Doing business with USA member states

ruggedmaker2 said:First off, you really need to pin down exactly what kind of service you're actually performing. It’s a totally different ballgame whether you’re doing real estate consulting, legal representation, or IT work—plus, some services are exempt from tax altogether. You’ve got to dig into the tax code and the regulations to see where the "place of taxation" actually falls for your specific situation.

Take a look at Article 41 of the regulations; it breaks down what gets added to the tax base for goods or services. Check that out specifically based on what you're actually invoicing them for.

If they’re legitimate businesses, I’m pretty sure you can skip the sales tax using the reverse charge method. They’ll handle the tax on their end over there.
If you’re doing this constantly and pulling in decent money, my advice? Don't play games. Get a formal written opinion from the Internal Revenue Service in Washington, D.C. so you can sleep at night knowing you're 100% covered.
Just grab the statement they sent you, draft a quick letter, and mail an inquiry to their office at 1600 Pennsylvania Avenue NW. Word is, they get back to you pretty fast.

The service is medical research, so we're talking monthly invoices and some pretty significant revenue...
My main worry is that confirmation from third countries—especially Americans—since that all falls under B2B services... looks like the smartest move would be to send that letter just to be absolutely certain...
Thanks, Daisy!

David Kelly37 said:Yeah—you definitely have to. The lady at the IRS told us invoices absolutely have to be in dollars, though we can use other currencies if we want. Our programmer set it up with dollars as the main currency since that's how it has to be, but I still print out the USD amounts because basically 99 percent of our customers are overseas anyway!

Thanks so much... I'll definitely be listening to you all more closely from now on. Oh, one more thing—given that we're VAT exempt under section 45, the reverse charge wouldn't apply, right?!

Nathan Doyle2 said:Thanks so much... I'll definitely be listening to you all more closely from now on. Oh, one more thing—given that we're VAT exempt under section 45, the reverse charge wouldn't apply, right?!

I don't think so—but I actually asked ruggedmaker2 that same question earlier in the thread. In my opinion, it shouldn't apply because exports are always tax-exempt... but let's just see what ruggedmaker2 has to say about it...

if you're exporting goods to a non-US country, then you don't use the reverse charge...

I’m honestly stuck on whether we need to use "reverse charge" for exports or not.
According to Section 79 of the Tax Code:
(7) If the recipient of goods or services is responsible for paying the sales tax, the supplier has to include the phrase "tax liability shift" or the English term "reverse charge" on the invoice.

At my company, we don't really deal with exports since we only work with other US states, so I haven't gone down the rabbit hole of researching this further. I'm just praying someone actually bothered to call their consultants at the IRS to get some real answers.

I'll eventually have to comb through the tax code and all those federal regulations again, but up until now, I've mostly just focused on our internal company stuff. Honestly, trying to wrap my head around everything else right now is just way too much.

Patrick Peterson49 said:if you're exporting goods to a non-US country, then you don't use the reverse charge...

I'm thinking the same thing—no reverse charge in that case...

I just got back from a seminar where they were saying: "you don't need to include the reverse charge on export invoices."
(JPMorgan Chase)

Thanks so much to everyone—really, truly! :-)

Since I was digging into service exports to third countries a bit more 😁 I stumbled upon this too

Under regulation 282/2011, article 18, section 3, unless they know otherwise, a service provider can treat a recipient based outside the USA as a tax payer if:
a) They get a certificate from the relevant tax authority in the recipient's home country—the kind of thing issued when someone asks for a VAT refund under directive 85/560 / EEC (the so-called thirteenth directive) in a USA state.
b) The recipient doesn't have that certificate, but the provider has their tax ID or some similar registration number used in their home country to identify businesses—basically any proof they're a tax payer—as long as the provider performs a reasonable check to make sure the info is legit, using standard business security measures like identity verification or payment checks. I'm not totally sure about the "payment checks" part, though—pretty sure that's just a weird translation quirk...
That bolded part worries me, because around here, "being reasonable" during an audit isn't really a thing...

awesome - thanks.

I actually have a shipment right now coming from Germany in the USA to Canada (a third country)... my client is based here in the USA... I'm trying to figure out if I should use code 44-1-38 and the reverse charge mechanism for an article I'm writing, or if it has to be 17-1—I'd lean toward 44-1-38 since the transit goes through America?

any help would be appreciated...

thanks

oh - also, what do you guys know about handling transport payments in cash? You issue a receipt, but then how do you settle it—via a bank deposit or just through the petty cash drawer (assuming there's a limit on the amount)

thanks

Patrick Peterson49 said:if you're exporting goods to a non-US country, then you don't use the reverse charge...

ruggedmaker2 said:I’m honestly stuck on whether we need to use "reverse charge" for exports or not.
According to Section 79 of the Tax Code:
(7) If the recipient of goods or services is responsible for paying the sales tax, the supplier has to include the phrase "tax liability shift" or the English term "reverse charge" on the invoice.

At my company, we don't really deal with exports since we only work with other US states, so I haven't gone down the rabbit hole of researching this further. I'm just praying someone actually bothered to call their consultants at the IRS to get some real answers.

I'll eventually have to comb through the tax code and all those federal regulations again, but up until now, I've mostly just focused on our internal company stuff. Honestly, trying to wrap my head around everything else right now is just way too much.

stormygardener44 said:I just got back from a seminar where they were saying: "you don't need to include the reverse charge on export invoices."
(JPMorgan Chase)

I don't handle physical exports, but I do bill transportation services to third countries. At an accounting seminar, they told us to include the exact same notation as if the service were going to another state—specifically, noting the transfer of tax liability under Section 17, Paragraph 1. Since we aren't collecting sales tax ourselves, the note goes on there; whether those people over there end up paying tax or how they handle it with their local authorities isn't our concern.🤷

Christian Cruz41 said:Thanks, Daisy!
I’d love to get some thoughts on this:
A trucking company provides transport services through an intermediary (the tax obligor here in the US) to Austria. Does that trucking company charge the intermediary sales tax or not? I'm certain the intermediary handles the reverse charge, but I suspect the trucker should be issuing an invoice with sales tax included—yet they keep insisting it's a zero-tax invoice...

Anyone dealt with something like this before?

A trucking company provides transport services through an intermediary (an entity based here in the US) to Canada. Does that trucker charge the intermediary sales tax or not? I'm certain the intermediary handles the reverse charge, but I suspect the trucker should be charging sales tax—yet he keeps insisting the invoice should be tax-free...

I assume this is just two American businesses doing business together, regardless of where the actual hauling takes place (correct me if I'm wrong). In that case, the outbound invoice should include sales tax as if it were a standard domestic transaction.

Christian Cruz41 said:Anyone dealt with something like this before?

Check this out—it might actually answer your first question:
http://www.irs.gov/VAT-rules/...QPDVZakon.aspx

Nicole Lee6 said:I don't handle physical exports, but I do bill transportation services to third countries. At an accounting seminar, they told us to include the exact same notation as if the service were going to another state—specifically, noting the transfer of tax liability under Section 17, Paragraph 1. Since we aren't collecting sales tax ourselves, the note goes on there; whether those people over there end up paying tax or how they handle it with their local authorities isn't our concern.🤷

To me, it sounds perfectly logical that those invoices fall under reverse charge too. Section 79, which I mentioned earlier, doesn't say this is strictly for USA member states; it just mentions the recipient is responsible for the tax.🤷

Anyway, to wrap this up 😁: screw reverse charge.🙂

By the time someone finally explains this to us in plain English, we'll be old and gray.☕

Well, I’m just sitting here feeling totally lost... do I actually write "reverse charge" or not? Grrrr... honestly, whoever drafted this law must have been dreaming—because reading what's written feels like straight-up science fiction! :-(

Last week, our local IRS office hosted a presentation regarding sales tax. A few of us raised questions about the reverse charge mechanism, and here was the verdict: when you're delivering GOODS, the reverse charge only applies in tripartite transactions, not in standard B2B deals.🙂
They repeated that several times. It’s completely different for services... honestly, it still makes zero sense to me.
I’ve actually called a handful of my clients—just those involving goods shipments within Chicago—to check their paperwork, and they are all over the place! If I try to do it right, they say it's fine; if I don't, they say it's fine too. They seem more worried about the cents on the invoice than the actual rules. Has anyone else received an invoice for goods or services from another district since July 1st? What does yours actually look like? 🤷

So, I hit up this FBI seminar last Friday, and they were preaching that reverse charge applies to pretty much every B2B deal where you're shifting the tax burden over to the buyer—doesn't even matter if the client is just down in another state or halfway across the globe.
But honestly? The more I dig into the fine print, the less sense it makes. It’s driving me absolutely nuts.

ruggedmaker2 said:Look, under the old IRS regulations, Article 133 was pretty clear:
2) In addition to the requirements in paragraph 1 of this article, when taxing based on collected fees (Article 17, paragraph 3 of the Code), the condition must also be met that the invoice used to claim the input tax credit has actually been paid.

But in the updated tax code, they just scrubbed that whole rule. Now, among other things, it just says:
"(1) The taxpayer is entitled to an input tax credit in the accounting period during which the good was received or the service was performed, provided an invoice containing all data required by Article 79 of the Code has been received."

Does anyone actually know what happens with the input tax on those R2 incoming invoices—you know, the ones that were unpaid or only partially paid before July 1st? I mean, do the old regulations apply retroactively here? Because if we follow the new rules, shouldn't everyone be able to immediately claim all that previously uncalculated input tax? Wouldn't that be a massive headache for Linić?

Any R2 invoices that hit the desk before July 1st still follow the old rules—basically, you don't get to claim that input tax until both the invoice is issued and the bill actually gets paid.
But if you're looking at any R2s issued after July 1st, corporate taxpayers can finally jump the gun and claim that input tax immediately.

I still find myself circling back to what Nicole Lee6 mentioned earlier, and frankly, I can't shake the feeling that we're missing the forest for the trees here. It’s one thing to discuss the theoretical implications of policy, but quite another when you consider how these shifts actually land on the ground. We tend to get caught up in the minutiae—the technicalities of the Sales Tax Law or the granular details of federal oversight—and forget that at the end of the day, this affects real people in cities like Chicago or Houston. It feels like we’re constantly reacting to the latest headline without ever stepping back to look at the structural integrity of the whole system. Is anyone else feeling this sense of repetitive motion? It’s exhausting to watch the same arguments cycle through these forums every single week, only to have them dismissed by those who refuse to engage with the actual substance of the issue. We need more than just surface-level critiques; we need a coherent framework if we're going to make any real progress. kaže:
At this seminar we attended, they laid out how things work for businesses when dealing with imported services (B2B). Apparently, you have to report the sales tax liability and claim the input tax credit at the exact same time—everything goes on the same tax return within that same filing period.

So, I’m diving back into the RRIF 7 documents again—because apparently, that’s how I spend my free time now—and I stumbled upon this specific section. It essentially says that this is going to hit both sides of the ledger: we're looking at new burdens for the "income earners," but it’s also going to squeeze the "profit makers," including corporations and small business owners alike. It's just one more layer of complexity being piled onto everyone. Listen, I need to get this off my chest because I see people constantly tripping over the same misunderstanding when it comes to their obligations to the government. There is a fundamental distinction that seems to escape most folks: the moment a tax liability is actually triggered has absolutely nothing to do with whether or not you’ve actually cut a check or settled an invoice. I was reading some comments earlier—and I’m looking at you, gentlepilot45—and it’s clear there's a lot of confusion regarding how the Sales Tax Law operates. People seem to think that if they haven't handed over the cash yet, the debt doesn't technically "exist" in the eyes of the state. That is complete nonsense. The obligation is born the moment the transaction occurs. Once that sale is finalized or that service is rendered, the tax becomes a legal reality. Whether you’re operating on a credit line, waiting for a client to pay an invoice, or just being slow with your bookkeeping, the IRS and the local tax authorities don't care about your cash flow issues. The liability is established by the event itself, not by the movement of money between bank accounts. It’s a matter of legal fact versus accounting convenience. You can't hide behind a pending payment to pretend you don't owe the government. It’s frustrating to see people play these mental gymnastics to avoid acknowledging what they owe, but the law is quite clear on this: the debt is incurred when the deal is struck. Period.However, if you actually bother to look at Article 139, Section 2 of the Sales Tax Law, it’s clear that "income earners" are entitled to... The right to claim a sales tax credit only kicks in at the exact moment the invoice is actually paid to the supplier. It’s a fundamental distinction that seems to trip people up more often than it should. You can't just claim it because you have a piece of paper sitting on your desk; the money has to actually change hands first. Regarding the completed deliveries...🙂

So, what’s the actual fallout here? Now the IRS is going to be looking at cash flow through this ridiculous lens—basically treating it like some "I'll pay you now and settle up later" arrangement. It’s messy. And then there's the issue with sales tax; it won't just be a simple accounting category for corporations and high-earners anymore. We’re looking at a situation where you're forced to report both the liability and the input credits on the exact same sales tax form, especially in those edge cases where the standard cash basis rules don't apply under USA regulations. It's a bureaucratic nightmare waiting to happen.

Does anyone actually have any more information on this? What exactly is going on here?