We have been researching the one area that seems to worry US shoppers and prevent them from buying directly from international seller’s websites and instead paying a premium to buy on platforms like Etsy and eBay. State Sales Tax.
It is true that the patchwork of US state tax legislation is very complicated and it is little wonder most buyers simple wish to sleep soundly in the knowledge that these large established enterprises handle all that complex stuff for them and that there is nothing else to worry about when their goods arrive. There is some merit in this, but it does come at a price.
To keep things as brief as possible, international sellers are not obliged to collect and remit US state sales tax unless they have ‘Nexus’ in any given state. What the hell is ‘Nexus’. From an international sellers viewpoint, it’s a term to describe whether a seller is exceeding reasonably generous sales values and/or quantity thresholds in any given state. If a seller is deemed to have Nexus, then they must register with the state, collect sales tax at the point of sale and remit this to the state. Clearly being in this situation as an international seller requires a great deal of administration overhead, IT solutions and monitoring.
Thresholds vary state to state, but most states have at least a 100,000 USD threshold before Nexus is established, so most small international sellers are unlikely to have nexus.
This means that small international sellers, including UK businesses do not have to collect US State sales tax at the point of sale. This does not mean that the customer in the US is avoiding paying tax on their goods. It just means the responsibility to pay the tax is shifted to the customer in the form of ‘Use Tax’.
Use tax is generally charged at the same rate as sales tax and again varies from state to state (typically 7-10%). This is a self-assessed tax and is levied on the use or consumption of the goods within the state of residence of the purchaser.
In reality, for a US shopper, buying from an international seller is no more complicated than buying an item from a small vendor in a different state, they still have to self-assess and remit their ‘use tax’, Use tax is applicable if no sales tax has been charged.
In summary, where smaller international sellers do not have Nexus in any US states, the US shopper simply needs to retain their invoice and tot up the goods total for all their out of state purchases at the end of the year and write the figure on their tax return under the ‘Use Tax’ section.