US Sales Tax Guide for Non-US Based Retailers
In brief:
- United States sales tax is one of the most complicated indirect tax systems in the entire world.
- Non-US based sellers are still required to collect US sales tax if they have sales tax nexus in a US state.
- Because of sales tax complexity for non-US-based sellers we recommend contacting a State and Local Tax expert (SALT) in order to get and remain US sales tax compliant.
The United States sales tax is one of the more confusing consumption-based taxes in the entire world. And too often international merchants who are not based in the US run up against this complicated tax system and want to give up.
This guide will explain what non-US based e-commerce sellers need to know about US-based sales tax. And most importantly, give you the tools to determine if your business is required to comply with this complex system.
How US Sales Tax Differs from VAT and Other Taxes
State-based sales tax system
Unlike many other tax systems, sales tax is governed at the state level. This means that each of the forty-six US states (plus Washington DC–the nation’s capital) that has a sales tax makes their own sales tax rules and laws.
Unlike other countries, there is no national sales tax. And despite what you may have heard, the Internal Revenue Service (IRS) has nothing to do with sales tax. Instead, each state's taxing authority state’s taxing authority (usually called the “[State] Department of Revenue”) governs sales tax compliance.
Sales tax collection requirements vary by state
In the US, a retailer is required to collect sales tax in a state if that merchant has “sales tax nexus” in the state. Nexus means a tie to the state. Factors that create nexus in a US state generally include physical presence such as a location, employees, or inventory.
But businesses can also have sales tax nexus in a state simply by making a certain number or amount of sales in a state. This is called “economic nexus” and in most states the threshold is $100,000 in sales per year or 200 separate sales transactions per year. (Though this also varies from state to state.)
Find out more about what creates sales tax nexus here. And find out more about economic nexus, including each state’s economic nexus threshold, here.
Variable sales tax rates
A US sales tax rate is made up of a combination of state and local sales tax rates.
For example, a state will have their state sales tax rate. Some states, like Rhode Island, stick to one single statewide sales tax rate. But in most states, local areas such as cities, counties and special taxing districts are also allowed to levy their own sales tax rates.
This means that a sales tax rate might look something like this:
| Sales Tax Jurisdiction | Sales Tax Type | Sales Tax Rate |
| Colorado (state) | State | 2.9% |
| Boulder (county) | County | .985% |
| Longmont (city) | City | 3.53% |
| Greater Denver Regional Transportation District | Special taxing district | 1% |
| Scientific and Cultural Facilities District (SCFD) | Special taxing district | .1% |
| Longmont, CO Total Combined Sales Tax Rate | 8.52% |
Why is this important to know? US sales tax is based on the point of sale, which is almost always the buyer’s ship-to address. Because of how combined tax rates work, the US has more than 11,000 taxing jurisdictions. That means that, as an e-commerce seller, you have to figure out exactly which taxing jurisdiction each of your customers has their products shipped to in order to charge the right amount of sales tax.
What happens if you charge the wrong amount of sales tax? Charge too much, and your customers are unhappy. They complain or turn to a competitor. Charge too little and you end up owing money to the state’s taxing authority… and that money comes straight out of your profits.
Product taxability varies by state
Just as US states make their own sales tax rates, they also decide which products are taxable. Most tangible personal property–like a tube of regular toothpaste or a desk lamp–is considered taxable in the US.
But some states consider necessities like groceries or clothing non-taxable. Still other states say an item is non-taxable if it’s priced below a certain threshold. Digital products like eBooks or music are also considered taxable in some states but not in others.
These variations in product taxability can make collecting the right amount of sales tax in the US supremely tricky.
Read more about how to charge the right amount of sales tax to US customers here
Staggered filing and remittance dates
Again, since each state administers its own sales tax rules and laws, each state is a little different. For a handful of states, filing a sales tax return is a simple one-page form. But for most of them, it requires filling in how much sales tax you collected from buyers in every single jurisdiction within the state.
Even when to file varies from state to state. Most states will assign merchants a filing frequency based on sales volume to buyers in the state. This frequency is generally either monthly, quarterly or annually, with merchants who do the most sales required to pay more often.
Further, states have different due dates. While most states require that a merchant file and pay sales tax by the 20th of the month after the taxable period ends, other states require merchants to pay by the last day of the month, or another day such as the 15th or 23rd.
All of this adds up to making US sales tax especially complex, especially for international sellers who have never had to deal with it.
Read more about reporting, filing and paying US sales tax here.
Do I need to collect US sales tax?
Follow these steps to determine if your business is required to become US sales tax compliant.
- Determine if your business has sales tax nexus in one or more US states. If that’s the case, then you are likely required to collect US sales tax from buyers in that state.
(There is an exception if you only sell on online marketplaces like Amazon or Walmart. Often these marketplaces are required to collect and remit sales tax on your behalf. However, you may still be required to register for a sales tax permit and file sales tax returns even if a marketplace collects all sales tax on your behalf. Read more about sales tax on marketplaces here.)
- Establish a US-based bank account. Most US states require that registered sellers use a US bank account. This can be difficult if you don't have a US address. We recommend having a US-based sales tax expert help you set this up.
- Register for a sales tax permit in states where your business has sales tax nexus. Most US-based sellers can easily register for a sales tax license online. But this may require additional steps for an international seller.
You may need both a US Individual Taxpayer Identification Number (ITIN) and to contact the state via phone or email in order to be able to register. Most state systems are not yet set up to allow merchants with international addresses to register online.
We always recommend contacting a sales tax expert to help you become sales tax compliant in the US. See our list of vetted sales tax experts, also known as state and local tax experts (SALTs), here.
Common Questions from International Sellers about US Sales Tax
My country has a tax treaty with the US. Does this mean I don’t have to collect US sales tax?
This is a misconception. Tax treaties have to do with income tax, not sales tax. Further, US tax treaties generally do not apply to individual states’ tax law. To determine whether or not you are required to collect sales tax from buyers in a US state, see “Do I need to collect US sales tax?” above.
I only sell on Amazon, Walmart, AliExpress or other online marketplaces. Do I need to become US sales tax compliant?
It depends on the state. Due to marketplace facilitator laws, most online marketplaces are now required to collect and remit sales tax on behalf of 3rd party sellers. But some states still require marketplace-only sellers to register for a sales tax permit if they have sales tax nexus in the state, even if they only sell on marketplaces. Check with your individual nexus state, or a US sales tax expert, to determine whether you are required to register for a sales tax permit if you only sell on marketplaces.
