Doing business with USA member states

Jessica Anderson59 said:I am requesting some assistance here; the complexities regarding sales tax and UN regulations are starting to make my head spin. 😵

We are looking into renting a trailer from an American taxpayer to transport materials. Would this transaction be exempt from sales tax, provided we include the reverse charge provision?

Leasing transport equipment - Section 23, Subsection 1.

If it's for less than 30 days, you get taxed in the state where you actually take possession of the trailer (do it here in the States)
If it's longer than 30 days, then you just follow the standard rule—reverse charge applies to the service recipient.

Jeremy Anderson63 said:That falls under the general rule... Section 17, paragraph 1.

Otherwise, if you're stuck wondering if it counts as a real estate service, just remember: the real estate has to be the core of the service. A garage or a parking spot isn't the main event here... it’s a storage service.

It would be a different story if he actually rented a specific garage or a designated spot from you. Then you'd be leasing him part of the property, which makes it a real estate service. But this? Not quite...

In the meantime (while I was sitting here waiting for a reply), I managed to get some advice from a consultant at the IRS, but they told me this falls under Section 19—meaning it should be treated similarly to, say, warehouse storage services—so I definitely need to charge sales tax. 😲 I went ahead and already issued the invoice including the tax. 🙂 🙂

Is there going to be any fallout from this now?

Nicole Lee6 said:In the meantime (while I was sitting here waiting for a reply), I managed to get some advice from a consultant at the IRS, but they told me this falls under Section 19—meaning it should be treated similarly to, say, warehouse storage services—so I definitely need to charge sales tax. 😲 I went ahead and already issued the invoice including the tax. 🙂 🙂

Is there going to be any fallout from this now?

I don't get it. You issued an invoice with tax, you haven't broken any laws. Though, I gotta say, that interpretation sounds pretty sketchy to me. There’s actually a ruling from the US Supreme Court regarding how inventory storage is handled for tax purposes. If you want, I can send it over, or just post it here if anyone else cares...

Jeremy Anderson63 said:Leasing transport equipment - Section 23, Subsection 1.

If it's for less than 30 days, you get taxed in the state where you actually take possession of the trailer (do it here in the States)
If it's longer than 30 days, then you just follow the standard rule—reverse charge applies to the service recipient.

That is just how this forum works. 👍

I examined that same section myself, but I found it quite confusing because there was no specific mention of trailers; once I realized that, everything became muddled. 🤣

Jeremy Anderson63 said:I don't get it. You issued an invoice with tax, you haven't broken any laws. Though, I gotta say, that interpretation sounds pretty sketchy to me. There’s actually a ruling from the US Supreme Court regarding how inventory storage is handled for tax purposes. If you want, I can send it over, or just post it here if anyone else cares...

Yeah, so I went ahead and issued an invoice with sales tax included when I really should have used a reverse charge mechanism instead 🙂 and now I'm sitting here wondering if I've accidentally opened a massive can of worms for myself?

Basically, my consultant tried to draw a parallel—he compared vehicle storage to, say, keeping goods in a warehouse or renting out a parking space—and then tied all of that back to Section 19, telling me point-blank that I need to be calculating sales tax. 🤷

I'll shoot an email over to the IRS.

Nicole Lee6 said:Yeah, so I went ahead and issued an invoice with sales tax included when I really should have used a reverse charge mechanism instead 🙂 and now I'm sitting here wondering if I've accidentally opened a massive can of worms for myself?

Basically, my consultant tried to draw a parallel—he compared vehicle storage to, say, keeping goods in a warehouse or renting out a parking space—and then tied all of that back to Section 19, telling me point-blank that I need to be calculating sales tax. 🤷

I'll shoot an email over to the IRS.

Look, if the client doesn't complain, the government won't notice either. Don't sweat it too much 😉

Jeremy Anderson63 said:I don't get it. You issued an invoice with tax, you haven't broken any laws. Though, I gotta say, that interpretation sounds pretty sketchy to me. There’s actually a ruling from the US Supreme Court regarding how inventory storage is handled for tax purposes. If you want, I can send it over, or just post it here if anyone else cares...

I'm interested too, so please post it here.
I doubt I'm the only one, and it would be useful to have this on the thread about doing business within the USA.

Hi everyone. I was hoping someone might be able to lend me a hand with a quick question.
We just received an invoice from our Canadian suppliers for some goods we purchased, and it includes the shipping costs on there as well. I'm wondering if I need to split the amount between the cost of the goods and the transportation service—essentially recording the acquisition of assets and the imported services from the USA separately? Or would it be more appropriate to bundle everything under the acquisition of goods, since the shipping is a direct cost that goes straight into the total purchase value of the items?

Rachel Morris42 said:Hi everyone. I was hoping someone might be able to lend me a hand with a quick question.
We just received an invoice from our Canadian suppliers for some goods we purchased, and it includes the shipping costs on there as well. I'm wondering if I need to split the amount between the cost of the goods and the transportation service—essentially recording the acquisition of assets and the imported services from the USA separately? Or would it be more appropriate to bundle everything under the acquisition of goods, since the shipping is a direct cost that goes straight into the total purchase value of the items?

You’ve gotta separate the service from the acquisition. That's how it works on the sales tax filings, too.

I can't even begin to process this. Is anyone else seeing this? It’s just one thing after another. Honestly, how are we supposed to make sense of any of it anymore? Everything feels like a joke, but nobody is laughing. Just more of the same. Total chaos.

ruggedmaker2 said:Look, if there’s no sales tax listed on the invoice, it means the tax liability has been shifted onto you. That means you’re on the hook for the tax itself, but you also get the benefit of claiming it as an input credit.
You report that sales tax in your quarterly filings under sections II. 10. and III. 10., plus in the standard sales tax return form

Here’s the guide for the sales tax return

You can find the rest of the instructions right here:
http://www.irs.gov/sales-tax-guidelines

I’m not entirely sure how this works for individual freelancers, but if you’re running an LLC, you’ve gotta book all of this in your formal financial accounting.
Invoice: 4.... / 221...
Sales tax: 1... input credit / 2... sales tax payable (honestly, I don't know which chart of accounts you're using)

You clear out the vendor account once you pay them. As for the input credit in account 1 and the tax payable in account 2, you clear those out using a journal entry at the same time you file your monthly tax return. Basically, by clearing those class 1 and 2 accounts, you’re either showing what you owe the government or showing a credit if you overpaid.
Then, when you actually pay that amount or when the IRS sends you a refund, you clear that obligation or credit using your bank statement as the basis—either when they cut you a check or when they apply it to your account.
If you just show a credit on your return but don't actually ask for a refund or a direct transfer—maybe you just want to leave it as a prepayment—then you just let it sit in the appropriate class 1 account until you actually use it.

So, when exactly is the deadline to settle that sales tax?

Look, you aren't actually losing any cash on that sales tax during an acquisition because you’ve got the tax liability and the input credit hitting your books at the exact same time. It just cancels itself out. 😉

As for the paperwork, you gotta file your sales tax returns by the 20th of the month for the previous one, but if you actually owe the IRS anything, you’ve got until the end of the month to cough up the payment.

Jeremy Anderson63 said:Look, if the client doesn't complain, the government won't notice either. Don't sweat it too much 😉

Just to throw another thing into the mix—if your customer tries to claim a Sales Tax Refund through the IRS system, but you shouldn't have even charged them tax on the original invoice in the first place, they aren't getting that money back. By law, they never should've paid it to begin with...

Jeremy Anderson63 said:Just to throw another thing into the mix—if your customer tries to claim a Sales Tax Refund through the IRS system, but you shouldn't have even charged them tax on the original invoice in the first place, they aren't getting that money back. By law, they never should've paid it to begin with...

that's his problem; he can walk away and I probably won't ever have to deal with him again 😬

All jokes aside, if I ever find myself stuck in a situation like this, is it actually legal to void the original invoice and just issue a corrected one with the transfer?

ruggedmaker2 said:Look, if there’s no sales tax listed on the invoice, it means the tax liability has been shifted onto you. That means you’re on the hook for the tax itself, but you also get the benefit of claiming it as an input credit.
You report that sales tax in your quarterly filings under sections II. 10. and III. 10., plus in the standard sales tax return form

Here’s the guide for the sales tax return

You can find the rest of the instructions right here:
http://www.irs.gov/sales-tax-guidelines

I’m not entirely sure how this works for individual freelancers, but if you’re running an LLC, you’ve gotta book all of this in your formal financial accounting.
Invoice: 4.... / 221...
Sales tax: 1... input credit / 2... sales tax payable (honestly, I don't know which chart of accounts you're using)

You clear out the vendor account once you pay them. As for the input credit in account 1 and the tax payable in account 2, you clear those out using a journal entry at the same time you file your monthly tax return. Basically, by clearing those class 1 and 2 accounts, you’re either showing what you owe the government or showing a credit if you overpaid.
Then, when you actually pay that amount or when the IRS sends you a refund, you clear that obligation or credit using your bank statement as the basis—either when they cut you a check or when they apply it to your account.
If you just show a credit on your return but don't actually ask for a refund or a direct transfer—maybe you just want to leave it as a prepayment—then you just let it sit in the appropriate class 1 account until you actually use it.

One question on this process: if I enter the bill the way you described, do I list the amount as non-taxable, or do I break it down by tax rate? I assume I should break it down by rate so the total tax liability/credit calculates correctly. But what rate am I using? Is it 8%? 10%? What does that depend on? Does it depend on whatever is on the invoice based on US state laws, or...? 😍

David Green642 said:One question on this process: if I enter the bill the way you described, do I list the amount as non-taxable, or do I break it down by tax rate? I assume I should break it down by rate so the total tax liability/credit calculates correctly. But what rate am I using? Is it 8%? 10%? What does that depend on? Does it depend on whatever is on the invoice based on US state laws, or...? 😍

Look, if we're talking about a reverse charge situation, then the tax liability is being shifted directly onto you as the buyer. 😉
Basically, you're acquiring the goods at the applicable rate—which is whatever the US tax code dictates for what you're actually buying, since I don't know your specific business niche—while simultaneously claiming the right to input tax credits. You're essentially handling an intra-USA acquisition and the corresponding input credit at that specific rate. (So, if it's a 25% rate, that info goes straight into sections II.7 and III.7 of your tax forms), and then you file your sales tax returns.

Honestly, just head over to the IRS website. They have the full tax code and regulations posted there, along with a massive pile of official opinions and FAQs. It'll tell you exactly what applies to your specific situation. They also provide incredibly detailed instructions on how to fill out the various tax forms. It tells you step-by-step exactly where every single number goes. 😉

I’m trying to figure out how to dodge the sales tax when I buy stuff through eBay from a vendor based in another state. My plan is to have the seller include an invoice showing my business tax ID, clearly splitting the net price from the tax amount. I'd pay them via PayPal using my personal account, then just reimburse myself from my business checking account later.

ruggedmaker2 said:Look, if we're talking about a reverse charge situation, then the tax liability is being shifted directly onto you as the buyer. 😉
Basically, you're acquiring the goods at the applicable rate—which is whatever the US tax code dictates for what you're actually buying, since I don't know your specific business niche—while simultaneously claiming the right to input tax credits. You're essentially handling an intra-USA acquisition and the corresponding input credit at that specific rate. (So, if it's a 25% rate, that info goes straight into sections II.7 and III.7 of your tax forms), and then you file your sales tax returns.

Honestly, just head over to the IRS website. They have the full tax code and regulations posted there, along with a massive pile of official opinions and FAQs. It'll tell you exactly what applies to your specific situation. They also provide incredibly detailed instructions on how to fill out the various tax forms. It tells you step-by-step exactly where every single number goes. 😉

Thanks! So, if I'm looking at an incoming invoice for, say, a bed purchased within the UN, I check the applicable US tax rate because it's a transfer of tax liability—so it's 25% here, and I stick to that?

I get the rest...

That whole "transfer of tax liability" phrase trips me up a bit. Sometimes it's listed on invoices and sometimes it isn't—is it actually required to be stated? I'm talking about invoices for goods acquired within the UN, obviously.

🙂

Michael Kern56 said:I’m trying to figure out how to dodge the sales tax when I buy stuff through eBay from a vendor based in another state. My plan is to have the seller include an invoice showing my business tax ID, clearly splitting the net price from the tax amount. I'd pay them via PayPal using my personal account, then just reimburse myself from my business checking account later.

Look, if the seller lists the sales tax on the invoice, you end up paying it to them. Then, you have to go through the whole headache of filing for a refund through the IRS: http://www.irs.gov/sales-tax-refund-info
Everything you need to know is right there.

Now, if the seller doesn't list their own sales tax because they're passing the tax obligation over to you—which happens—then your business handles both the tax owed and the input credit at the same time. You report it on your tax forms and your acquisition filings. We actually covered this earlier in this thread, so maybe scroll up and give it a read.
(Assuming you're registered for sales tax, anyway.)

David Green642 said:Thanks! So, if I'm looking at an incoming invoice for, say, a bed purchased within the UN, I check the applicable US tax rate because it's a transfer of tax liability—so it's 25% here, and I stick to that?

I get the rest...

That whole "transfer of tax liability" phrase trips me up a bit. Sometimes it's listed on invoices and sometimes it isn't—is it actually required to be stated? I'm talking about invoices for goods acquired within the UN, obviously.

🙂

You've got the right idea. If you buy a bed from a registered business in another state, that item is taxed here in the US based on our local rates. Since the tax burden is shifted to you, your business owes the tax but also gets the credit simultaneously.
As for how that "tax transfer" language appears on the receipt, that depends entirely on the specific state laws where the seller is located.
Foreign buyers write their invoices according to their own state's rules. They might use a full sentence citing their specific state code, or something vague like "tax-exempt delivery"... it all just depends on whatever their local laws dictate.

Thanks for the reply. I was honestly lost on how to actually request a tax refund because the last time I checked the IRS website, there wasn't even a clear link for it. I tried digging through the online portal, but it was a total dead end. Has anyone here actually successfully navigated this system to get their money back?

Hello everyone,
I’m looking for some guidance here. In our VAT return, we recorded an acquisition of goods from the USA, and we filed the tax under a partner who isn't actually in the tax database. Honestly, I have no idea how this oversight happened.
The IRS called us asking to provide the entity's ID for verification, but it turns out the ID doesn't exist.
What’s the best way to handle this mess? This was for last month's filing.