The world of commerce has shifted online, allowing businesses to sell to customers everywhere. Governments want their share of the revenue generated by internet entrepreneurs, and the USA’s weapon of choice is Sales Tax – the 50 states have the authority to tax sellers from other states, and from other countries as well.
So, in a word: YES. Unfortunately, if you have customers in the USA, you do need to collect sales tax, but only under certain conditions.
Dot Com or Amazon?
There is demand for your product in the USA – which is great news because online sales in America are sky-rocketing – but you need to decide which shop to use. Amazon and similar marketplaces like Walmart.com or eBay offer you a simple route to the US market, but as most online sellers will know, it comes at a cost. The alternative is to open your own webshop (which is done easily by using platforms like Shopify or BigCommerce), which comes with its own unique challenges. If you sell via Amazon to the US, you won’t have to charge sales tax (because the marketplace takes care of it for you), but you still might need to register for sales tax in some states. If you sell from your own website, the chances are you will need to collect tax in most of the 47 US states who have a sales tax system.
The scary Latin word: Nexus
The tax man loves scary legal jargon, and the key term in the USA is NEXUS. It means ‘connection’, and tax offices have tests to determine whether they think a seller is connected enough to have to register and collect sales tax in their state. Certain business activities, including having a physical presence or reaching a certain sales threshold, may establish nexus with the state. This means – if you have no physical presence like an office, employees or a warehouse – then you only need to worry about sales tax once your online site is successful, otherwise you are unlikely to cross the economic nexus threshold.
If you are already selling to the US and doing well, it is highly likely you are flirting with economic nexus thresholds. Or if you have any kind of physical presence in a state, you should probably be charging sales tax. If neither of these apply, you are probably safe for now – but it’s certainly worth digging deeper into your nexus status because playing catch up with taxes can be an unnecessary and lethal problem for your business.