Doing business with USA member states

Procedure 42 involves releasing imported goods into free circulation while being exempt from Sales Tax because they're destined for a different DC, whereas 63 covers re-importation where you get that same Sales Tax exemption since the items are headed to another DC.
That’s all laid out in Section 44, Paragraph 2 of the Law—specifically 44.1.26. It only kicks in when you import goods from outside the US and then immediately supply them under a Sales Tax exemption per Section 41.1.a and d (like shipping to another DC). At the moment of import, the importer has to provide their tax ID, the recipient's ID, and proof that these goods are strictly intended for transit or shipment from the US to that other DC.
So, you'll enter the value of those supplied goods into column 12 of Form ZP, making sure to convert everything into dollars using whatever exchange rate applies on the 😉likely customs clearance date.
You can actually find a detailed guide online from the Treasury Department's Customs Division—Instruction No. 76/13 from June 28, 2013—which breaks down procedures 42 and 63 in much more detail!

just a little fun fact

1.4. Delivering goods on ships, planes, and trains
For these kinds of deliveries within the USA, the place of delivery is basically where the passenger transport starts. For instance, if a passenger train heads out from Washington, D.C. toward Prague, and someone in Austria buys some chocolate being sold on that train—that chocolate would be subject to a 25% USA Sales Tax.

I guess my take on this is that an Amtrak train runs the New York-London route and back. When it leaves New York, they charge USA Sales Tax, then on the return trip, it's German tax. This would mean a vendor on an Amtrak train would need software that (theoretically) supports every single tax system in the USA. I mean, all they're missing now is having to handle 28 different ways of digital reporting. 😍

Nicole Lee6 said:I'm honestly a bit lost now because of Article 197 in Section 4 ((4) Taxpayers under Section 1 of this article have to include the R-2 designation on invoices, and they can claim the input tax in the accounting period when the invoice is paid.> Does this mean small business owners are simultaneously charging sales tax and claiming input tax for these reverse charge services, or what?!

Article 197.1. states that income tax payers are required to account for sales tax by the end of 2014 based on when the compensation is received or collected except for deliveries or acquisitions within the USA and so on... basically, "reverse charge" applies to your transactions within the USA, so you just account for and deduct the sales tax in the same period you issue or receive the invoices!

btw—is there some kind of bug on this site? If you try to go through them directly, they force you to register—which basically means paying—but if you just find a link via Google, you can see everything clearly right away without any hassle, and then you get full access 😍 (yeah, I guess it's just their way of protecting things)

Zachary White17 said:I wonder if the service amount from a USA carrier counts toward both tax liability and input tax simultaneously, or if it just hits the liability side. In other words, are we actually exempt from Sales Tax on services provided by USA carriers?

Also, what exactly does "Value of goods delivered under procedures 42 and 63" mean?

The American business should calculate the Sales Tax (B2B), though they don't actually pay it; instead, they report the liability and the input credit on their tax return (this applies when a US carrier transports goods for an American business).

I have a quick question for you all:
So, I just tried looking up my VAT ID on the official portal to see if they finally processed it since the official paperwork hasn't arrived yet, and lo and behold—it says the VAT ID is valid. But now I'm spiraling over one specific detail. Since I'm operating as a sole proprietorship, the registration shows my legal first and last name (you know, the owner's name as an individual), but there is absolutely no mention of my business name anywhere. Now I’m genuinely worried about whether this is going to confuse my partners when they try to verify my tax status. For example, my actual business name is Auto Bla, but on the official registry, it just lists John Doe. (And yes, there isn't even a middle initial; it just shows a question mark!)?!? 🤔

Should I actually give the IRS a call to discuss the naming convention? Is it possible to append the business name after my legal name, or maybe fix that weird question mark issue? Or am I just supposed to deal with this mess and not ask any questions?

Could a good soul please double-check what I've put together here...

Shipping documents for international orders
CRM
Packing list
Delivery note and stuff like that
Customer confirmation of receipt (like Field 24 in the CRM)

Reverse charge for construction services and recycled waste sales: The buyer pays Sales Tax if they are a registered taxpayer—per Section 75, Subsection 3 of the Sales Tax Law and Section 152 of the Regulations.
The invoice needs to mention the reverse charge + Section 75, Subsection 3 of the Sales Tax Law.

EORI numbers are only needed by those importing from third countries.

Main rule for acquiring goods:
If a taxpayer supplies goods to another taxpayer, it's taxed in the state where the goods are delivered.
If goods are sold to individuals or small taxpayers, they're taxed in the seller's state.
Exceptions: new vehicles—destination state
Duty-free goods—destination state
Distance selling—taxable in the origin state until the delivery threshold is hit (in the US $90000)

Shipping goods from the US to third countries. Exempt from Sales Tax per Section 45, Subsection 1, Item 1 of the Sales Tax Law + proof of shipment like JCD, shipping docs, etc.
The invoice should state "reverse charge" and exempt under Section 45, Subsection 1, Item 1 of the Sales Tax Law.

Shipping goods from the US to other USA states. Exempt from Sales Tax per Section 41, Subsection 1, Item a of the Sales Tax Law + reverse charge + proof of shipment from the US + verifying the recipient's VAT number via the FAA system. If the goods are moved by the buyer or someone else on their behalf, the seller must have a written statement regarding the shipment or transport to another state signed by the person who handled the transport. Per Section 170 of the Regulations.
(3) That written statement for the shipment or transport mentioned in Subsection 2 must include:
a) the seller's full name (business name),
b) the invoice number and date of issue for the supplied goods,
c) the buyer's name (business name) and tax ID,
d) the registration plate of the vehicle used to ship or transport the goods,
e) the destination location in the other state, and
f) a note stating the buyer is ready to provide any info regarding the destination upon request by the IRS.

The invoice needs to specify "reverse charge" and exemption per Section 41, Subsection 1, Item a of the Sales Tax Law.

Service deliveries:
B2C – reverse charge on the invoice per Section 17, Subsection 1 of the Sales Tax Law. Same applies to importing services.
B2C – taxable based on the service recipient's business location per Section 17, Subsection 2 of the Sales Tax Law.
If a service provider from another state handles transport for an American entrepreneur, the American entrepreneur must charge American Sales Tax.

Any taxpayer supplying goods to another state must keep records of their annual turnover, specifically broken down by each destination state. Per Section 169 of the Regulations.

What happens with the import/export audit books? 🤷 I'm assuming they stay the same for imports and exports from third countries... I don't know much about shipments within the USA. All I found was this:
Obligation to keep records of goods shipped to other states:
A taxpayer must maintain records of goods they shipped, transported, or that were shipped/transported on their behalf outside of their home state but within the USA for the purpose of valuation services or temporary use of those goods under Section 7, Subsection 6, points d), e), and f) of this Law.
And this:
(3) A taxpayer must keep detailed records that allow for the identification of goods delivered from another state by a taxpayer registered for Sales Tax in that state, or by another person on their behalf, which are... used for services involving the appraisal of those goods or work done on them.

we're talking about temporary shipments to or from the USA—check out Articles 170 and 171 in the Regulations...

@Patrick Peterson49,
you really "nailed" it.
The audit logs are gone now (only kept for capital expenditures), though I wouldn't be surprised if they try to bring them back later.
Regarding the records a taxpayer needs to maintain in their books, I expect there'll be more talk about it soon—likely right before the first Sales Tax Law filings due, once all the consultants have returned from their "field trips" (they were scattered all over the country trying to interpret the basics). Why am I waiting? Because what you wrote (which is exactly what I was thinking) is an incredibly demanding task, and frankly, I have no clue how we're supposed to pull it off.

Take a look at Section 163, Paragraph 3 and Paragraph 4.
In just a couple of sentences, they describe—or rather, emphasize without actually describing anything—the maintenance of special records.
Does this mean we’ll need separate logs for acquisitions from the USA, separate ones for services received, separate ones for imports...?
As if the IRS doesn't have enough to deal with already.
Besides, I can't even imagine an IRS setup where the Sales Tax paid to a vendor (like Customs) overlaps with the "assessed" tax (acting as both input credit and liability simultaneously); maybe that's why these special records are being mentioned. 🤷

Honestly, these records are tripping me up a bit, but I’ve still got some breathing room before it actually matters 😁
Under section 164, it says everything needs to be in one single ledger, but then section 163 mentions keeping separate records... so my take is we need one master ledger where everything is displayed, plus extra sub-records for each specific group 🙂That's how I'm reading it anyway—and like I said, I've got time, so I haven't been stressing too much about it just yet...
My only real headache is that my programmer is waiting on me to explain the whole thing so he can build it... it's kind of ridiculous—it's like if I were doing someone's accounting and then asked them how to actually book the entries, and then tried to charge them for it on top of that 😁

Richard Howard55, so you're saying there aren't separate import/export books anymore, even for third-party countries or just for trade between USA members?

Patrick Peterson49 said:Honestly, these records are tripping me up a bit, but I’ve still got some breathing room before it actually matters 😁
Under section 164, it says everything needs to be in one single ledger, but then section 163 mentions keeping separate records... so my take is we need one master ledger where everything is displayed, plus extra sub-records for each specific group 🙂That's how I'm reading it anyway—and like I said, I've got time, so I haven't been stressing too much about it just yet...
My only real headache is that my programmer is waiting on me to explain the whole thing so he can build it... it's kind of ridiculous—it's like if I were doing someone's accounting and then asked them how to actually book the entries, and then tried to charge them for it on top of that 😁

Richard Howard55, so you're saying there aren't separate import/export books anymore, even for third-party countries or just for trade between USA members?

They don't exist for the USA or for third countries. Period.

So, I finally knocked out that seminar on Friday, and it actually helped me clear up some headaches regarding two specific situations I've been stuck on.
It was mostly just hitting those fundamentals we always talk about here. My next session is strictly focused on sales tax forms, VAT-style filings, and the consolidated returns in two weeks. Hopefully, it all sticks by then—I'm also banking on our developer to build out a custom fix for us.

To be honest, I didn't waste my time on the fluff; I focused almost entirely on the actual scenarios we deal with at my firm. The rest of the theory? I'll pick that up as I go.

Things are a bit chaotic right now since I’m juggling payroll on top of everything else. Trying to run two different tracks at once is exhausting, but hey, what can you do?

Go ahead and take a breather, then maybe write up a few thoughts about that seminar. You had some pretty interesting examples, and I guess I’d actually be curious to see how that all works out. 🙂

Carol Price4 said:Section 41.
(1) The following shall be exempt from sales tax:
a) the delivery of goods where the seller—or someone acquiring the goods on their behalf—ships or transports them from the US to another country to a different taxable entity or a non-taxable legal entity acting as such in that other country.

I’m honestly going a bit stir-crazy reading all this legal jargon—can someone please tell me if I have this right?

- based on that section above, if a US business registered for sales tax receives graphic design files via email from an overseas vendor, then uses those files to run a print job (through some other local contractor), and the customer picks up the goods right there to ship them over to Europe... do I issue the invoice without sales tax and just mark it as "reverse charge," or what?

First, let me rule out some possible errors since I don't really know the subject you're writing about.
a) I interpreted "graphic prep via email" as an order (with a list of what they want delivered).
b) the second domestic entrepreneur doesn't matter
c) it doesn't matter where the buyer picks up the goods
d) we are talking about goods

The invoice is issued without Sales Tax (FAA) citing Section 41, para 1, point a)
without a reverse charge note.

Honestly, I never quite grasped this reverse charge thing (just so I could always identify when to use it and when not to, without making mistakes).
I asked the exact same question as you at a seminar and was told this isn't an example where you'd include a reverse charge note.

Richard Howard55 said:First, let me rule out some possible errors since I don't really know the subject you're writing about.
a) I interpreted "graphic prep via email" as an order (with a list of what they want delivered).
b) the second domestic entrepreneur doesn't matter
c) it doesn't matter where the buyer picks up the goods
d) we are talking about goods

The invoice is issued without Sales Tax (FAA) citing Section 41, para 1, point a)
without a reverse charge note.

Honestly, I never quite grasped this reverse charge thing (just so I could always identify when to use it and when not to, without making mistakes).
I asked the exact same question as you at a seminar and was told this isn't an example where you'd include a reverse charge note.

FBI... yeah, that "reverse charge" headache is real. For me, it's pretty straightforward—just verify through the IRS and follow Section 41.1.a.

But wait—do you still need a written statement if the buyer picks up the goods right here and hauls them to another state themselves?

😕

Carol Price4 said:FBI... yeah, that "reverse charge" headache is real. For me, it's pretty straightforward—just verify through the IRS and follow Section 41.1.a.

But wait—do you still need a written statement if the buyer picks up the goods right here and hauls them to another state themselves?

😕

The statement is mandatory. The Regulations (Section 170) basically just piggyback right onto Section 41 of the Tax Code. 🙂

Brandon Anderson10 said:Basically, if you look through the Treasury Department's guidelines or even your favorite finance mag, you won't find a straight answer on how to tax services when they're shipped from DC to the US. It’s because Article 17 says the tax location is wherever the taxpayer receiving the service is based. Then, Article 20 doesn't say a single thing about the taxing location for a TAXPAYER within the USA... so I guess nobody bothers getting specific since everyone is supposed to just stick to the basics in Article 17. At least, that's my take. I'm heading to another seminar on July 10th, so maybe I'll finally get some real answers there.

Determining where a service is technically performed is such a headache since there are so many exceptions to the basic rule. My process is usually to hunt for those exceptions first—checking if it fits one or not—and only then do I even bother looking at the general rule. Honestly, it takes me way, way too long to figure out the location for any given service. I'm hoping things improve! 🙂

cl.79.st.7.
(7) If the recipient is responsible for paying the sales tax, the supplier has to include the phrase "reverse charge" on the invoice...

So, in this case, Devil's Advocate would need to list "reverse charge" on there...

Richard Howard55 said:The statement is mandatory. The Regulations (Section 170) basically just piggyback right onto Section 41 of the Tax Code. 🙂

Does anyone happen to know what this famous statement from Article 170 of the Regulations is actually supposed to look like? 😕

Do we actually need that statement if we're just using LTL shipping? Who even signs off on it—is it the driver who picks up the goods but doesn't deliver them directly to the customer, just heading straight to New York City... or should I just sign a general agreement with my carrier?🙂
I have one question because nothing else seems to make sense here: If my customer from another FBI district organizes the LTL shipment themselves, does that mean I don't have to deal with sales tax since I won't be receiving an invoice for the freight? Could someone please confirm this for me?

Benjamin Palmer80 said:Do we actually need that statement if we're just using LTL shipping? Who even signs off on it—is it the driver who picks up the goods but doesn't deliver them directly to the customer, just heading straight to New York City... or should I just sign a general agreement with my carrier?🙂
I have one question because nothing else seems to make sense here: If my customer from another FBI district organizes the LTL shipment themselves, does that mean I don't have to deal with sales tax since I won't be receiving an invoice for the freight? Could someone please confirm this for me?

As far as transportation goes, you're out of luck; you don't even get a receipt.
I guess you're only listing the goods delivered to the FBI on line I 2 of the sales tax form. Maybe.
Of course. Plus the ZP form.
Regarding the statement and the bulk transport—I guess it's all a bit vague to me too.