In the U.S., there is no value-added tax (VAT) on the federal or state level. However, most states have a “sales and use” tax system that creates an ultimate liability for the purchaser to pay a tax that can reach above 10%, depending on the state and locality. If there is an obligation on the seller (as defined by the states’ laws) to charge the tax on a sale transaction and remit it to the state authorities, it is called a “sales” tax and is administered by the seller. If there is no direct obligation on the seller, then the buyer must do the same; this is called a “use” tax. Businesses that sell to resellers of tangible goods are usually exempt from charging the tax and the tax is charged only when it reaches the actual users of the property.
Next, we will focus on when the seller has an obligation to charge the buyer and file tax returns in the respective states. Such an obligation may exist if a business establishes a “nexus” – a sufficient presence in a particular state.
Activities That Can Establish Sales Tax Nexus in a State