Sales Tax in the US
Unlike VAT or GST, the US has no federal sales tax system: each state levies its own, and some cities and counties impose their own tax too. We help your business manage its sales tax efficiently.
How sales tax works in the US
Figuring out sales tax is probably the most difficult part of setting up a business in the USA. Unlike VAT or GST, there is no federal sales taxation system: each state levies its own taxation norms within the framework of the US Constitution.
In some states, cities and counties also impose their own tax. Sales tax also varies for each kind of commodity being sold, and even the states' websites for filing differ from one another in certain aspects.
Choosing a state, and selling across states
Montana, Oregon, New Hampshire and Delaware have no sales tax. Other factors a business needs to grow, such as affordability, property tax and tax on investments and dividends, matter as well — in our professional opinion, tax exemptions should never be the sole driver for setting up your business in a particular state.
When you list your products on marketplaces such as Amazon, eBay or Walmart, inter-state selling grows, and with it you become obligated to pay sales tax to more jurisdictions.
What determines your sales tax
- Nexus: you need a sales tax permit for each state where your business has nexus, so you have to ascertain in which states your business stretches its operations for taxation purposes. Besides physical presence in a state — a store, office or showroom — having inventory, affiliates or employees in a state can also establish nexus.
- Type of commodity: the products in your catalogue matter. For instance, certain kinds of food are tax-exempt, and in some states even the services of doctors, lawyers and dentists are taxed.
- Exemptions: some kinds of transactions are exempt, such as the sale of raw materials and sales to non-profit organisations. There are many state-specific exemptions too, and states also offer tax holidays — a particular period in which certain transactions are exempt.
Ways to manage sales tax efficiently
There are many ways to manage your sales tax efficiently. To give one illustration: use the customer's complete address instead of merely the ZIP code. The full address clears the confusion around the tax jurisdiction: the locality, county or district the customer lives in.
Sales tax — frequently asked questions
No. Unlike VAT or GST, there is no federal sales taxation system. Each state levies its own sales tax within the framework of the US Constitution, and in some states cities and counties impose their own tax as well.
Nexus means the states in which your business stretches its operations for taxation purposes; you need a sales tax permit for each state where you have nexus. Besides a store, office or showroom, having inventory, affiliates or employees in a state can establish nexus.
Montana, Oregon, New Hampshire and Delaware. Tax exemptions alone, however, should never be the sole driver for setting up your business in a particular state.
The full address clears the confusion around the tax jurisdiction: the locality, county or district the customer lives in.
Yes. Some kinds of transactions are exempt, such as the sale of raw materials and sales to non-profit organisations; there are many state-specific exemptions, and states also offer tax holidays.
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