Navigating US Sales Tax for Foreign Companies: Compliance Challenges and Treaty Limitations
US Sales Tax for Foreign Companies poses unique challenges due to ever-changing tax rates and complex determinations of taxable items. While American companies already grapple with the intricacies of the US sales tax system, foreign companies face even greater unfamiliarity with the procedures. The question arises: How exactly are out-of-country businesses obligated to comply with sales tax regulations for their US sales? Adding to the confusion, the United States does not acknowledge bilateral tax treaties, which implies that foreign retailers might be liable to pay sales tax despite not being subject to US Federal income tax, all depending on the specific policies of local state governments.
The ever-changing rates of sales tax jurisdictions and a difficult system to determine what is and what is not taxable make US tax compliance one of the most complex in the world. The US sales tax system often has American companies scratching their head but foreign companies are even less familiar with the procedures. In what way are out-of-country businesses required to comply with sales tax on sales made in the US?
A confusing aspect for many foreign retailers is the fact that the United States does not recognize bilateral tax treaties. This means that even if the foreign company is not subject to US Federal income tax they could still be required to pay sales tax depending on the policies of local state governments.
Foreign Sales Tax Liability – A Question Of Nexus
Foreign companies must comply with sales tax in much the same manner US US-based remote businesses. Sales tax liability is a question of nexus. With the overturn of Quill, states can define nexus in terms of revenue (economic nexus) or transactions. It is no longer necessary to have a physical presence in a state to establish nexus. Businesses, both in the US and outside our borders, are responsible for collecting sales tax in the states in which they have established nexus.
Wayfair And Liability
With the Supreme Court’s decision in Wayfair vs. South Dakota, any seller, no matter where they are located, may have to collect sales tax on remote sales. States have set thresholds and other rules to determine which sellers must collect and remit sales tax, but these rules are not based on physical location.
It is now more difficult for international sellers to neglect sales tax liabilities because reports from U.S. Customs make it easier for state and local taxing authorities to determine what shipments are entering their jurisdictions.
However, the burden of enforcing compliance will lie with the state. International sellers who choose to ignore their sales tax responsibilities can be subject to penalties such as liens, seized inventories, and even legal pursuit in their country of origin’s court system.
Sales Tax DataLINK offers an outsourcing program and has resources available that can help you keep track of jurisdiction policies. Whether you choose to handle filing your sales tax yourself or choose to have us do it for you, you know that your returns will be correct. Contact us for a free comprehensive evaluation to test our sales tax software with your own data and see how easy compliance can be.