This legal ruling has made the American sales tax system extremely complex and onerous for sellers, and there are pitfalls aplenty for the ignorant and ill-prepared.
Is your business getting ready to start exporting to the US? Tariff turmoil notwithstanding, it remains an extraordinarily attractive option for Australian producers and suppliers seeking healthy growth.
And, just now, our low Aussie dollar can sweeten the deal for value conscious US customers scouring the shelves – or the online stores – for bargains.
But while they may want what you’ve got, selling to our pals across the Pacific isn’t as straightforward as accepting their orders and popping them in the post.
Far from it. Unless you understand exactly how the sales tax system works over there, exporting to the US can be a risky business.
Wading through Wayfair
Courtesy of the U.S. Supreme Court’s 2018 S. Dakota v. Wayfair decision, now known commonly as the “Wayfair ruling”, there’s a lot to get your head around.
The Wayfair decision broadly allowed states to tax remote sales. The case stemmed from an economic nexus law passed by the state of South Dakota in 2016. It required certain out-of-state sellers to collect and remit South Dakota sales tax, in the same way suppliers with a physical presence in the state were required to do.
Online furniture and homewares giant Wayfair challenged the ruling and kept on challenging it, all the way to the highest court in the land, where on June 21, 2018, the majority of justices came down on the side of South Dakota.
Levelling the playing field for online and bricks and mortar sellers
The Wayfair decision gave all 50 US states the green light to begin clawing back the sales tax revenue they’d been losing to the internet, where, up to that point, purchases had been effectively sales tax free.
And claw it back they have. The trouble is, they’ve done it in different ways and with different thresholds that trigger economic nexus rules. Let’s sample the requirements that sellers must comply with across just four states in America:
In Texas, a seller must begin collecting and remitting sales tax to the state upon reaching a threshold of $500,000 in total revenue from sales of taxable and exempt goods/services. This threshold includes both taxable and non-taxable sales in the calculation.
New York established an economic nexus threshold of $500,000 in sales and more than 100 transactions in a year. Both criteria must be met to trigger nexus.
In Illinois, when sellers reach EITHER $100,000 in gross receipts or 200 transactions in a year, nexus rules kick in and sales tax must be collected and remitted.
And in the Sunshine State of Florida, sellers hitting a threshold of
$100,000 in taxable remote sales into Florida must pay up. Non-taxable sales do not count toward Florida’s threshold.
Indeed, the Wayfair delivered a new level of compliance complexity to businesses everywhere looking to tap into the U.S. market.
Add to that the fact that many states also require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. Others apply a fee to orders containing items of personal property that are delivered by vehicle and impose charges on deliveries over a certain value.
And let’s note that state-by-state economic nexus rules are a compulsory layer of administrative complexity on top of the more than 13,000 state and local sales and use tax jurisdictions, the specific rules of which are subject to change at short notice.
It’s quite the contrast to the status quo here in Australia, where sellers, irrespective of location, are required to levy a standard 10 per cent GST on most sales.
Playing by the rules
If you’re an Australian business exporting to the US, it’s your responsibility to ensure your business is compliant with the minutiae of sales tax law in every jurisdiction to which your products or services are shipped.
It’s important you do so because, when it comes to overseas sellers getting their figures wrong, leniency is often in short supply.
Some jurisdictions employ teams of auditors to investigate businesses that operate in, or advertise in, their state. Their approach to compliance can be energetic and penalties stiff.
Fall foul of the authorities in multiple jurisdictions and you could well find yourself entangled in an expensive remediation nightmare, even as you’re trying to get your fledgling export arm off the ground.
Tools to make the task easy
The good news is, complying with economic nexus complexity in the US doesn’t have to mean lumbering your logistics team with a complex, high stakes compliance challenge, every time you accept an order.
That’s provided you set yourself up for success from the outset, by investing in automated tax compliance technology. It’s designed to help growing businesses start selling in the US by simplifying and streamlining all the tasks associated with international tax compliance. In addition to automatically keeping track of economic nexus rules by state, tax compliance technology solutions assist with registration, licensing, sales tax calculation, returns and remittance, document management, reporting and e-invoicing. And the best of them are taking advantage of the latest AI advances.
Once it’s implemented in your back office, you’ll be able to calculate a wide range of indirect taxes in real time, including the applicable sales tax in all 13,000-plus US jurisdictions.
Clearing the way for US success
Building a US export revenue stream can deliver healthy growth, provided you understand the complexity of the market you’re entering and take steps to ensure your business is compliant from the get-go.
By correctly calculating the tariffs and taxes you’re required to levy – all up – a modern, AI-infused tax compliance platform can help you stay on the right side of the authorities.
If you’re serious about succeeding in the world’s biggest market, it’s enabling technology that should sit at the heart of your ICT stack.
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