International Seller Basics
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
Mike Fleming and Ellie Moffat discuss and answer questions about international sellers.
Here’s a glimpse of what you’ll learn:
Who is considered an international seller?
What are some of the common issues that international sellers face?
Does an international seller need a US entity to sell in the United States or collect sales tax? Are there any benefits of opening a US entity?
What is a good strategy for international sellers who are trying to get compliant? What are some resources that they can utilize?
Connect with Michael
Episode Transcript - Audio Version
[00:00:00] Welcome to Sales Tax and More your go-to resource for all things state tax related. Now here is your host, Michael Fleming.
Michael Fleming: Hi, Mike Fleming here, founder of Sales Tax and More, and today's co-host of the Sales Tax and More Podcast where we talk about everybody's favorite topic, which Ellie, it's of course sales tax And today we're gonna talk about international sellers. But before I do, let me introduce you to my co-host, Ellie Moffat, and she can share some information with you.
Ellie Moffat: Hi, I am Ellie. I am gonna share some information with you so you know, great to be here first. The first piece of information, please like
and subscribe to this podcast. Really helps us out, especially if you're learning
[00:01:00] things or you're enjoying listening. And second is just a little bit about Sales Tax and More. So we are a full service consulting and solutions firm.
We have a really great team here of experienced tax professionals who are very dedicated to fulfilling your state tax and related needs. So we do a lot of sales tax returns, sales tax registrations, consultations, research, audit defense, exemption certificate management, and like our name states more. So if you have questions about our services or you'd like to work with us, please reach out.
We'd love to hear from you, and we'd love to work with you as well. So Mike, that's my spiel. Let's get into it. This is about international sellers. So who is considered an international seller?
Michael Fleming: We could probably answer that a couple of different ways, but let's keep it simple. We consider an international seller to be anyone whose primary place of business is outside of the United States, or even if their primary place of business is in the United
[00:02:00] States, if they're formed outside of the United States or if they reside outside of the United States.
Ellie Moffat: Alright. Yeah, I think that's a great question to address off the bat, Mike. One of our most viewed videos on YouTube is about international sellers. And so I think this is a good, this is a good addition. Hopefully, if you've already seen that video and now you're here for this podcast, you're having a great time.
You get to see Mike and I on video. Mike, what are some of the common issues that international sellers face?
Michael Fleming: I think the biggest issue is not realizing that they may have an obligation to collect and remit sales tax here in the United States. For years you had to have some sort of physical presence in the United States in order to be required to collect and remit sales tax. However that changed in 2018. In 2018, we had the South Dakota versus Wayfair case and the US Supreme Court said that
[00:03:00] economic nexus can move forward. And an economic nexus is measured by an amount of sales or number of transactions into a state.
And it makes no distinction between an domestic seller or an international seller. So if you are selling into a state and have over a certain dollar threshold or a certain dollar. Tran or a certain number of transactions and each state has different figures. Then you have a requirement to collect and remit the sales taxes.
So that's number one. Number two, if you decide that you wanna become compliant and wanna register and collect the taxes, now you have to remit those taxes. And a lot of the states don't allow transfers from foreign banks. So that's another hurdle. None of them used to allow credit cards.
There are less than a handful that do now like California, but by and
[00:04:00] large you would need someone like us. We open up a subaccount underneath our main account for every one of our clients. So, the international client would then wire our subaccount the money and we would pay your taxes from our subaccount.
So those are two of the biggest issues. The third one is just understanding the laws. United States is different than most of the other countries out there. Most of the countries have a form of the VAT value added tax. And the US is very different from a VAT text or that's a sort of double value added text.
Very different from a VAT not a VAT tax. That's doubling up on my tees there. So just having a basic understanding of everything and we can help with that. Also any questions that you have, we can generally answer some of 'em off the top of our head. Others may require research, but of course we have all of the resources in order to get you the right answers.
But those would be the top
[00:05:00] three things. Number one, understanding that you may have a responsibility to collect the tax and then getting registered. Once you're registered, remitting the tax. There are some extra hurdles for international sellers there. And number three, just a basis of the tax itself.
There's a lot of nuances and you've gotta know the answers to some of those questions.
Ellie Moffat: Speaking of some of those questions, Mike. So does an international seller need a US entity to sell in the United States or collect sales tax? And are there any benefits of opening a US entity?
Michael Fleming: Yeah. Let's start with the easy one. No, you do not need a US entity to sell into the United States or to collect sales tax. You can do it with your foreign entity. It doesn't have any impact on that. We can even register the foreign entity to collect and remit the sales tax.
Now there are some additional hurdles
[00:06:00] when registering foreign entity. Number one, most of the states want an FEIN number. Now, foreign entities, we can get an FEIN number for you, so that's not too bad. But the responsible parties, in other words, the owners or the officers, someone has to be a responsible party and they need a social security number.
That's where things start to get a little bit confusing. Now most states have a workaround. Some of the workarounds are very easy. Some of the states are a little bit tougher. But that's where, it gets a little bit tougher. But even opening up a US entity doesn't protect you from that because US entities, you still need a responsible party and you still need them with a social security number.
So you're gonna run into the same issue whether you have a US entity or not. Now, if you're trying to open up a bank account. Generally you're going to need a US entity, but it is not easy opening up a US Bank account.
[00:07:00] And even these people will tell you, oh, it's real easy. Just do these things.
Generally they're gonna want you to put them on the bank account there. So I have a big issue with that. So it's not easy opening up a US bank account from overseas. You might be able to open up a personal account if you come here personally and open up an account. That's a whole nother story.
But for tax purposes income tax purposes, generally because of the tax treaties, if you're in a tax treaty country, you're gonna be paying taxes in your home country unless they're legally due here. So by opening up a US entity and taking certain steps those taxes may be legally due in the United States, which would then maybe depending on what country you're taxed at a lower rate.
So that could be a benefit. But that's outside of what we generally do. That gets into income tax planning and that's not one of the services or international
[00:08:00] income tax planning is not one of the services that we do offer. But it does answer the question, is it a benefit of that? Yes. But you'd want to get with your local tax people and see if that's a strategy that can be employed.
Ellie Moffat: Alright. Thank you so much Mike. And last question we have for today in this episode, what is a good strategy for international sellers who are trying to get compliant and what are some resources that they can utilize?
Michael Fleming: All right. A good strategy. Learn as much as you can. There are a lot of YouTube videos that we put out there that's a resource.
There are a lot of podcasts we put out there. There are a lot of free webinars that we put out there. So a good strategy is increasing your knowledge base about US taxes. You gotta be careful though, because not everything you read or see on the internet is true. Some of it is misinformation put out there by people who are well-meaning, but they
[00:09:00] just don't know all of the answers.
And with today's AI, everyone thinks they're a sales tax expert or an income tax expert or an expert on anything. And based on today's AI it's not artificially intelligent, it just does things quicker. It scans through all of the things on the internet a lot quicker than you could, but if everything that it's reading on the internet is wrong, then it's gonna give you wrong answers.
And that's the major limitation right now. There's so much misinformation or flat out wrong information on the Internet. You gotta know whose information you're looking at. I'm a little bit partial to ours. There are other good sources out there. But we have a whole bunch of free resources that you can take a look at whether it be the webinars, like I mentioned, our podcasts like this, or any of our YouTube videos. Or you can pick up the phone and call and talk to someone. And there are other companies like us that can offer correct answers.
[00:10:00] Just relying on the internet with internet without knowing where those answers came from, I think is something that you gotta look out for.
Ellie Moffat: Alright. Thank you so much Mike, and thank you everyone for listening today. If you have sales tax meetings, like Mike said, we're partial to our own resources, to our own services, but we'd love to hear from you. We'd love to work with you, and you can reach out to me directly at emoffat E-M-O-F-F-A-T, at salestaxand more.com.
Or just reach out to us Salestaxandmore.com. And in addition to what you're hearing right now, we have a ton of other free resources like Mike just mentioned. Just go on our website and you can get your hands on those.
So thank you so much, Mike.
Michael Fleming: Thank you everyone, and we hope to see you on the next installment of the Sales Tax and More Podcast. Bye-bye everyone.
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