am:

    Hello, Sylvia!
    I have a question for you. Our company is registered in Malta. We provide e-commerce services on our web-site to private individuals. Now we think about possibility to provide our services to people in US. We don't sell or ship any goods. We have no residence or presence in the US. Should we register somehow in the US? Should we pay sales tax or any other taxes? Your answer will be very helpful! Waiting to hear from you!
    Best regards, Liubov

    • Posted by Sylvia on May 26, 2014 10:48pm:

      Liubov, Thank you for reading my article and for your question. You mention that your Malta company only provides e-Commerce services and does not sell or ship any goods and that the company does not have any presence in the U.S. However, your company may still have to register to collect sales tax in some states. You see, there are many activities that a state may say is sufficient to require an out-of-state or foreign company to collect their sales tax. But often, these are not the type of activities that would seem to create a presence. Some examples include sending employees to a trade show in a state - even if it just for a few days, leasing space on an internet server that is located in the state, advertising your services in a state, or selling digital content. (These are just a few examples of activities that can require a foreign company to have to register to collect tax on sales to customers in a state, there are many others.) However, the unfortunate thing is that the state rules are not the same from state to state - so one state may say that selling digital content to customers in their state is sufficient to require that tax be collected, but another state may say there is no requirement to collect. So the reality is that this is not a straightforward issue. Another complexity is that some states will impose a tax on some services, but some states do not tax services at all. For example, you mention that your company will provide e-Commerce services - so some states may say those services are taxable and another state may say they are not. Again, many complex issues. As far as other taxes go - yes, there could very well be other taxes that may apply too, such as a corporate income tax or a franchise tax - but there too many to mention, and again, they can vary from state to state. Unfortunately it is not easy to understand all the U.S. state laws. As you know, the U.S. and Malta have a tax treaty, http://www.irs.gov/Businesses/International-Businesses/Malta-Tax-Treaty-Documents, but the states are not required to honor that federal treaty and can apply their own rules and requirements. Also, I work with many foreign companies on assisting them with these exact type of issues, so if I can be of further assistance, please feel free to contact me at sylviadion@verizon.net.

  • Posted by Gian on April 30, 2014 8:03pm:

    Hello, I'm an italian accountant, dealing on a daily basis with problems like the ones you brilliantly described on your nice post.
    I just received a question from one of my customers (italian individual firm) who is beginning to sell books in the US through amazon.com as a foreign seller. Shoud he pay taxes or VAT in the US ? And should he fulfil the W-8BEN form or otnain a EIN ? Thanks in advance for your opinion. Please feel free to contact me for any question regarding italian taxes. PS: sorry for my english !
    Best regards,
    Gian Antonio P.

    • Posted by Sylvia on May 26, 2014 9:49pm:

      Thank you for your kind words and your comment. Yes, it is very possible that your customer must be registered with certain U.S. states and collect tax on sales to U.S. customers. (As I describe in my post above, having inventory in the U.S. – for instance, if the customer exports his inventory to an Amazon warehouse then the customer has created a “nexus” to the State where the inventory is stored.) So although the U.S. does not impose a VAT, there may be an obligation for the seller (your customer) to collect sales tax. (I wrote another blog article for SalesTaxSupport that discusses the basic differences between the VAT and the U.S. Sales Tax. Here is a link: http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/comparing-us-sales-tax-to-vat/)
      Now, to answer your question about whether your customer must submit a W-8BEN form or obtain an EIN, please note that the IRS Form W-8BEN, called the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)” is a form that is a foreign individual gives to a U.S. payor if the foreign individual wants to claim Tax Treaty benefits (as you are probably aware, the U.S. and Italy have a bi-lateral tax treaty). However, a W-8BEN is only required if the U.S. payor is required to withhold on payments to the foreign individual. For example, if an Italian author publishes and sells his book on Amazon, the U.S. tax law requires that Amazon withhold taxes on the royalty payments to the Italian author and remit the tax withheld to the IRS. The Italian author can submit a W-8BEN so that a lower % of tax is withheld or no tax is withheld (in accordance with the Italy/U.S. tax treaty). But first, a foreign individual must obtain a U.S. Taxpayer Identification Number (TIN). There are several types of TINs that the U.S. IRS gives out. A foreign entity (such as a corporation or a Limited Liability Company) would apply for and receive a Federal Employer Identification Number (FEIN). A foreign individual would apply for and obtain an Individual Taxpayer Identification Number (ITIN). I will soon be writing a post for this blog on this exact topic and what foreign sellers should know about registering in the U.S. You can subscribe to the blog to receive any new blog articles. Thank you again!

  • Posted by Foreign on March 12, 2014 1:38am:

    [...] So, the first thing to keep in mind is that the various States within the U.S. are not a “party to” bi-lateral tax treaties. So even if a foreign company is not subject to U.S. Federal income tax, the foreign company could very well be subject to the various U.S. sales tax laws. (If you’d like to read more about this, see my prior blog post, “Tax Treaties and U.S. Sales Tax Nexus: What Foreign Sellers Need to Know”) [...]

  • Posted by Rosa on March 4, 2014 10:42pm:

    Hello.
    I have a small company that aims to export medical disposables to central America. I already have a "certificate of Authority" for collecting taxes.
    I know that I will not pay sales taxes to my providers because products I am buying are for reselling purposes.... but...
    when should I collect this sales taxes then since my final customers are abroad the United States???
    what type of taxes should I apply? combined tax rate (local tax rate and state sale tax rate?)
    how I should issue then my commercial invoice .
    There will be 3 possible options for my merchandise to be delivered:
    (a) customer will take possession of the item at my business site in New York State
    (b) customer will take possession of the item at Miami Florida Port (FOB Miami)
    (c) customer will take possession of the item at Destination port (CIF COSTA RICA for example)
    And if none of above mentioned taxes must be applied to my invoice, what is the % I must take into consideration when filing my "quarterly Sales and Use Tax Return?
    I appreciate your help, since this is somewhat confusing to me
    Thank you!!
    Rosa

    • Posted by Sylvia on April 2, 2014 5:56am:

      Rosa,
      ¡Hola! Gracias por leer mi post y por tu comentario. Ahora en Inglés :)
      First, if you give your suppliers a valid resale or exemption certificate (because you reselling the disposable medical supplies) then your supplier should not be charging you sales tax.
      However, you MAY need to collect U.S. sales tax from your customers. Under (a) you may need to collect New York sales tax because your customer takes possession in New York. Under (b) there is also a possibility that you will also need to collect Florida sales tax. This is the case even if the customer takes possession in a "duty-free zone" (the rules about whether Florida sales tax is due when an item is purchased or taken possession of in a duty-free zone are complex and depend on many factors). And under (c) there would be no U.S. sales tax due if the customer takes possession in Costa Rica.
      I recommend calling the New York Department of Taxation and Finance and the Florida Department of Revenue for more information, including information on rates. Also, the State Agency sites and sales tax rates can be found here at SalesTaxSupport.com

  • Posted by Sandra on January 19, 2014 5:48pm:

    Sylvia, thank you for making the US tax rules a bit better to understand for foreigners. Since you are an expert on internet tax rules as well as the complexity of the tax rules for foreigners, I hope you can help me with the following issue:
    We are an Europe based company with an US sales office. Our company sells materials that are used in production to other companies. Normally our US sales office gets an exempt form from the customer and no sales tax is calculated.
    We are now working on an online shop. I’ve seen that there is software available that calculates the applicable sales tax during the online process, but since our customers are all exempt from paying sales tax, I don’t think we need this software. The thing is that our website will be accessible to individuals who are not exempt from sales tax. No registration is required to access the shop. But because of the nature of the products we sell; only other companies will be interested to buy the products. Is it allowed/ accepted to make a statement on your website that the shop, the products and prices are only for B2B sales and that we don’t sell to individuals? Perhaps we could have them confirm during checkout that they are exempt from sales tax by clicking a checkbox?
    Hopefully you can help me by answering these questions and/ or perhaps refer me to (legal) documentation regarding this subject? Thank you in advance for your time and effort.

    • Posted by Sylvia on April 2, 2014 5:13am:

      Sandra, Thank you for reading my post and for your comment! You certainly bring up many good questions and I am happy to share my thoughts.
      First, regarding your Europe based company with a US sales office selling materials that are used in production to other companies - the procedure that you described of the U.S. company collecting the exemption certificate from your customer is exactly what should occur.
      Regarding the need for sales tax software and your second question on whether you are allowed to make a statement on your website that the shop, the products and prices are only for B2B sales and that you don’t sell to individuals, here are my thoughts on these issues. First, I’ll comment quickly on the software. On one hand, you do have a point about not needing the software if all of your customers are exempt. However, if you start to sell a large volume through your on-line store – and you do decide that you will allow final consumers (non-exempt customers) to buy your products, then a good software is critical because sales tax rates and the sales tax rules change often – and a software will automatically incorporate those changes. (But evaluating which software solution best meets your needs is another issue and one you would want to evaluate carefully.)
      On your question of restricting the website to B2B sales – I cannot think of any sales tax law that would prohibit you from saying that you don’t sell to individuals. So, in general, I believe that you can have a statement on your website saying this. I do a lot of work with e-Commerce sellers (including foreign e-Commerce sellers) and I can tell you that at least one of my B2B e-Commerce clients (this on in the US) does require a registration to use their site. Creating a registration process is a good way to capture the information you need to make sure you are selling to an exempt purchaser. So this is something you may want to think about. But you should be able to post a statement on your website without a problem. (If you have any legal concerns about this - you should consult your attorney.)
      And yes, if you do not require registration, you definitely should have a process where you require the customer to confirm they are making an exempt purchase, and a process for collecting an exemption form. There are many ways to go about this. For instance, you could have a process that when the customer clicks a box that they are exempt, a message pops up telling them that they must e-mail or fax a copy of their exemption form to your office by a certain date. This way you don’t hold up the transaction and the customer can still complete the purchase. (I know that “cart abandonment” can be an issue for e-Commerce sellers so you don’t want to hold up the process.) Another option is to require them to check off a box that they are exempt and require a valid e-mail address. This way someone in your company can send a follow-up e-mail asking for the customer’s exemption certificate.
      The point is, there are many ways to approach this. I work with many e-Commerce companies and can offer my thoughts. But here is another thing – even though it is best to collect the exemption certificate from your customers, if the selling company (in this case, the European company with the US sales office)) does not have sales tax nexus in the customer’s state, there is technically, no requirement to collect their exemption certificate. Yes, this can get really complex. Please let me know if you’d like to talk about all of this in more detail. I’d be happy to help.

  • Posted by Daniel on December 22, 2013 5:04pm:

    Sylvia, a very interesting article. Thank you!!
    Let me please ask you a question:
    As a reprensentative of a small Germany company which offers services/products in the US, especially in New Jersey, for the first time, I am unsure about sales tax issues.
    On the one hand we are going to sell a product to a US-company including services (place of delivery: New Jersey). Main parts are manufactured in Germany and are then shipped to the US. Minor services (testing and final assembly) will be carried out in US-New Jersey.
    Another part of the product will directly be manufactured in New York and then be delivered to New Jersey.
    We will directly invoice the US-customer.
    Do we need to show sales tax on the invoice as a non-registered company in the US?
    On the other hand we will rent some equipment in the US for purpose of that order. Do we have the possibility to get a tax exemption certificate? And who should we contact in this case?
    Thank you very much for helping us.
    Best regards, Daniel.

    • Posted by Sylvia on December 23, 2013 4:57am:

      Daniel,
      Thank you for reading my blog article and for your comment. You bring up some excellent questions! First of all, based what you have described - the German company performing testing and assembly services in New Jersey – the German company would likely have sales tax nexus in New Jersey and a requirement to collect sales tax on the product sold to the New Jersey customer or customers. By the way, a company that has sales tax nexus must be registered before it can charge and collect a state’s sales tax. That is, it is against the law to actually invoice a customer for sales tax if the company is not already registered with the state. Also, some states tax certain services, such as fabrication and assembly. In addition to the actual product being subject to sales tax, if the charge for assembly is significant and is shown separately on the invoice, the assembly charge could also be subject to New Jersey sales tax. You also mentioned manufacturing occurring in New York. Here again, this could create nexus in New York and a requirement to register. For instance, if the German company owns the parts/inventory that it sends to New York for manufacturing, the company could have sales tax nexus in New York too. One more thing to keep in mind is that these same activities might also subject the German company to other state taxes, such as New Jersey’s corporate income tax. Also, as far as equipment that is used in the manufacturing process - many states do allow a exemption from sales tax for this equipment. However, in some states, the purchaser may not be able to issue an valid exemption certificate unless they are registered in the state. Finally, these are general answers to your questions. The sales tax rules are complex (and are not always the same from state to state), so please do not hesitate to contact me directly if you have any additional questions. You can find my contact information in my tagline at the end of the post.

  • Posted by Comparing on November 21, 2013 10:20pm:

    [...] my last “foreign seller” post, I highlighted how the U.S. sales tax system allows each individual State to impose its own rules [...]

  • Posted by Ole on October 20, 2013 6:22am:

    Hi
    Thanks for your information.
    I want to sell on amazon.com - which is allowed for a dane like me.
    I want to find some US dropshipper and I think I need a tax number. I think it is called EIN.
    How do I get an EIN.
    Thanks
    Ole M.

    • Posted by Sylvia on November 1, 2013 2:01am:

      Ole, What you are referring is the U.S. federal taxpayer identification number. This goes by many names, such as the Federal Employer Identification Number (FEIN), Employer Identification Number (EIN), Taxpayer Identification Number (Taypayer ID), etc. Basically, it's a taxpayer number assigned by the United States Internal Revenue Service (IRS), our agency that overseas federal taxes. (Note, each of our individual States oversea their own state's taxes and some of them also require their own state identification number.)
      You did not mention if you are selling as a Danish individual, through a Danish legal entity or through a U.S. legal entity. (Often overseas companies will form a U.S. legal entity to do business in the U.S.) IF you have formed a U.S. legal entity which has an officer or officers that are U.S. citizens, obtaining an EIN is fairly easy and can be completed on-line from this IRS webpage, Apply for an Employer Identification Number (EIN) Online: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online However, if the entity or person that is obtaining the EIN is a foreign entity/person, it gets more complicated. A good starting point is the IRS webpage on Taxpayer Identification Numbers for International Taxpayers: http://www.irs.gov/Individuals/International-Taxpayers/Taxpayer-Identification-Numbers-(TIN)
      Again, if you have formed a U.S. legal entity to be your Amazon seller, then you can apply for an EIN for the U.S. legal entity fairly quickly. But if the Amazon seller is going to be a foreign individual or foreign entity, the process is more complex. You can also contact the IRS for more help. Here is a link to the IRS site: www.irs.gov

  • Posted by Julia on August 11, 2013 8:55pm:

    Sylvia,
    How is a Delivery Agent (subsidiary) of marine supplies of petroleum lubricants (that only collects revenue from the foreign parent) delivering at ports across the US, impacted by Interstate and Foreign Commerce and/or Nexus in each state they deliver in?
    Thank you.
    Julia

  • Posted by Kulwinder on July 19, 2013 4:34am:

    Hi Sylvia,
    This is a great article. I have a question regarding sales and use tax on services provided by Foreign entities for there US affiliates.
    Facts:
    -A foreign corporation occassionally provides services to its US affiliates.
    -The foreign corporation has no physical presence in the US. The employee travel from Canada and provide the services in the US.
    Questions:
    Would the foreign corp be required to collect sales and use tax on services provided to its US affilates?
    Thanks.
    Kulwinder Singh

    • Posted by Sylvia on April 2, 2014 5:27am:

      Kulwinder, Thank you for reading my post and your comment!
      One thing that I should point out is that there is a possibility that the Canadian parent company DOES have a physical presence in the U.S. You mention that the parent company employee travels from Canada and provides the services in the U.S. An employee performing services in a state is an activity that would be considered a physical presence in the U.S. that would create nexus - not just for sales tax but other types of state taxes as well. IF the Canadian company has sales ax nexus in a state AND if that specific state taxes the type of services that are being provided by the Canadian parent to the U.S. affiliate, then yes, sales tax would be due on the invoice.

  • Posted by Tim on July 16, 2013 5:30am:

    Would a foreign website avoid all US sales tax if the US purchaser is paying for the shipping, (i.e. the shipping would be added to the cost of the good on the invoice?

    • Posted by Sylvia on August 15, 2013 7:09am:

      Tim,
      Thank you for your question! If I am correct, when you say "foreign website" you are describing a situation where a foreign company is selling to U.S. purchasers through their website. Correct? If this is the case, then the fact that the the U.S. purchaser pays shipping is not relevant to whether the foreign company can avoid nexus. What IS important is whether the foreign company is engaging in any activities in the United States that could create nexus for the foreign company. So if the foreign company has sales agents in the U.S., or has inventory in a U.S. warehouse, or uses a U.S. agent to fulfill the foreign company's sales orders - then the foreign company probably has sales tax nexus even if the order is placed on the foreign company's website and the U.S. purchaser pays the shipping cost. (Remember, for sales tax nexus purposes, it does not matter if there is a bi-lateral treaty in effect.) Hope this helps!

  • Posted by Sylvia on July 3, 2013 7:23am:

    Scott, Thanks! And I completely agree there is not enough being written FOR the foreign/in-bound seller. While many of the big CPA firms produce a "Doing Business in the U.S." series, because these publications must provide an overview of many business and tax issues that foreign companies must consider when doing business in the U.S., sales tax is often glossed over. Also, our sales tax model is quite "foreign" to many foreign companies (pun intended) who are more familiar with a VAT - so this truly is a topic that many foreign sellers may have many questions on. Thanks again!

  • Posted by Scott on July 3, 2013 2:39am:

    Nice Article! This is a significant issue which many folks don't focus on.

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