Sales and Use Tax in the US: An International Business Survival Guide

There are many differences between the tax situations that international businesses can anticipate in other countries and what they can expect when operating in the United States. One of the important things that they must understand is sales and use tax. US sales and use tax is different than international value added taxes, and the differences might surprise you.

What Is Sales and Use Tax?

Both international value added taxes and sales and use taxes are indirect and relate to consumption. Businesses should plan for these taxes to be applied when selling to their customers, but there are key differences that separate the international taxes and the ones applied in the United States. Every state has different sales tax amounts and compliance requirements. For example, one state might have a flat rate sales tax of 5% but not require it to be applied for certain items, like food or clothing.

How Does Sales and Use Tax Work?

Sales and use taxes are applied when you sell tangible property and specific services throughout 45 states and the District of Columbia. These taxes are assessed when the property passes from you to the customer, and the location of that place will determine who should tax it. In the case of services, the place where the customer receives the benefit of the service will determine what state will be taxing it.

If you make a sale that is subject to sales tax, you will be responsible for collecting the tax on behalf of the person buying it and reporting and remitting it to the correct state. However, if you are out of state from the person who is buying your product, you will be required to report and remit the proper sales and use tax to the taxing authority based on what was purchased (product or service) and where the person purchasing it lives. Most importantly, if you make sales to customers in a state where you don’t have a physical place of business but have a nexus, you are required to collect, report and remit the tax to the state. Because sales and use tax can be complex, we encourage you to work with our team to get it right the first time.

Prepare Your Complex International Business Taxes with Help from MKS&H

MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to explore the many tax benefits of investment properties and assess your real estate portfolio. Contact us today to schedule a consultation.

About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.

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