Doing business with USA member states

Douglas Nguyen30 said:Wait, what on earth is this? It was just posted on the IRS website on June 21st.
Here’s the directive regarding sales tax starting July 1st—let me copy it here:

A registered sales tax payer will report input tax on imported goods in their sales tax return (Form Sales Tax), just as they do currently.
It highlights that based on a ruling from the Department of the Treasury – IRS, sales tax payers who have a full right to input tax deductions may not actually have to physically pay the tax upon import. Instead, it could be handled as an accounting category. This means that in the same sales tax return, the taxpayer would report the sales tax liability for the import and simultaneously claim that exact amount as an input tax credit in the appropriate field.
This accounting method won't be implemented immediately on July 1st, since we need a specific regulation to be issued first. Therefore, until that regulation is finalized, sales tax on imports will continue to be paid into the federal treasury just as it was before America joined the European Union.

Honestly, I can't make heads or tails of any of this!

Look, this is all about IMPORTS—not buying stuff from within the European Union—so everything stays exactly the same for now. They're basically just hinting that the Department will probably drop some new regulations soon where they'll handle import sales tax through accounting entries rather than actual cash payments (meaning you wouldn't have to wait for a refund, you'd just offset it on the form). But until they actually pass that, we're sticking to the old way. 🙂

Carol Price4 As I was saying:
Look, let’s get one thing straight: this is about imports from outside the European Union, not acquisitions within the bloc. Everything stays exactly as it has been up until now. The only real takeaway is that the Department will likely roll out a new regulation soon. Once that happens, VAT on imports will be handled as an accounting category rather than an upfront payment that you have to claw back later through your VAT return. It’s a procedural shift, nothing more. But until they actually put that regulation on paper, we should all just keep doing things the way we’ve always done them. No need to jump the gun. 🙂

👍
When you're running a small business and dealing with B2B services, there’s always that moment of hesitation regarding the VAT filing—it can be a bit of a headache if you don't nail down the timing. Specifically, when I'm looking at how to handle the VAT return: am I supposed to calculate the output tax and simultaneously claim the input tax on the same form, or should I wait until I've actually paid the invoice or processed the deduction to show that input tax?

Ethan Mitchell4 said:Wait, so did anyone actually get that "famous" number from the IRS?
I just got a note from a supplier over in Canada asking me to provide it. For now, I’m playing dumb since I don't have it yet, though I was half-tempted to just send them our US Tax ID... I don't even know....

I haven't been to any seminars lately... so there's nothing for me there... I'm basically flying blind here.
but this is going to be fun 🙂

Anyway, I'll ask one more time: has anyone actually heard back from the IRS with their number?

I want to run through a specific scenario involving acquisitions within the European Union just to make sure I’ve actually got this down:

- An American business, let's call it Company A, buys $10,000 worth of goods from Company B in Germany (which is also a VAT-registered entity).
- The shipment arrives with an invoice and a delivery note; on the invoice, the German company charges the full $10,000 without any sales tax (they mark it as "reverse charge" to indicate they aren't collecting tax because we'll handle the tax liability here in the States).
- To be valid, the invoice needs to list both the American and German VAT IDs, and we have to verify those IDs in the VIES database to ensure they're legitimate.
- We record the invoice at, say, $25000 (depending on the exchange rate), and during that month, we account for both the input credit and the tax liability for $6250, so everything nets out on the monthly tax return.
- Aside from having the "reverse charge" label and both companies' VAT IDs, is it true that we can only claim the input credit if the invoice arrives by the 20th of the following month? In other words, if the invoice doesn't show up or we miss the filing deadline for the month the goods were delivered, are we barred from claiming that tax credit in future periods?
- Once that's settled, if we sell those goods here in the US, we just charge the standard sales tax on our outgoing invoice like usual.

Brian Kern70 said:I want to run through a specific scenario involving acquisitions within the European Union just to make sure I’ve actually got this down:

- An American business, let's call it Company A, buys $10,000 worth of goods from Company B in Germany (which is also a VAT-registered entity).
- The shipment arrives with an invoice and a delivery note; on the invoice, the German company charges the full $10,000 without any sales tax (they mark it as "reverse charge" to indicate they aren't collecting tax because we'll handle the tax liability here in the States).
- To be valid, the invoice needs to list both the American and German VAT IDs, and we have to verify those IDs in the VIES database to ensure they're legitimate.
- We record the invoice at, say, $25000 (depending on the exchange rate), and during that month, we account for both the input credit and the tax liability for $6250, so everything nets out on the monthly tax return.
- Aside from having the "reverse charge" label and both companies' VAT IDs, is it true that we can only claim the input credit if the invoice arrives by the 20th of the following month? In other words, if the invoice doesn't show up or we miss the filing deadline for the month the goods were delivered, are we barred from claiming that tax credit in future periods?
- Once that's settled, if we sell those goods here in the US, we just charge the standard sales tax on our outgoing invoice like usual.

Yep, and you also have to file the specific intra-community acquisition form, 🙂

gentlepilot45 said:Honestly, I don't care if there's just one such invoice; even a single outlier means you have to sort it out before the first "new" tax filing hits.
One thing that really cracked me up this morning: the IRS apparently has enough free time to spruce up their website ten days before the entire country's tax system undergoes a massive overhaul, yet somehow they can't find the time to fix the new VAT form (Row III is supposed to be the sum of Rows 1 through 9, but they still haven't added a nine, and they somehow skipped seven 😂).
The other thing bouncing around my head: I realized that for imports from the European Union, I have to calculate taxes using the mid-market rate from the Federal Reserve on the supplier's invoice date—is the system the same for deliveries within the EU? If so, someone really needs to teach people that you can't just pre-date invoices for next week while you're sitting out on a boat...

Well, look at that. They finally fixed the form. No more 7, no more 9. Honestly, I’m just feeling sick now. I was almost looking forward to the chaos—I figured maybe those invoices sent before June 30th would somehow trigger those "phantom" line items. Now? There's zero hope left. 😢

Ethan Mitchell4 said:Wait, so did anyone actually get that "famous" number from the IRS?
I just got a note from a supplier over in Canada asking me to provide it. For now, I’m playing dumb since I don't have it yet, though I was half-tempted to just send them our US Tax ID... I don't even know....

I haven't been to any seminars lately... so there's nothing for me there... I'm basically flying blind here.
but this is going to be fun 🙂

We finally got our notice this past Monday. It was dated June 19, 2013. 👍

Brian Kern70 said:I want to run through a specific scenario involving acquisitions within the European Union just to make sure I’ve actually got this down:

- An American business, let's call it Company A, buys $10,000 worth of goods from Company B in Germany (which is also a VAT-registered entity).
- The shipment arrives with an invoice and a delivery note; on the invoice, the German company charges the full $10,000 without any sales tax (they mark it as "reverse charge" to indicate they aren't collecting tax because we'll handle the tax liability here in the States).
- To be valid, the invoice needs to list both the American and German VAT IDs, and we have to verify those IDs in the VIES database to ensure they're legitimate.
- We record the invoice at, say, $25000 (depending on the exchange rate), and during that month, we account for both the input credit and the tax liability for $6250, so everything nets out on the monthly tax return.
- Aside from having the "reverse charge" label and both companies' VAT IDs, is it true that we can only claim the input credit if the invoice arrives by the 20th of the following month? In other words, if the invoice doesn't show up or we miss the filing deadline for the month the goods were delivered, are we barred from claiming that tax credit in future periods?
- Once that's settled, if we sell those goods here in the US, we just charge the standard sales tax on our outgoing invoice like usual.

I'm honestly not 100% sure on that one. I'm guessing you'd just list it, if nothing else, on the sales tax return.
The seller is going to include that invoice in their filing, so we really ought to match it in ours. 🤷
I don't know if there's a statute of limitations on the obligation to calculate or the right to claim those credits. Or maybe I'm just missing something obvious. 🤷

I headed down to the IRS office this morning to see if I was on the list for an automatic VAT number assignment, but apparently, I’m not. My caseworker isn't even back from vacation until July 1st, and to make matters worse, nobody there could give me a straight answer. They couldn't tell me which specific application I need to file, who actually handles it, or how long this whole bureaucratic nightmare is going to take... 🤔So, does anyone here have experience with this? I've been scouring the official government websites, but all I can find are forms and instructions meant for foreign entities trying to register here in the States...

One more thing, if anyone happens to be an expert on this: we provide B2B services for AAA. If they've opened a local branch here in the US and have a domestic tax ID, should we be applying a reverse charge on our invoices? Or does it strictly depend on whether the invoice is addressed to the US headquarters or their local American branch?

Karen Smith34 said:Anyway, I'll ask one more time: has anyone actually heard back from the IRS with their number?

The clerk is claiming they’re assigned automatically—like, you don't even send in a request. She told me to just check the database to see if we're in there, but apparently, the US system isn't searchable yet...
so yeah, ☕ by July 1st
we'll see.

It’ll probably get here sooner than you think. I mean, if we got ours on Monday, that means they’ve already started shipping them out.

Brian Kern70 said:I want to run through a specific scenario involving acquisitions within the European Union just to make sure I’ve actually got this down:

- An American business, let's call it Company A, buys $10,000 worth of goods from Company B in Germany (which is also a VAT-registered entity).
- The shipment arrives with an invoice and a delivery note; on the invoice, the German company charges the full $10,000 without any sales tax (they mark it as "reverse charge" to indicate they aren't collecting tax because we'll handle the tax liability here in the States).
- To be valid, the invoice needs to list both the American and German VAT IDs, and we have to verify those IDs in the VIES database to ensure they're legitimate.
- We record the invoice at, say, $25000 (depending on the exchange rate), and during that month, we account for both the input credit and the tax liability for $6250, so everything nets out on the monthly tax return.
- Aside from having the "reverse charge" label and both companies' VAT IDs, is it true that we can only claim the input credit if the invoice arrives by the 20th of the following month? In other words, if the invoice doesn't show up or we miss the filing deadline for the month the goods were delivered, are we barred from claiming that tax credit in future periods?
- Once that's settled, if we sell those goods here in the US, we just charge the standard sales tax on our outgoing invoice like usual.

That seems pretty straightforward,
but what happens if, for example, we only get a delivery slip and the goods show up on July 31st, but the actual invoice doesn't arrive until August 21st?

I’m basically breathing down their necks on the phone, practically begging them to just send over the damn invoice already. 🤷

We’re going to keep pulling all our VAT return data directly from the internal accounting ledgers. Just make sure you log every invoice into the system first, then transfer it to the tax form—even if the billing period doesn't perfectly align with the current filing window.

Ashley Ramirez4 said:That seems pretty straightforward,
but what happens if, for example, we only get a delivery slip and the goods show up on July 31st, but the actual invoice doesn't arrive until August 21st?

Wouldn't you then need to record the Sales Tax liability and the unrecognized input tax during July?

Then, on August 21st, you'd just reclassify that input tax from unrecognized to recognized...
🤷

I honestly thought I had finally mastered this stuff, but clearly, I’m still a student;
I’m invoicing a towing service for a share of a trip involving a business partner based in Mexico (he claims he's a registered taxpayer there). This is a B2B transaction—assuming, of course, that he provides me with a signed statement confirming his tax status in Mexico—so my plan is to issue the invoice without Sales Tax and include a clause stating, "Tax liability transferred per Section 17, Paragraph 1 of the Sales Tax Law."
Am I totally off base here?
Because I had a colleague trying to convince me this morning that dealings with Mexico (or any other non-USA country, essentially a third country) haven't changed at all. He’s insisting that the domestic portion of the service is taxed under local Sales Tax, while any foreign portion just escapes taxation entirely?!?!?!?
🙂🙂🙂🙂

My understanding was that since July 1st, when you're providing services, you have to look at who the recipient is, which breaks down into:
1. B2B—a tax registrant within the USA who is listed in the IRS database, or a partner from a third country who is a registered taxpayer in their own nation.
2. B2C—an individual consumer, or a legal entity within the USA that isn't listed in the IRS database.

So, am I right or am I wrong?

P.S. If I’m dealing with a business partner in the USA and they claim they don't have an IRS number—acting all shocked that I'd even ask for it—should I just treat them as B2C? In that scenario, say I'm invoicing for a transport route from, I don't know, New York to Philly, would I be applying local Sales Tax to the entire amount?🙄

Nicole Lee6 said:I honestly thought I had finally mastered this stuff, but clearly, I’m still a student;
I’m invoicing a towing service for a share of a trip involving a business partner based in Mexico (he claims he's a registered taxpayer there). This is a B2B transaction—assuming, of course, that he provides me with a signed statement confirming his tax status in Mexico—so my plan is to issue the invoice without Sales Tax and include a clause stating, "Tax liability transferred per Section 17, Paragraph 1 of the Sales Tax Law."
Am I totally off base here?
Because I had a colleague trying to convince me this morning that dealings with Mexico (or any other non-USA country, essentially a third country) haven't changed at all. He’s insisting that the domestic portion of the service is taxed under local Sales Tax, while any foreign portion just escapes taxation entirely?!?!?!?
🙂🙂🙂🙂

My understanding was that since July 1st, when you're providing services, you have to look at who the recipient is, which breaks down into:
1. B2B—a tax registrant within the USA who is listed in the IRS database, or a partner from a third country who is a registered taxpayer in their own nation.
2. B2C—an individual consumer, or a legal entity within the USA that isn't listed in the IRS database.

So, am I right or am I wrong?

P.S. If I’m dealing with a business partner in the USA and they claim they don't have an IRS number—acting all shocked that I'd even ask for it—should I just treat them as B2C? In that scenario, say I'm invoicing for a transport route from, I don't know, New York to Philly, would I be applying local Sales Tax to the entire amount?🙄

Honestly, I think you’re spot on here. Since you're providing a service to another business entity, the standard rule applies under Section 17: "The place where the service is performed is considered the location of the business entity receiving it."
Section 17 doesn't care whether someone is part of the USA or not when determining where the service is taxed.
Passenger transport would be a different beast entirely, but that's clearly not what you're dealing with.

And regarding that partner over in the USA—yeah, I think your logic holds up there too. They don't have a tax ID, which means they aren't a registered business entity in this context; they're just an end consumer, so you charge them our local sales tax.
Now, whether you actually need to keep an eye on their local sales tax thresholds and potentially register for taxes over there if you blow past a certain limit? That's the real headache. 🤷

Those registration thresholds always make my head spin. 🤣
If anyone here has actually navigated that nightmare, please, for the love of god, elaborate and explain how it works.

Ugh, honestly, I hadn't even given those acquisition thresholds a second thought. I just sort of internalized this idea that they only applied to physical goods, not services... totally missed the mark there.

But seriously, how can someone who has been part of the USA since 2004 be so shocked by basic concepts like a VIES database or VAT numbers?!

Nicole Lee6 said:Ugh, honestly, I hadn't even given those acquisition thresholds a second thought. I just sort of internalized this idea that they only applied to physical goods, not services... totally missed the mark there.

But seriously, how can someone who has been part of the USA since 2004 be so shocked by basic concepts like a VIES database or VAT numbers?!

It’s possible it really does just apply to goods... I guess I'll have to dig through the fine print again. Hopefully, once the official regulations actually drop, they'll make it crystal clear. We just have to wait for them to get their act together.

Maybe someone who actually knows their way around 🙂
can weigh in.

ruggedmaker2 said:It’s possible it really does just apply to goods... I guess I'll have to dig through the fine print again. Hopefully, once the official regulations actually drop, they'll make it crystal clear. We just have to wait for them to get their act together.

Maybe someone who actually knows their way around 🙂
can weigh in.

The acquisition thresholds only apply to goods and kick in when you're selling items to individuals (non-business owners).

That’s how I interpreted the rule, anyway—not that I'm exactly an expert on this... 😵 ...so I'm really hoping someone else jumps in here.

Richard Howard55 said:The acquisition thresholds only apply to goods and kick in when you're selling items to individuals (non-business owners).

That’s how I interpreted the rule, anyway—not that I'm exactly an expert on this... 😵 ...so I'm really hoping someone else jumps in here.

Just wanted to add my two cents. I think you nailed it. Those delivery thresholds are specifically for folks selling goods to end consumers within USA states. You basically have to figure out the threshold for whichever state you're shipping to, and if you cross it, you've gotta register for sales tax over there.