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Selling to the US? The five steps for managing US Sales Tax by Avalara
If you are planning on selling into the US there’s much to consider if you’re to be successful. One of the main considerations is US Sales Tax. It’s the US’s more complex version of VAT!
The US has over 14,000 sales tax jurisdictions and over 35,000 rates of sales tax. There’s also many taxability rules and processes that differ from state to state that make sales tax a potential nightmare.
Sales tax has only really become more relevant to distance sellers since the “Wayfair” decision in 2018 was passed, which means you could trigger an obligation to collect sales tax despite not having a physical presence in the US. Distance sellers can now trigger what's known as “economic nexus” in a state if they reach certain thresholds, which vary by state.
This may sound scarily complicated but our partner Avalara has put together 5 steps for you to be aware of in order to manage your US Sales tax compliance. They can also help with automating your businesses' US tax compliance.
Step 1: Know where your business must collect and remit sales tax
You may not need to collect and remit sales tax everywhere in the US, so determining where your business has “nexus” is the first step.
Nexus is the term used to describe the connection between a seller and a state that requires the seller to register then collect and remit sales tax in the state.
Many business activities create a nexus obligation with a jurisdiction, including having physical locations, stock holding, remote employees, affiliate relationships, or by reaching certain state economic nexus thresholds.
Step 2: Register to collect and remit tax
Once you determine where you have nexus or will likely trigger nexus, you’ll need to look at registering in the appropriate tax jurisdictions.
Unfortunately, the process, forms, and requirements to register aren’t the same for all state or local tax jurisdictions. In most jurisdictions, you must register before legally collecting sales tax within each separately administered tax jurisdiction.
Step 3: Calculate the correct sales tax amount
Once you register with the tax jurisdictions, you’re ready to start calculating and collecting sales tax.
With more than 14,000 tax jurisdictions in the U.S. — each having unique tax rates and product taxability rules — it can be difficult to know the correct tax rate to charge. But, it’s crucial you get it right so you aren’t under-collecting for the tax authority, or over-collecting causing unhappy customers.
Step 4: Track and manage exempt sales
Depending on the nature of the business or the intended use of the item for sale, a business may be exempt from paying sales tax on a transaction.
For example, many states don’t require nonprofits and government agencies to pay sales tax. In addition, products or items intended for resale may be exempt from sales tax in some states.
When dealing with exempt sales, the seller must collect and manage an exemption certificate to validate and confirm why sales tax wasn’t collected.
Step 5: Remit sales tax to the tax authorities
You’ve collected the appropriate sales tax amounts, and now it’s time to remit those funds to the tax authorities. Each tax authority has unique regulations for sales tax remittance, including due dates, how they should be remitted.
Getting help
As you can tell, sales tax is complex and if not addressed correctly will cause you a lot of problems.
The good news is Avalara is here to help you manage the end-to-end sales tax journey. Their automated solutions are designed to help with each step 1-5 and simplify what is a huge challenge for many companies.
As you sell more in the US your nexus obligations will likely increase and that’s why being able to scale with automation is vital.
Avalara work with all types of companies and are happy to have an informal chat with any Bezos clients who would like to understand more. You can book in for a call via their website here or contact james.bright@avalara.com for more information.
