US Sales Tax for International Sellers

US sales tax is one of the most confusing consumption-based taxes in the world. Too often, international merchants who are not based in the US encounter 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.

What Is US Sales Tax?

In the US, sales tax is applied to goods and sometimes services. It’s usually a percentage of the sales price, between 4 and 8%.

Sales tax is paid by the buyer, collected at the point of sale by the seller, and later remitted to the state by the seller to be spent toward budget items like roads, schools, or public safety.

Sometimes, sales tax is also called a “pass-through tax” because a retailer collects it and then passes it on to the state. 

How Does Sales Tax Work in the US?

There is no national sales tax in the US. Instead, sales tax is governed at the state level. This means that each of the forty-five states (plus Washington DC) can make its own rules and laws on if, when, and how to charge sales tax.

Despite what you may have heard, the Internal Revenue Service (IRS) has nothing to do with sales. Instead, each state’s taxing authority (usually called the Department of Revenue) governs sales tax obligations for companies along with compliance.

Other Ways US Sales Tax Differs from VAT and Other Taxes

Besides the fact that sales tax is governed at a state level, there are other ways in which US sales tax differs from other nation’s taxes, such as VAT in Europe.

1. Sales tax requirements vary by state

In the US, a retailer must collect sales tax 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 that 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.)

2. Variable sales tax rates

US sales tax rates are made up of a combination of state and local sales tax rates. 

For example, a state will have its state sales tax rate. Some states, like Rhode Island, stick to one single statewide sales tax rate. However, in most states, local areas such as cities, counties, and special taxing districts can also levy their own sales tax rates. 

This means that a sales tax rate might look something like this:

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 13,000 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.

3. 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. 

However, some states consider necessities like groceries or clothing non-taxable. Still, other states say an item is non-taxable if priced below a certain threshold. Digital products like e-books 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.

4. 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 American 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 makes US sales tax incredibly complex, especially for international sellers who have never had to deal with it.

Do I Need to Collect US Sales Tax?

Follow these steps to determine if your business is required to become US sales tax compliant. 

1. 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.

2. 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.
3. 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 a US Individual Taxpayer Identification Number (ITIN) and to contact the state via phone or email to register. Most state systems are not yet set up to allow merchants with international addresses to register online.

Sales Tax for Non-US-Based Sellers: Conclusion

Sales and use tax for international sellers can be complicated. That’s because each state makes its own rules and regulations regarding sales tax. 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.

US Sales Tax for International Sellers: FAQ

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.