U.S. Sales Tax Exposure for Foreign Companies
The ever-changing rates of sales tax jurisdictions and the difficult system of determining what is and is not taxable make U.S. tax compliance one of the most complex in the world. The U.S. sales tax system often has American companies scratching their heads, but foreign companies are even less familiar with the procedures. In what way are out-of-country businesses required to comply with sales tax on sales made in the U.S.? A confusing aspect for many foreign retailers or wholesalers is that not all 50 states recognize bilateral tax treaties.
This means that even if the foreign company is not subject to U.S. Federal income tax, they could still be required to collect and remit sales tax depending on the policies of local state governments. Foreign companies must comply with sales tax in the same manner as U.S.-based businesses. Sales tax liability is a question of nexus. States can define nexus in terms of revenue (economic nexus) or transactions. Having a physical presence in a state is no longer necessary to establish a nexus. Businesses in the U.S. and outside our borders are responsible for collecting sales tax in the states in which they have established nexus.