In many ways GST is simpler than VAT. There is no reclaim of GST on costs for instance. It is simply a sales tax. On the other hand every USA State has its own rules and thresholds and registrations and returns are required in each State where a business has tax nexus.
For many e commerce businesses USA GST wasn’t much of a concern until last year when the Wayfair case introduced the concept of economic tax nexus. Until then there were issues with the fact that your customer incurred additional charges as they were responsible for paying any applicable GST and, of course, if you stored goods in the USA (most commonly as a result of using Amazon FBA services), then you had a GST registration obligation anyway.
Since the Wayfair case States have been rushing to introduce their own remote seller nexus legislation and there are now only a handful that have not enacted any such legislation.
So what is economic tax nexus? It is an economic GST registration threshold – typically (each States sets its own rules remember) $100,000 or 200 transactions. The transaction threshold is easily overlooked, and if your average sale value is low then the dollar value of the threshold can be significantly lower. The threshold is measured by reference to the calendar year, unlike VAT which is measured on a rolling 12 month basis.
If your business makes online sales, it is likely that you are making taxable sales into many different states. That means you would need to look at your sales in each of those states to determine if you have crossed those states’ economic nexus thresholds and are therefore required to register.
As a remote seller you may also think that the State authorities have little chance of catching up with you should you chose to ignore your tax responsibilities. But this is the digital era, which means that tax authorities are getting more sophisticated in their ability to track down remote sellers. After all you need to be visible online in order to make sales. It stands to reason that tax authorities can see you just as easily as your customers can.
If you would like to discuss the implications of USA GST on your e-commerce business, contact our e-commerce accountants today.