International selling - managing Taxes and duties in EU , US and UK

Accounting & Taxes
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Hey, I can’t answer all these questions, but I can give you some guidance on the US sales tax portion of this.

When Do You Need to Collect Sales Tax in the US?

In the US, you need to collect sales tax if one of the following conditions is true:

  1. Physical Presence: You have a physical presence in the state (yourself, an employee, a warehouse, inventory, storefront, etc.).

  2. Economic Nexus: You cross the economic nexus thresholds set individually by each state. You can review these thresholds in Shopify’s admin under Settings > Taxes and Duties > Review Insights (it’s in the top square about US Sales Tax). These thresholds usually require either:

    • A minimum of 100 individual transactions in a specific state within a 12-month period, or
    • $100,000 in sales in a specific state within a 12-month period.

If either of these conditions is met, you must register with that state. For example, if you sell $100,000 of product in New York or have an employee there, you must register with the state of New York and begin collecting sales tax on any shipments to New York. Conversely, if you ship to California or Florida and haven’t crossed the nexus thresholds there, you won’t need to collect sales tax for those states.

Setting Up Sales Tax in Shopify

To enable tax calculations for New York (and the same process applies to the UK and EU), follow these steps:

  1. Go to Settings > Taxes and Duties.
  2. Click United States + Add Region.
  3. Add New York.

From that point forward, whenever you ship to New York, you’ll collect sales tax. When shipping elsewhere, no tax will be collected.

Filing Sales Tax

When it’s time to file, go to Analytics > Reports > United States Sales Tax Report and filter by the appropriate date range for your reporting period. Click into the New York report to assist you in filing your taxes with the state on their website.

Sales Tax License and EIN

One important point to note is that once you’ve determined you have an obligation to collect sales tax in a state, you need to register for a sales tax license. This will also require you to federally register your business to obtain an Employer Identification Number (EIN), which the state will use to identify you. To obtain an EIN, you’ll need to file an 1120F with the federal government, stating various details about your foreign business and affirming that you do not owe any income tax. Once you have your EIN, you can register with the states and start collecting taxes.

Summary

In summary, if you don’t have a physical presence in a state and haven’t made any sales there, you don’t need to do anything regarding US sales tax. Once you cross the thresholds or establish a physical presence, you’ll need to become compliant.

I hope that helps! Let me know if you have any questions.