Approximately 170,000 Americans live in Israel. In total, more than one million U.S. citizens and green card holders – who both live overseas and own more than 10% of a foreign corporation – faced the prospect of paying the tax..
(photo credit: REUTERS)
Many people buy products in countries such as China and sell them to customers in the US and elsewhere from a laptop in their home country. But for goods sold into the US there are complex federal and local state sales tax obligations. Forty five US states impose some form of general sales tax.
On June 21, 2018, the US Supreme Court ruled in favor of the state in South Dakota v. Wayfair, Inc. The decision allows states to tax remote sales, especially e-commerce.
What does it mean for out-of-state and foreign sellers?
It used to be that states could only tax sales by businesses with a physical presence in the state. Now economic activity in a state – economic nexus – can trigger a sales tax collection obligation. Economic nexus is based entirely on sales revenue, transaction volume, or a combination of both.
Economic nexus criteria vary state by state, but all aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses.
South Dakota blazed the trail, and other states are following close behind. The Wayfair court decision is changing the world of sales tax compliance. This is relevant to remote sellers everywhere from New York to Jerusalem to Melbourne.
Before Wayfair, to increase sales tax collection, many US states broadened their definitions of physical presence to include click-through, or affiliate, nexus. An out-of-state business establishes click-through nexus in a state when an in-state business receives a commission for referring a certain amount of sales to the out-of-state seller, as through a website link (“clicking through”).
New York was the first state to create a click-through nexus law, in 2008. Since then, approximately 20 states have adopted click-through nexus
Here are a few brief examples of sales tax exposure for online sellers to US states as of February 13:
New York State:
The New York state tax department published on January 15 guidance on the immediate requirements for out-of-state sellers to register and charge sales tax.
“A person is presumed to be regularly or systematically soliciting business in the state if, for the immediately preceding four sales tax quarters... the cumulative total of the person’s gross receipts from sales of tangible personal property delivered into the state exceeded $300,000, and such person made more than 100 sales of tangible personal property delivered in the state,” it read.
This is said to be effective “immediately once you exceed the threshold.” The New York sales tax quarters are March 1 to May 31, June 1 to August 31, September 1 to November 30, and December 1 to February 28 or 29. In addition, New York State taxes affiliate/click-through nexus.
Commencing January 4, California taxes economic nexus of more than $100,000 or 200 separate transactions. This applies to taxable sales delivered into the state. In addition, California taxes affiliate/click-through nexus.
Commencing November 1, New Jersey taxes economic nexus of more than $100,000 or 200 or more separate transactions. This applies to sales of products (tangible personal property), services, or specified digital products into the state, and marketplace sales. In addition, New Jersey taxes click-through nexus.
From October 1, out-of-state merchants with sales of above $500,000 per annum in Texas during the prior year must register with the Texas Controller of Public Accounts, collect and remit Sales Tax. In addition Texas taxes affiliate nexus.
Use tax is a self-assessed and declared levy on US consumers and businesses when they buy goods or services from out-of-state providers.
Use Tax is a way of ensuring that there are no tax benefits to US consumers from shopping outside of their home state, and is aimed at online, catalogue and tele-sales in particular.
Use Tax rates are as per the sales tax rates of the shopper’s home state.
Increasingly, in order to combat non-compliance and poor revenues, states have started to include boxes in personal annual state tax returns to declare any purchases and due tax.
What should you do?
If you sell products online to customers in the US, this may sound like a headache. In practice, help is at hand – automated service is available that makes tax compliance easier for online sellers into US states, not to mention VAT and GST (goods and service tax) in the EU and other countries. Specific inquiry is recommended.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd
With acknowledgments to Avalara. The above does not constitute advice. For more information, see: www.avalara.com/us/en/learn/sales-tax/south-dakota-wayfair.html
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