Doing business with USA member states

Thanks so much. That makes a lot more sense now. My main question is how to actually record these invoices in our company books—how should I reflect the expense? Should I be booking them without sales tax? We already know the drill with IKEA since we told the business owners they needed to exchange VAT IDs (I'm over in accounting myself).

You just book the whole thing as an expense—VAT included—and then, once you get that tax refund back, you log it as income.

Question: I’m looking into importing some goods from Italy (shoe bags). If I pay an invoice that includes Italian VAT, can I claim that back here in the States? Alternatively, if the invoice excludes the Italian VAT, can I pay it that way and then deduct it here? Thanks!

ruggedmaker2 said:Look, you can't just toss Austrian or Canadian or Canadian tax info into our US sales tax forms. That’s not how it works.
The hotel stay happened in Austria, so that’s where the tax hit stays. Period.
And yeah, you could have dodged that Austrian tax at IKEA, but only if you showed up as an American tax registrant and proved the goods were heading straight back to the States.
But hey, if you're really dead set on getting those taxes back, you could probably try clawing it all back through one of those VAT refund services.
There's a whole other thread dedicated to the mess that is sales tax if you want to dive deeper.

Well, here’s the thing: that lovely IKEA USA doesn't recognize our tax ID. Specifically, when it comes to shipping goods via our own transport, they won't even entertain a conversation about issuing a tax-exempt invoice. Even though we're all part of the same trade bloc, they remain incredibly suspicious—they won't budge on anything without a CMR. And it isn't just IKEA; most logistics partners from Austria or even Germany treat us exactly the same way. If we handle the transport ourselves, they just slap their local sales tax on it and call it a day. I actually heard this directly from a tax consultant at the Treasury when I called to ask about sourcing goods in Italy. She was baffled that Italians accept a signed declaration for self-transported goods, because apparently, she's heard that Austrians (she specifically mentioned IKEA) and Germans refuse to honor those declarations and just charge the tax regardless. We really need to be careful when buying from those countries.🤷

But, perhaps I've misinterpreted things. It sounded like I read somewhere that if you request a tax refund—meaning the tax was charged to us even though there were perfectly valid grounds for the purchase to be tax-free in the country of origin (under the assumption the tax liability transfers to the buyer)—then the government won't actually refund that tax. 🤔 Is that actually true?

Look, we’ve hauled plenty of goods back from Germany and Austria ourselves over the years, and honestly? It was always smooth sailing with the tax side of things. Zero issues.
Mind you, we're in industrial manufacturing, so we aren't out grabbing trinkets. We buy raw materials from long-term suppliers who—for the most part—don't even deal with retail customers. They have all our paperwork on file, everything from our business filings to our tax IDs. Like I said, we've never had a single headache; everything moves through without the sales tax.

When we have shipments going within the USA, our own drivers handle the transport. Usually, we set up deals so that those same drivers pick up new supplies on their way back. And it works perfectly every single time.
🤷

As for using those VAT refund services to claw back money, I wouldn't know. We don't bother chasing pennies when the amounts are small.
But from what they've told us at the seminars, every state handles its own rules for those kinds of refunds. The requirements aren't the same everywhere.

mistyseal51 said:Greetings to everyone.

I run a small business under a simplified tax structure (not registered for sales tax). I started this year, focusing primarily on software programming. So far, I’ve sent out several invoices that have already been settled. My clients are based in India, the United Kingdom, and Estonia. However, following advice from my local Chamber of Commerce, I didn't register for a sales tax ID, nor have I listed one on my invoices. No one has requested that number from me yet.

Reading through some of the posts here, it seems like I might be doing things incorrectly. Is that actually the case? I was under the impression that registering for a tax ID and filing those specific reports only applied when purchasing from companies within the USA. What should I do if I've been handling this the wrong way?

Naturally, I plan to contact the IRS, but I would love to hear some opinions alongside theirs.

I’m facing the exact same dilemma. From what I can gather, even those on the simplified tax plan should be requesting a VAT ID and filing the necessary paperwork with the IRS for the month the service was provided to a company within the USA:
http://www.irs.gov/VAT-regulations/...registration.aspx#5
Did you bother asking the IRS directly? What was their take?

My issue is that my client in Ireland isn't interested in seeing my VAT number at all. 🙂 They informed me that since we're using the reverse charge mechanism, they will handle the VAT payments to the Irish authorities themselves. Apparently, they don't require my VAT ID and don't even want me to send them formal invoices. They just pay the agreed amount every time, but they refuse to look at an invoice. They mentioned I could send one if American law strictly requires it, but they'll likely just ignore it anyway.

I assume they still have to submit some sort of tax form to the Irish IRS that lists the VAT numbers of all the companies providing them services. I'm wondering if I'm somehow exposed to risk here—could I get in trouble if my client fails to list my VAT number in their tax reports and doesn't pay the VAT?

Lisa Newman34 said:I’m facing the exact same dilemma. From what I can gather, even those on the simplified tax plan should be requesting a VAT ID and filing the necessary paperwork with the IRS for the month the service was provided to a company within the USA:
http://www.irs.gov/VAT-regulations/...registration.aspx#5
Did you bother asking the IRS directly? What was their take?

My issue is that my client in Ireland isn't interested in seeing my VAT number at all. 🙂 They informed me that since we're using the reverse charge mechanism, they will handle the VAT payments to the Irish authorities themselves. Apparently, they don't require my VAT ID and don't even want me to send them formal invoices. They just pay the agreed amount every time, but they refuse to look at an invoice. They mentioned I could send one if American law strictly requires it, but they'll likely just ignore it anyway.

I assume they still have to submit some sort of tax form to the Irish IRS that lists the VAT numbers of all the companies providing them services. I'm wondering if I'm somehow exposed to risk here—could I get in trouble if my client fails to list my VAT number in their tax reports and doesn't pay the VAT?

AICPA consultant: No
Tax Associate: No
Accountant #1: I have no idea
Accountant #2: Maybe
RRIF: Yes
I managed to get a phone number from the IRS, but nobody ever picked up. Instead of calling again, I just sent an inquiry through their online contact form. Now, I'm just waiting on a response.

If you take a closer look at that FAQ you linked, that last sentence feels off. What does it have to do with Sales Tax not being charged if there's a transfer of tax liability?

You might want to check out sections 17, 77, and 90 of the Sales Tax code. Based on those, I can't say for certain which way it goes either.

I'm still waiting on that email from the IRS. If they tell me it's required, I'll grab the ID and use it. But honestly, it’s not practical because I'd end up needing to hire a professional bookkeeping service.

mistyseal51 said:AICPA consultant: No
Tax Associate: No
Accountant #1: I have no idea
Accountant #2: Maybe
RRIF: Yes
I managed to get a phone number from the IRS, but nobody ever picked up. Instead of calling again, I just sent an inquiry through their online contact form. Now, I'm just waiting on a response.

If you take a closer look at that FAQ you linked, that last sentence feels off. What does it have to do with Sales Tax not being charged if there's a transfer of tax liability?

You might want to check out sections 17, 77, and 90 of the Sales Tax code. Based on those, I can't say for certain which way it goes either.

I'm still waiting on that email from the IRS. If they tell me it's required, I'll grab the ID and use it. But honestly, it’s not practical because I'd end up needing to hire a professional bookkeeping service.

As an accountant, my take is that you really should be requesting a Sales Tax ID since you're dealing with transactions involving European Union countries. However, since you're exempt from calculating and paying Sales Tax under Section 90, you won't actually need an accountant until you hit the threshold$49833 where you transition into small business status, at which point you'll definitely need one and will no longer qualify for simple cash-basis reporting.

Nicole Wells38 said:As an accountant, my take is that you really should be requesting a Sales Tax ID since you're dealing with transactions involving European Union countries. However, since you're exempt from calculating and paying Sales Tax under Section 90, you won't actually need an accountant until you hit the threshold$49833 where you transition into small business status, at which point you'll definitely need one and will no longer qualify for simple cash-basis reporting.

From what I gather, registering for Sales Tax requires being set up on the IRS portal. Getting access means paying for a digital certificate. I’ve heard they’ve been having some technical glitches with their servers lately, so I’m not entirely sure how much of a headache that process is going to be right now.

Or am I totally off base here and there's just a simple way to handle this?

mistyseal51 said:From what I gather, registering for Sales Tax requires being set up on the IRS portal. Getting access means paying for a digital certificate. I’ve heard they’ve been having some technical glitches with their servers lately, so I’m not entirely sure how much of a headache that process is going to be right now.

Or am I totally off base here and there's just a simple way to handle this?

Exactly. Once a business is registered for Sales Tax, they are legally required to submit all their filings through the IRS online system. This means you have to purchase an official digital ID and certificate, which isn't exactly cheap. On top of that, it usually necessitates hiring an Accountant to handle the specialized ledger work. Since you're operating as a sole proprietor under the standard tax regime, you aren't even in the Sales Tax system, so I don't see why you'd bother. Your only real option might be submitting an aggregate report in paper form to your local IRS office—assuming they even allow that. An aggregate report is specifically used to document goods and services provided to other countries within the European Union. You'll need the specific country code, their VAT ID number, and the total value of the services rendered, all of which you'd plug into the form for the relevant tax period.

mistyseal51 said:AICPA consultant: No
Tax Associate: No
Accountant #1: I have no idea
Accountant #2: Maybe
RRIF: Yes
I managed to get a phone number from the IRS, but nobody ever picked up. Instead of calling again, I just sent an inquiry through their online contact form. Now, I'm just waiting on a response.

If you take a closer look at that FAQ you linked, that last sentence feels off. What does it have to do with Sales Tax not being charged if there's a transfer of tax liability?

You might want to check out sections 17, 77, and 90 of the Sales Tax code. Based on those, I can't say for certain which way it goes either.

I'm still waiting on that email from the IRS. If they tell me it's required, I'll grab the ID and use it. But honestly, it’s not practical because I'd end up needing to hire a professional bookkeeping service.

It's the same story everywhere—every answer you get is different. Once you actually hear back via email, please share it with the rest of us.

I did manage to have a brief chat with a Sales Tax advisor at my local IRS office, and she suggested that I might need a Sales Tax ID if I'm providing services to companies within the European Union as a sole proprietor (though, judging by her tone, she wasn't entirely certain herself).

mistyseal51 said:AICPA consultant: No
Tax Associate: No
Accountant #1: I have no idea
Accountant #2: Maybe
RRIF: Yes
I managed to get a phone number from the IRS, but nobody ever picked up. Instead of calling again, I just sent an inquiry through their online contact form. Now, I'm just waiting on a response.

If you take a closer look at that FAQ you linked, that last sentence feels off. What does it have to do with Sales Tax not being charged if there's a transfer of tax liability?

You might want to check out sections 17, 77, and 90 of the Sales Tax code. Based on those, I can't say for certain which way it goes either.

I'm still waiting on that email from the IRS. If they tell me it's required, I'll grab the ID and use it. But honestly, it’s not practical because I'd end up needing to hire a professional bookkeeping service.

I suspect those first two sentences apply if you're servicing businesses in the European Union, while the remaining three probably pertain to providing services to individuals over there.

It's a classic American bureaucratic mess—nobody seems to have a clue, the laws are written with zero clarity, and even the official FAQ fails to state exactly what's required. Yet, I'm sure when an auditor eventually shows up at my door, they'll be the one person who claims to know everything.

Nicole Wells38 said:Exactly. Once a business is registered for Sales Tax, they are legally required to submit all their filings through the IRS online system. This means you have to purchase an official digital ID and certificate, which isn't exactly cheap. On top of that, it usually necessitates hiring an Accountant to handle the specialized ledger work. Since you're operating as a sole proprietor under the standard tax regime, you aren't even in the Sales Tax system, so I don't see why you'd bother. Your only real option might be submitting an aggregate report in paper form to your local IRS office—assuming they even allow that. An aggregate report is specifically used to document goods and services provided to other countries within the European Union. You'll need the specific country code, their VAT ID number, and the total value of the services rendered, all of which you'd plug into the form for the relevant tax period.

I heard that Sales Tax forms and aggregate returns can only be submitted to the IRS electronically through their online portal. Are sole proprietors actually allowed to hand these forms in on paper at the local office?

I'm still struggling to figure out what happens if a client—a company based in the European Union—claims they'll handle the Sales Tax via the reverse charge mechanism, but then insists they don't need my Sales Tax ID. Is it even possible for them to calculate the tax without my ID? And am I left vulnerable to some kind of penalty if they fail to account for it properly? Has anyone actually dealt with this before?

Lisa Newman34, if you want to handle Sales Tax properly, you should probably register with the IRS specifically for those services you're providing to clients outside of DC.
Basically, you become what they call an atypical taxpayer—meaning you're only on the hook for Sales Tax regarding those international services, while everything else you do here in the States stays under your standard flat-tax setup.
Just a heads-up though: keep an eye on the local sales tax thresholds in whatever state or country you're dealing with. If you cross their limit, you’ll have to go through the headache of registering there too.

From what I gather, a client can't really use the reverse charge mechanism if you haven't registered locally.
Honestly, this is the kind of nuance a specialized Sales Tax consultant should be able to walk you through. When you call the IRS, don't waste your breath talking to the front-desk clerks; ask to be put through to a specialist who actually handles these specific cases. That's how you get the real answers.

Edit: I think we touched on this back in that other thread about European Union Sales Tax—some links were posted there, so maybe dig through that a bit.

Thanks ruggedmaker2, I’m heading out to get my Sales Tax ID this Monday.

The whole situation still feels incredibly off, though. My client keeps insisting they don't actually need my Sales Tax ID or even formal invoices; apparently, they’ll just handle everything via the reverse charge mechanism without any documentation from my side. They told me I can send them invoices if I really want to, but there's absolutely no guarantee they’ll even process them...

How does that even work?

Typically, for a reverse charge setup, both parties should be exchanging Sales Tax IDs, so I can't help but feel like I might be getting played here. If they would just give me a straight answer and tell me to send over my ID, I’d feel much better, but this level of ambiguity is genuinely unsettling... Is there a risk that I’ll end up on the hook if I record everything in my Sales Tax filings and the aggregate reports, but they fail to fulfill their end of the deal regarding the reverse charge?

We're talking about a massive, reputable corporation, so I assume they know the rules, and I've already done my due diligence to make sure this isn't some fly-by-night scam.

They provided me with their Sales Tax ID, it's verified in the VAT Information Exchange System, and everything looks legitimate on paper. Since it's such a giant company, I can't get a hold of anyone with real decision-making power; I'm stuck dealing exclusively with their vendor relations department.

I was looking for that discussion regarding Sales Tax within the European Union, but I can't seem to find it anywhere...

I guess this could actually fit under this thread, maybe back when we were all young, naive, and just starting out in the European Union 😁

Look, you really need to dig into the specific sales tax laws of the country you’re working for. Sure, the broad strokes of how VAT works are pretty much standardized across the European Union, but every single nation handles its own little legal nuances and fine print however they see fit.

Take construction services, for example. If an entrepreneur providing those services moves into another European Union country, it isn't a one-size-fits-all situation. Some countries will let you pass the tax liability along, while others will demand you register locally just to handle those specific jobs.

That might be exactly what's happening with you. That country might have their own weird way of regulating your specific type of work. Either look it up yourself or just corner someone at that firm and ask them to walk you through it.

The bottom line for you is making sure everything lines up perfectly with our own IRS. They'll tell you exactly what's required, because the data from your aggregate filings has to match up—on a European Commission level—with whatever data that company is submitting in their acquisition reports.
See, the info we send to the tax authorities via our consolidated and acquisition filings gets passed right up to the European Union. Somewhere in that massive, tangled web of European bureaucracy, those numbers have to match perfectly.

If I can offer one more bit of advice 😁. Just draft up a formal inquiry or a letter to the central office of the Department of the Treasury in Washington, D.C., , and ask for an official ruling.
It might take a minute—sometimes it feels like forever—but they will get back to you.
The more precise you are with your question, the better the answer will be, and you'll finally have something in writing telling you exactly what to do.
An official opinion like that is binding, and if you ever get audited, the auditors have to respect it.

I've requested official rulings a few times myself, and I always got them (though, yeah, usually after a month or two of waiting).
Maybe I was just waiting too long because I wasn't being clear enough about who I was addressing; I used to send stuff to "VAT advisors" or "collections specialists" and things like that 😁 but I always got an answer eventually. And whenever someone tries to tell me I'm wrong, I just shove those official responses right in their face. 🤣

http://www.irs.gov/pub/irs-outlines...aspx?id=18896

This covers the reverse direction and another "branch," though the logic remains identical. The main thing is that they explicitly include freelancers as people required to register.

Has anyone had a chance to look over the new sales tax regulations? Are there any significant changes worth noting?

amberdrifter14 said:Has anyone had a chance to look over the new sales tax regulations? Are there any significant changes worth noting?

Nah, just two sections regarding buying an N1 vehicle under the 8703 tariff code...

Jeremy Anderson63 said:Nah, just two sections regarding buying an N1 vehicle under the 8703 tariff code...

Great, thanks a lot. I don't have the bandwidth to read through all of this right now.🙂

Does anyone happen to know what they’re planning to tweak in the Sales Tax Law and its regulations this time?
I just received an email today inviting me to a seminar on April 20th, which gives us exactly one month before
they potentially overhaul the rates again. It feels like a rerun of that bookkeeping mess back in 2014. Are we supposed to assume we’ve been
filing everything incorrectly for two months straight? So far, the new regulations have only touched the articles regarding NPS. The seminar agenda
is only two pages long... Which begs the question: what exactly have we been doing all this time?

Regarding those posts from earlier...

I run a small business under the simplified tax regime. I just registered for a VAT ID, and I’ll be issuing my first new invoice shortly. I have a few questions.

1. My invoices currently use the "reverse charge" method. Should I continue to include the note regarding exemption under the Value Added Tax Act?

2. Is it necessary to show a 0% VAT rate on the invoice, and am I even permitted to do that since I'm not technically part of the VAT system?

3. Aside from filing Form W-2, will I need to submit any additional tax filings?

Thanks.