Sales Tax in the US
In the USA, figuring out the sales tax is probably the most difficult part of setting up a business there. Why? Because unlike VAT/ GST, there is no federal sales-taxation system and each state levy its different taxation norms within the framework of the US constitution.
In some states, cities and counties also impose their own tax. But it doesn’t end there. Sales tax also varies for each kind of commodity being sold. Did I mention that even the websites of states for filing purposes are different from one another in certain aspects?
Impact of Sales Tax on business
Four states in the USA: Montana, Oregon, New Hampshire and Delaware have no sales tax but the other ancillary facilities that a business needs to grow like affordability, property tax, tax on investments, tax on dividends, etc are not the best there. Thus, in our professional opinion, tax exemptions should never be the sole driver for entrepreneurs to set up their business in a particular state.
Now you and I know that sales goes up at least ten times when we list our products on Amazon, eBay, Walmart, etc and with it commensurates the sales tax and its complications as you become obligated to pay taxes to more jurisdictions due to inter-state selling. I don’t mean to scare you, but there are 100000+ tax jurisdictions in the USA to whom you can be liable to pay tax.
Need for Professionals
There are many ways to manage your sales tax in an efficient manner which we have learnt from our 10+ years of experience in this arena. To give you one illustration, using the customers’ complete address instead of merely applying zip code is one. This way, you have a good chance of saving up on taxes which local authorities would have charged if they didn’t know in which locality/ county/ district the subject lives.
By mentioning customers’ full address, you cleared the confusion around the tax jurisdiction. For example, the tax in Minnesota is 6.88% but can catapult to 8.38% depending on the further taxes levied by local and municipal authorities.
Factors Determining Sales Tax
As we mentioned in the very beginning, all the states have their own tax regulations and norms. You need to have the sales tax permit for each state where your business has nexus, meaning that you have to ascertain in which states your business stretches its operations for taxation purposes. Other than physical presence in a state like having a store, office, showroom, etc things like having an inventory, affiliates, employees in a particular state can also establish nexus.
Type of commodity
Another factor is the type of products in your product catalogue. For instance, a certain kind of food will be tax exempted but will be taxed even when purchased food consumption. Similarly, services of doctors, lawyers, dentists (no pun intended 😂) are also taxed in some states.
There are certain exemptions provided on some particular kind of transactions like the sale of second-hand goods, sale of raw materials, sales to non-profits organisations, etc. There are many state-specific exemptions also, states also offer tax holidays, that is, a particular period where tax exemptions are allowed on certain transactions.
Difference between ITIN and SSN
SSN is for the US citizens and for authorized non-citizens residents (students on F1 visas, Green Card holders, etc). ITIN is for foreign-status residents including undocumented aliens, non-resident aliens, foreign companies, partnerships, and trusts require an ITIN.
SSN is needed to work, collect Social Security benefits and pensions, and are required in order to be eligible for other social services and every American has one as it serves National ID number for the purpose of various financial and medical services. ITIN is required to file for taxes by the non-residents.
Besides the fact that we have a lavish 10+ years of experience in this arena of providing premium tax consultancy service to thousands of organisations and High Net Worth Individuals (HNWI), we have top-notch names like Paperboat Apps, VSV Wins Group, Numiv Research, and many more. We offer an amazing value-for-money proposition to our clients on the retainership agreement availing them an umbrella solution to all their business requirements. For further queries, you can reach out to us on the mentioned contact details.
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