Those of you who follow our social media will be aware of the increasing number of US states that are introducing tax obligations on remote or ‘foreign’ ecommerce sellers. Following a court ruling in 2018, states are now entitled to implement a tax nexus which allows them to require certain remote sellers to apply for VAT registration when their sales surpass a sales threshold. However, it is not only the amount of sales that you make in a state that can determine whether you will be required to fill out a VAT registration application, meaning It can sometimes be difficult to work out whether you have a nexus in a state or not.
Tax compliance in the US is certainly complicated, but ecommerce sellers should not be put off. The US is still one of the best markets to expand into and, with our help at J&P, we can guide through the entire process. This article will look at the other factors that will determine whether you need to register for VAT in a state and, also, how to do it.
The Economic Nexus Test
Essentially, if you can be seen to have a ‘sales tax nexus’ in a state you will be required to register for tax in that state. In most cases this will be when your sales have exceeded the sales tax threshold in a state. The threshold itself changes from state to state, but a good rule of thumb is if your sales exceed $100,000 or you make 200 separate sales in a state, you probably have a nexus in that state. Since each state has different requirements it is imperative that you are always aware of where your consumer resides.
However, as mentioned earlier, it is not only the amount of sales that you make that can be used to determine whether you have a sales tax nexus in a state. Anything that could indicate that you have a significant presence in a state could require you to file for VAT registration. Some examples are:
- Having a physical presence in state, such as an office or warehouse
- Employing people in that state such as employees or contractors
- Storing inventory in a state
Storing inventory in a state in particular is something ecommerce sellers would do well to remember since this includes inventory held in a Amazon FBA warehouse.
What To Do If You Have A Nexus
Assuming your business operations meet one of these criteria, you will have to register for tax in that state. If you are unsure about whether you should be applying for VAT registration in a state, get in contact with us today and we will be more than happy to help. Amazon sellers should also be aware that they can use Amazon’s FBA program to see which states have Amazon warehouses storing your inventory.
Once you’ve ascertained which state you will have a nexus in you will have to register for a sales tax permit, but not before obtaining an Individual Taxpayer Identification Number (ITIN). Again, if you need help get in touch with us via social media.
Also, please be aware that most states only accept payments from a US bank account, so you will need to open one. This may require you to have some form of business representative (or yourself) to be present when doing so.
Hopefully this article will make you feel a little more confident when it comes to VAT registration in the US. Whilst registering for VAT seems to be getting more difficult, ecommerce is booming, so there has never been a better time to get registered in as many countries as possible, and expanding your business!
If you are an ecommerce seller, we just want to let you know that we have the qualifications and knowledge to help you plan ahead, so please do not hesitate to get in touch should you have any further questions about VAT Registration or selling on online marketplaces. You can contact us at firstname.lastname@example.org, on our social media, or give us a call on 0161 637 1080.