Any business selling into the US must comply with sales tax in the same way as a US business selling across state borders. With every state and some districts and cities setting their own rules and rates, this makes tax compliance quite complex. Integrating directly into your online sales journey, Taxamo Advantage gives you a head start by automating US sales tax calculations and providing detailed data for reporting.
Understanding where you are liable for sales tax can be a complex process in itself, with liability depending on whether you have ‘nexus’ in a state. Nexus can be triggered by either physical or economic activity in the state - and even overseas sellers can find themselves bound by physical nexus rules.
You might expect physical nexus as determined by ‘substantial physical presence’ to apply only to in-state sellers. Yet remote sellers (including foreign suppliers) selling online can also find they have physical nexus.
Step one in understanding your sales tax nexus status is to look at physical nexus. Depending on the state’s individual rules, anything from installing cookies on a customer’s PC to attending a trade show can be enough to give you physical nexus.
Step two is to consider economic nexus. In states where economic nexus applies, you become liable for sales tax as soon you reach the relevant state’s economic nexus threshold. This threshold can be either a sales revenue value and/or a number of transactions (and can in either case be zero - making you liable from your first sale).
To calculate sales taxes accurately, Taxamo Advantage identifies customer location in real time at point of sale.
In the United States tax rates are typically applied at a ZIP code level. In many cases, this will mean that the 5-digit US zip code is used along with the product taxability code to determine the sales tax rate for a given transaction. In cases where a business may want to establish a more precise address identification for sales tax purposes, ZIP+4 codes or address validation can be used to achieve this.
Some US businesses are exempt from paying sales tax and prove this using a state issued tax exemption certificate.
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