Sales Taxin the U.S.

Welcome to our series on sales tax in the U.S. In this series, we'll break down everything from sales tax nexus to process automation, helping you navigate even the most complex tax challenges. Sales tax is a consumption tax applied to the sale of goods and services. While it plays a role similar to value-added tax or VAT, there are key differences. For instance, sales tax is collected only at the final point of sale to the end customer, unlike VAT, which is applied throughout the supply chain. This means that generally, sales tax only applies on a sale to the end user. Another distinction is that the location of the sale can greatly affect the sales tax rate. In the U.S., sales tax is not levied by the federal government, but rather by the local government. This means that states, counties, and even cities can have different tax rates, regulations, and filing requirements. Determining your tax liabilities can be especially tricky with intangible goods, like software or services, where it can be harder to determine which jurisdiction their sale falls under. In the U.S., the seller is the one responsible for collecting and remitting sales tax. To comply, a seller must register in any state where they have established sales tax nexus, which we will explain in greater detail later in the series. Additionally, certain sales are exempt from sales tax. Common exemptions include groceries and prescription drugs, depending on the state. Specific entities, such as non-profit organizations, may also qualify for exemptions. Sales tax compliance can be extremely complex due to the wide range of laws and regulations that vary across jurisdictions. It's essential to stay informed about your obligations, as failing to comply can lead to substantial penalties that can compromise a business's operations in the U.S. There are many other differences and nuisances that are crucial to understand when it comes to sales tax. In our next video, we'll explore the concept of sales tax nexus and how it impacts your business operations.

Welcome to the second video in our series on sales tax in the U.S. Today, we'll define sales tax nexus and explain why it's so important for businesses selling in the U.S. Most U.S. states have varying sales tax rates. Some, like Delaware, don't impose sales tax at all. In contrast, states like New York can have different rates at the county or even city level. Having sales in another country does not mean you have sales tax liability in the U.S., but many factors can make it difficult to identify your business's regulatory obligations. Given this complexity, manually tracking and applying a business's correct sales tax is nearly impossible. And yet, it is essential to ensure accurate collection, as over-withholding sales tax is illegal and undercharging can create significant liabilities.

Using sales tax automation software is often the best way to ensure compliance, although it still may not be 100% correct. For large operations, it is important to have a reliable in-house accounting team or to use experts like Orbiss. Sales tax nexus refers to the connection between your business and a specific state, county, or city that creates a tax obligation. There are several factors that can establish nexus, including: When determining your business's tax liabilities, it is pertinent to conduct a nexus analysis and determine where your business has obligations. If your business establishes nexus in a state, you must register with that state's tax authority before collecting sales tax. To avoid undue risk, it is best practice to register your business before you have sales in a state. For many businesses, it is also recommended that they establish a U.S. entity. While this is not always necessary, not doing so can create risk for a company. With so many factors to consider, it is generally advisable to seek professional tax advice. Orbiss can identify the states in which your business has liabilities, help establish a U.S. entity and facilitate the state-by-state registration process to keep your operations efficient and compliant. This concludes our second video on sales tax in the U.S. In our next video, we'll discuss the importance of product categories and how they affect sales tax compliance.

Welcome to the third video in our series on sales tax in the U.S. Today, we'll explore different product categories and their tax implications. In the U.S., different types of products are taxed differently. The most straightforward category is tangible goods, such as electronics. Tangible goods are physical items, and their taxability is usually tied to the location of the sale. However, exemptions apply to certain categories in many states, such as groceries or prescription drugs. Additionally, some states offer sales tax holidays on specific items, like school supplies or energy-efficient appliances, during limited time periods. Intangible goods, like software or digital services, are more complex. Taxation for these products often depends on the customer's location. For example, software as a service, or SaaS, might be taxable in one state, but not in another. As digital sales grow, states are refining their tax rules, so it's crucial to stay updated on which intangible goods are taxable in each jurisdiction. Services vary greatly in terms of taxability. In some states, professional services like consulting are exempt, while repair or installation services may be taxable. Knowing whether the services your business provides are subject to tax is essential for compliance. Product bundling adds another layer of complexity to the mix. Product bundling is when taxable and non-taxable items are sold together. Some states require you to tax the entire bundle, while others let you tax only the taxable portion. For example, if you sell a computer with tech support, the tax treatment may differ based on location. To stay compliant, performing a taxability analysis of your product offerings is key. For most businesses, using sales tax automation software or working with tax professionals ensures accurate calculation and collection of sales tax based on each product category. This concludes our third video on sales tax in the U.S. Join us in the next video, where we'll discuss exempt certificates and how they apply to your business.

Welcome to the fourth video of our series on sales tax in the U.S. In this video, we'll cover exempt certificates and what they might mean for your business. In the U.S., some sales are exempt from sales tax. This can depend on the type of buyer, such as schools, hospitals, or non-profit organizations. In addition, sales to resellers or manufacturers may also qualify for exemption. To validate a tax-exempt sale, the buyer must provide an exemption certificate to the seller. It's critical to collect and maintain proper exemption certificates because the seller is responsible for proving the validity of the tax-exempt sale during an audit. Types of exemption certificates include resale certificates, used when the buyer intends to resell the goods, manufacturing exemptions, used for purchases of goods used in the production of other goods, non-profit exemptions issued to qualified organizations. Maintaining up-to-date certificates is essential for compliance. If you fail to obtain valid certificates, your business could be held liable for the uncollected tax plus penalties. Given the endless nuances and complexities of sales tax in the U.S., Orbiss established a dedicated sales tax department to help businesses navigate even the trickiest operational hurdles. If you have questions about your business sales tax, contact one of our experts. Thank you for watching our fourth and final video in this series. For more information on sales tax, accounting, and scaling your business in the U.S., visit Orbiss.com.