Summary: General Taxation Questions Q. What are the main types of business taxes in the U.S.? The main two types of taxes a foreign U.S. business owner should be concerned about are income tax and sales tax. Those are two completely different, unrelated taxes. Q. Are there any other taxes I should be concerned about? Some types of products have additional tax (and licensing) requirements, for example liquor and tobacco products, as well as other products. If you are not sure if your product or service has licensing or taxation requirements contact us and we will assist you with the research. Q. How does U.S. income tax work? This is a simple question, however it’s U.S. income tax we are talking about. Technically, each taxpayer must pay tax on the income created in the U.S., and in some cases (such as the case of U.S. citizens or permanent residents) on income created abroad. The income tax is paid to the federal government (IRS), and in many cases to the state of residence, and in some cases even to the local jurisdiction (e.g. New York City). However, we created this article precisely for the reason we cannot just simply answer this otherwise great question - the real answer is “it depends, because it’s complicated”. Keep reading the next items to see if U.S. income tax applies to you, and how. OK - now that we know the difference between sales tax and income tax let’s handle the sales tax portion of U.S. taxation, before diving into the depths of income taxation. If you want to skip the Sales Tax section click here. Sales Tax Questions Q. How does the sales tax work? Sales tax is a tax paid by the end user (consumer) of a tangible product (and in some cases service) sold by a retailer. This tax is paid on a state level (there is currently no national sales tax or VAT). For example, if you own electronics store in NYC, and a customer comes in and buys an item in your store, you would apply 8.875% (as of 2013) tax on top of the price paid by the customer. Then you are responsible to file a sales tax report to NY state and remit (pay) all the tax money collected from the customers. Q. How do I know if I need to apply sales tax on the stuff I sell? Excellent question. Before reaching a conclusion you must answer three questions first: Are you selling to end users, or are you a wholesaler? Only retailers selling to end users are required to collect and remit sales tax. Does your business have nexus in any state that has sales tax? Nexus is physical connection, and we discuss it later in this article. Some states (Alaska, Delaware, Montana, New Hampshire and Oregon) have no sales tax to begin with. Is your product/service taxable to begin with? Keep in mind, most tangible goods are taxable, while most services are not, but each jurisdiction has its own rules, so it’s not that simple. Q. Should I register in a state that has no sales tax, to avoid having to deal with it? Sorry, but it’s not that easy. For example, let’s assume you register in Delaware (that has no sales tax) and you are selling some tangible items by shipping them from China to buyers in the U.S. Since in this case your business only has nexus in Delaware (as state of registration), you will not have to worry about sales tax at all. However, if you are using a U.S. dropshipper that ships the product from warehouses in California, Kentucky and New Jersey, technically you are required to collect sales tax from buyers of your product in all three mentioned states. https://www.myusacorporation.eu/taxes.html
