Doing business with USA member states

So wait, he’s doing all the actual work, and then you just send him an invoice at the end?
I'm lost 😕
The way I see it, there isn't even any sales tax involved here—just income tax, since we're talking about an independent contractor agreement. Someone please set me straight if I've got that wrong.

I’d suggest accepting the response with reservations. It seems like we're just looking at a secondary supplement here, which shouldn't trigger any Value Added Tax obligations.
Otherwise, things are starting to get a bit ridiculous.
Anyway, let me know once you figure out the actual protocol.

David Green642 said:Need some help here:

How should I handle—or rather, book—an invoice for $117 that mentions a tax liability transfer per Section 75, Subsection 3a and Section 79, Subsection 7 of the Value Added Tax law?

Do I just put this on a standard VAT return? If so, where does it actually go?

Just to be clear, this is an input invoice, not an output one, so there's input tax to claim.

THANKS!!

The manual for domestic PAC tax liability transfers... what a joke.

VAT forms... honestly... what a nightmare...
II. 4. VAT on imports into the US...
The recipient handles the math... The whole damn Value Added Tax law... just more paperwork for everyone else to deal with...

III. 2.
Prepayments on incoming shipments...
In Rhode Island, what kind of Value Added Tax is the recipient actually responsible for calculating...?
pre-tax...

Jeremy Anderson63 said:The manual for domestic PAC tax liability transfers... what a joke.

VAT forms... honestly... what a nightmare...
II. 4. VAT on imports into the US...
The recipient handles the math... The whole damn Value Added Tax law... just more paperwork for everyone else to deal with...

III. 2.
Prepayments on incoming shipments...
In Rhode Island, what kind of Value Added Tax is the recipient actually responsible for calculating...?
pre-tax...

THANKS!! 🙂

Richard Howard55 said:I’d suggest accepting the response with reservations. It seems like we're just looking at a secondary supplement here, which shouldn't trigger any Value Added Tax obligations.
Otherwise, things are starting to get a bit ridiculous.
Anyway, let me know once you figure out the actual protocol.

Richard Howard55 said:I’d suggest accepting the response with reservations. It seems like we're just looking at a secondary supplement here, which shouldn't trigger any Value Added Tax obligations.
Otherwise, things are starting to get a bit ridiculous.
Anyway, let me know once you figure out the actual protocol.

ruggedmaker2 said:He's doing the work for you, so are you invoicing him?
I don't get it.
I don't see any Sales Tax involved at all, just income tax since it's a contractor deal. Correct me if I'm wrong.

Alright, let me give you the answer. It’s exactly what I suspected, though it sounds just as absurd to me as it did to you, so I wasn't even sure myself (the folks at Wells Fargo and the CPA Handbook gave me the answer).

Section 6, Subsection 1...

Under the Sales Tax law, a taxable person is defined as anyone who independently carries out any business activity regardless of why they're doing it or what the result is.

Section 6, Subsection 2...

"Business activity," per subsection 1, includes anything done by manufacturers, retailers, or individuals providing services, including mining, agriculture, or licensed professionals. Using tangible or intangible assets to generate steady income counts as a business activity too.

And because the definition of "providing services" has been broadened, the law interprets it such that if a physical person provides a service—like construction, translation, or brokering—via a contractor agreement or freelance fee (which is just miscellaneous income for a non-resident of the US or a third country), it is considered that you received that service from another taxable entity for the purpose of carrying out your own business operations.

If we're talking about services that fall under the standard B2B principle—you know, like what’s laid out in Section 17.1.—then... Look, under the Value Added Tax law, specifically Section 75, subsection 1, point 6... you guys are legally required to calculate the tax. It’s not optional...And you have to admit, if they meet all the other requirements, they should get that pre-tax credit immediately...

If we're talking about exemptions—like services tied to real estate or cultural stuff (Articles 19 through 26)—then you're strictly required to follow the Value Added Tax law... Section 75, subsection 2... typical. You gotta calculate the Value Added Tax right away, including the input tax... because the assumption is you've already received the service from another taxpayer.

Alright, here are three more examples of what tax advisors have been telling their clients...

Question...:
So, I’m working as a freelance consultant here in the States, just doing my thing under a standard independent contractor agreement. What's the deal with the Value Added Tax law when I'm providing services to clients overseas?

Response...:
Look, if you're an American business owner paying out a second income benefit for some consulting services, you've got to handle the Value Added Tax. You’re required to calculate and pay that tax based on the gross amount being sent to a non-resident. It’s just how it works... If you're running a taxable business and you have the right to claim input tax credits, then you go ahead and list that credit on your VAT return for the period when the consulting service was reported. Simple enough, I guess....

Question...:
So, here’s the deal. We've got a business entity here in the States, and we're looking to hire an individual—someone from outside the country, specifically Mexico—to handle some decorative interior design work. It’s going to be under a standard independent contractor agreement. Our big question is: when it comes to the Value Added Tax law, do we calculate the tax based on where our business is located...

Response...:
So, regarding the Value Added Tax law... basically, if a domestic business is paying out a non-resident for services that are taxable here in the States, they're the ones on the hook for calculating and paying it. I’m assuming you’ve got some non-resident contractor coming in to handle decorative interior design or something tied directly to real estate. Well, per Article 19 of the Value Added Tax law and Article 33 of the regulations, the place of supply—meaning where the tax actually applies—is wherever that property is physically located...

Question:
Got a question about some copyright work being done by a non-resident—someone outside the European Union, specifically over in Mexico—for a packaging design project. The work is actually being carried out in Mexico for a taxpayer based here in America. Do we need to calculate this as other income for a non-resident? And regarding the Value Added Tax law, do we pay that based on where the service recipient is located? Also, does it even matter where the service is physically performed... like, does the distinction between Mexico and America change anything...?

I don't even know where to start with this... just total nonsense. Honestly, it’s like nobody actually looks at the facts anymore before they start shouting. You look at the data and it tells one story, then you listen to these people and it’s something completely different. It's exhausting...
So, I was looking at Section 75, Subsection 1, Point 6 of the Value Added Tax law... and honestly, it’s just more bureaucratic nonsense. Basically, if you're a registered business entity—even if you aren't technically classified as a "taxable person" under the code—you're on the hook for paying VAT if some foreign entity provides services to you. Yeah, you heard me right. If they don't have a headquarters or a residence here in the States, the bill lands squarely on your desk. Then there's Subsection 2, which makes things even more ridiculous. If a non-resident business is delivering goods or services within the US, the responsibility to pay that tax falls on the local registered entity receiving them. It doesn't matter where the provider lives; the American side pays. And for anyone confused about who counts as a "taxable person"... according to the law, it's basically anyone running an independent business, regardless of why they're doing it or how much money they actually make. Just more red tape to choke everyone...

Based on how the rules work, if an American business or individual picks up a service from someone living in Mexico, they’re on the hook to calculate the American Value Added Tax on that service... doesn't even matter where the actual work happens...

On the other hand... The IRS says there’s no sales tax to worry about here because a private individual isn't actually transferring any taxable assets to us...

Oh, sure. You go ahead and be the genius then... 🤷🤷

Honestly, after all this mess, I’d definitely go hunting for some written guidance from the Department of the Treasury.
Though, knowing how slow those bureaucrats move, you’ll probably be sitting around waiting a good couple of months for a response.

Thanks for the feedback, Jeremy Anderson63!
The amendment to the Value Added Tax law passed, though I haven't seen it hit the Federal Register yet—at least not as of today, based on what I've been checking.
Maybe this sheds some light on those examples you mentioned, especially since they're also changing Article 75, Section 2 of the law.

First off, apologies if this has already been asked!

Here’s the situation—I could really use some help if anyone here has dealt with this before;

1. We bought some inventory for our regular operations. The goods were sourced from Canada. The supplier sent over an invoice, but it's all in Canadian and the currency is EUR.
It looks like Sales Tax wasn't even charged, but there's this one sentence we can't make heads or tails of because, well, nobody here speaks Canadian. 😢

2. Are we actually allowed to record an invoice like this? And if so, how? Did the supplier even need to charge Sales Tax, or did they skip it because they aren't registered, or is this some kind of tax transfer thing?

THANKS IN ADVANCE! 😲

David Green642 said:First off, apologies if this has already been asked!

Here’s the situation—I could really use some help if anyone here has dealt with this before;

1. We bought some inventory for our regular operations. The goods were sourced from Canada. The supplier sent over an invoice, but it's all in Canadian and the currency is EUR.
It looks like Sales Tax wasn't even charged, but there's this one sentence we can't make heads or tails of because, well, nobody here speaks Canadian. 😢

2. Are we actually allowed to record an invoice like this? And if so, how? Did the supplier even need to charge Sales Tax, or did they skip it because they aren't registered, or is this some kind of tax transfer thing?

THANKS IN ADVANCE! 😲

Just try using Google Translate or track down a translator. 😉

2. Are we allowed to record an invoice like this, and if so, how? Did the supplier have to charge Sales Tax, or did they skip it because they aren't registered in their system, or is this some kind of tax liability transfer?

Not only are you allowed to, you're required to.
As for whether they had to charge Sales Tax or not, I haven't the slightest clue since you haven't provided enough details to actually figure that out. 🤷
To start with, you can verify them through the IRS database.

Please don't bold the text in your posts. Everyone's questions matter, and trying to emphasize every single one makes the whole thread a pain to read.

I would appreciate it if someone could point me toward the specific article stating that a "small" taxpayer isn't required to account for Sales Tax when purchasing goods from the European Union. I simply cannot seem to locate it 🤷

Henry Edwards33 said:Just try using Google Translate or track down a translator. 😉

2. Are we allowed to record an invoice like this, and if so, how? Did the supplier have to charge Sales Tax, or did they skip it because they aren't registered in their system, or is this some kind of tax liability transfer?

Not only are you allowed to, you're required to.
As for whether they had to charge Sales Tax or not, I haven't the slightest clue since you haven't provided enough details to actually figure that out. 🤷
To start with, you can verify them through the IRS database.

Please don't bold the text in your posts. Everyone's questions matter, and trying to emphasize every single one makes the whole thread a pain to read.

Hardly "too little"—I laid out everything relevant to the question. How am I supposed to know anything else?🤷

...as far as checking the IRS database goes, that only works for the Sales Tax ID, but that's not even the issue here...

I have to bold. It's just how I do it.🙂 🙂

David Green642 said:Hardly "too little"—I laid out everything relevant to the question. How am I supposed to know anything else?🤷

...as far as checking the IRS database goes, that only works for the Sales Tax ID, but that's not even the issue here...

I have to bold. It's just how I do it.🙂 🙂

Look, if a Canadian company shows up in the system, it means they're part of the tax network and you're looking at an import from the European Union... The Canadians don't charge the Sales Tax; you handle that on your end. But, since you're doing that, you immediately claim the input credit—so there’s no actual cash moving out, it’s just an accounting entry on your tax return. Plus, you’ll need to file that specific import disclosure form, 😉

Jessica Anderson59 said:I would appreciate it if someone could point me toward the specific article stating that a "small" taxpayer isn't required to account for Sales Tax when purchasing goods from the European Union. I simply cannot seem to locate it 🤷

It’s not laid out in one simple sentence... you basically have to connect three different sections of the tax code to make sense of it.

Look at Section 4. paragraph 1, item 2a + section 5. paragraph 1, subsection b + section 5. paragraph 2, subsection a

Jeremy Anderson63 said:It’s not laid out in one simple sentence... you basically have to connect three different sections of the tax code to make sense of it.

Look at Section 4. paragraph 1, item 2a + section 5. paragraph 1, subsection b + section 5. paragraph 2, subsection a

Uhhhh...😵😵...thanks.

I have one more question. We are considering sending a few complimentary product samples to our partners within the European Union. How should this be handled and recorded regarding new VAT requirements?

Jessica Anderson59 said:Uhhhh...😵😵...thanks.

I have one more question. We are considering sending a few complimentary product samples to our partners within the European Union. How should this be handled and recorded regarding new VAT requirements?

Alright, check out this specific legal provision...

...Look, let me break this down because people always get tripped up on the tax side of things... providing free samples to customers or potential clients isn't considered a taxable supply of goods, provided you aren't just handing them out like candy every single day. It’s fine if it's done in reasonable amounts and doesn't happen constantly to the same people. Same goes for those little promotional gifts you give out during normal business operations. As long as they're small-value items and given sporadically, you're in the clear. When we talk about "small-value gifts," we're looking at... Whose value isn't higher than... $53.

So, if the value of an individual item is less than... $53 It doesn't even count as a delivery, so you don't have to worry about charging any VAT. You can just note on the invoice that it's VAT-exempt under Section 7, Subsection 4 of the tax code...

Jeremy Anderson63 said:Alright, check out this specific legal provision...

...Look, let me break this down because people always get tripped up on the tax side of things... providing free samples to customers or potential clients isn't considered a taxable supply of goods, provided you aren't just handing them out like candy every single day. It’s fine if it's done in reasonable amounts and doesn't happen constantly to the same people. Same goes for those little promotional gifts you give out during normal business operations. As long as they're small-value items and given sporadically, you're in the clear. When we talk about "small-value gifts," we're looking at... Whose value isn't higher than... $53.

So, if the value of an individual item is less than... $53 It doesn't even count as a delivery, so you don't have to worry about charging any VAT. You can just note on the invoice that it's VAT-exempt under Section 7, Subsection 4 of the tax code...

That makes sense, but how exactly do you handle that in terms of inventory tracking and paperwork?

I think I might need a little bit of help here... We just finished an asset acquisition from a supplier over in Italy, and I'm getting a bit turned around with the paperwork... The invoice date is November 28th, but we didn't actually take possession of the goods or have them delivered until December... So, looking at the books, which tax period should I be reporting the VAT in?

Melissa Hill said:I think I might need a little bit of help here... We just finished an asset acquisition from a supplier over in Italy, and I'm getting a bit turned around with the paperwork... The invoice date is November 28th, but we didn't actually take possession of the goods or have them delivered until December... So, looking at the books, which tax period should I be reporting the VAT in?

For the November filing—which is due by December 20th—per Section 31, Subsection 2 of the Tax Code... the obligation to account for VAT on intra-European Union acquisitions kicks in right when the invoice is issued or once the deadline under Section 78, Subsection 4 of the Code expires if no invoice has been sent yet.

Carol Price4 said:Look, if a Canadian company shows up in the system, it means they're part of the tax network and you're looking at an import from the European Union... The Canadians don't charge the Sales Tax; you handle that on your end. But, since you're doing that, you immediately claim the input credit—so there’s no actual cash moving out, it’s just an accounting entry on your tax return. Plus, you’ll need to file that specific import disclosure form, 😉

That's what they're asking for 😉 THANKS! Just one more quick follow-up to be safe: since the amount is in dollars, I just convert it using the mid-market exchange rate to USD, right? 👋