Doing business with USA member states

Hello,

I have been searching for an answer for days now, so I am kindly asking if anyone here has experience dealing with this.

Example 1.
An American sole proprietor who is not registered for sales tax provides a service to a non-profit organization in the European Union (which is also not registered for sales tax), specifically in Austria. The service is performed in Austria. Essentially, the contractor travels to Austria, completes the job, and returns home. How should the invoice be issued, and are there any sales tax obligations?

Example 2.
An American sole proprietor who is not registered for sales tax provides a service to a non-profit organization in the European Union (not registered for sales tax), specifically in Austria. However, the service is performed in a different European Union country (such as Italy or Canada...). In this case, the contractor travels to that other European Union country, performs the work, and returns home. How should the invoice be issued, and are there any sales tax obligations?

Thank you in advance.

I am reaching out to see if anyone might have some insight or perhaps firsthand experience regarding the process of settling—or ideally, being exempted from—withholding taxes on interest from Italian bonds.
We recently acquired some corporate bonds issued in Italy, and following our sale, we were hit with what is essentially a residual tax on the realized interest income.
I suppose my question is, given that there is an existing double taxation treaty in place between the US and Italy, wouldn't we be eligible for an exemption from paying that specific tax? Is there a way to reclaim it, or perhaps avoid it entirely next time?

An American trucking company provides transport services into Austria. We issue an invoice that includes a transfer of tax liability. Once in Austria, the local Austrian driver covers the fuel costs and tolls; the difference based on the issued invoice is then paid directly into our business checking account. In my cash receipts and disbursements journal, I record amounts like $10,000.00 for both receipts and expenditures.
Do I need to record $5,000.00 through the journal as
in-kind receipts and disbursements, while recording the other $5,000.00 as a direct deposit into the bank account? I would appreciate some guidance.

Brian Campbell36 said:An American trucking company provides transport services into Austria. We issue an invoice that includes a transfer of tax liability. Once in Austria, the local Austrian driver covers the fuel costs and tolls; the difference based on the issued invoice is then paid directly into our business checking account. In my cash receipts and disbursements journal, I record amounts like $10,000.00 for both receipts and expenditures.
Do I need to record $5,000.00 through the journal as
in-kind receipts and disbursements, while recording the other $5,000.00 as a direct deposit into the bank account? I would appreciate some guidance.

First thing—are those fuel and toll receipts from Austria actually billed to the American carrier?

I really need someone out there—anyone at all—who can make sense of my situation.

So, starting this year, I officially registered as a sole proprietorship. Since I’m trying to stay under the revenue threshold that would force me into the standard sales tax system, I also set up a secondary registration for business purposes. My main gig is distributing goods from the European Union. Basically, I buy products from Spain and then sell them here in the US.

When I was setting everything up, the IRS told me straight up that I couldn't source any merchandise without a valid tax ID. So, at my request, the tax authorities issued me one. When I reached out to my suppliers and gave them all my business details along with that ID, everything seemed totally fine.

The goods arrived, I paid the invoices in full, and the invoice clearly showed a 0% tax rate.

Just to add some context: when I first registered the business, I was told that since I’m not part of the regular sales tax system, I wouldn't be hit with taxes on these specific items because they fall under that $77,000 $0.00 annual threshold for tax-free acquisitions from the EU.

But today? Today, the whole story changed. I get these papers from the IRS: VAT forms, supplemental VAT filings... basically "orders" stating that I have to report these exact same goods through these specific forms, and under the taxable transactions section, I actually HAVE to pay a 25% tax on them.

To make things even more confusing, on that very same day, I heard from two different accountants that I shouldn't have to pay anything at all. One of them even told me that if the tax isn't specified on the original invoice, there's no obligation to pay.

So, here I am: the IRS is demanding payment, a tax advisor is telling me the same thing, but on the flip side, I've got two other professionals giving me completely contradictory advice.

Honestly, I'm feeling pretty frazzled. I've been sitting here pouring over the tax code, but I can't make heads or tails of it. It feels like I'm reading the law, but the law is actually reading me. I don't even know if I'm looking at the right sections. Has anyone dealt with something like this? Does anyone actually understand how this works?

Which specific part of the tax code governs this, what clauses should I actually be focusing on, and do I owe this money or not?

From what I can tell, you aren't actually registered in the VAT system; you just have a VAT ID.
Based on that, whenever you make an acquisition, you're required to file those specific tax forms and pay the sales tax on any goods you've imported from other parts of the USA.

At the end of the day, someone has to foot the bill for the sales tax. In this setup, that responsibility falls squarely on you here at home.
If you had stayed outside the system, they would have just tacked their local sales tax onto your invoice right there in Spain.

It’s vital to get your exact status sorted out first, because everything hinges on how you're classified. Unfortunately, a lot of people either don't understand the nuances or just breeze through the details, giving answers that aren't quite right.

So, does this mean I actually have to deal with paying sales tax under the current tax law?

If I’m reading the situation right, there’s a certain group of employers here in the States who just don't bother paying it during acquisitions, yet the IRS doesn't seem to go after them at all.

Laura Castillo6 said:So, does this mean I actually have to deal with paying sales tax under the current tax law?

If I’m reading the situation right, there’s a certain group of employers here in the States who just don't bother paying it during acquisitions, yet the IRS doesn't seem to go after them at all.

The inspectors have no reason to penalize them; they're part of the sales tax system and operate within the law.
Accountants handle the details—tax equals input credit upon acquisition from the USA.
There isn't any cash bleeding out of the company.☕

Laura Castillo6 said:So, does this mean I actually have to deal with paying sales tax under the current tax law?

If I’m reading the situation right, there’s a certain group of employers here in the States who just don't bother paying it during acquisitions, yet the IRS doesn't seem to go after them at all.

Of course they aren't getting busted—they're registered sales tax entities. They report what they owe one minute and claim their input credits the next. But you? You clearly aren't in that club.

You aren't a legitimate business entity for tax purposes; you've just hit that specific revenue threshold that forces you onto the radar. (I'm assuming that's the case since you didn't mention how much gear you bought).

Basically, you've been forced to register because you crossed the line, even though you aren't a "real" taxable business. That means you have to cough up the sales tax here in the States, but you don't get any of those sweet tax credits back.

That limit of $26 you're talking about? That applies to stuff you buy overseas—like if you were buying it in Spain and paying their local taxes. Once you blow past that amount, the grace period is over. You'll have to pay the tax here in America and register to do it, but you still won't be able to claim any credits because you aren't a full-blown taxpayer.

Laura Castillo6 said:So, does this mean I actually have to deal with paying sales tax under the current tax law?

If I’m reading the situation right, there’s a certain group of employers here in the States who just don't bother paying it during acquisitions, yet the IRS doesn't seem to go after them at all.

The real kicker here is that you were the one who applied for a VAT ID in the first place. If you hadn't gone through with it, you could've picked up goods up to about $115,000 without any issues—but since you weren't in the system, Spaniards would've slapped their own sales tax on you, which you'd end up paying directly to them.

But hey, since you officially registered for those USA transactions, you're now on the hook for reporting and paying sales tax here in the States.

Look at the bright side, though... if you hadn't grabbed that ID, you would've been stuck paying an extra 21% to the Spaniards for their local tax. That means you actually came out ahead by about 4%!🙂

So, what's the actual process if my company is set up as a quarterly VAT filer? Does that mean I don't even have a VAT ID?
And when I'm bringing in goods from overseas within the USA, do I handle it the same way as a company that has a standard VAT ID? Like, do the taxes and input credits just offset each other automatically?

If you don't have a VAT ID, just go ahead and request one. Without that number, you aren't showing up in any official database, period.
I'm thinking if that happens, you might be stuck switching over to monthly tax filings. I'm not 100% sure on that part though, so definitely double-check with a pro.

So if that's how it works, I guess I'd have to become a monthly taxpayer
but what does the actual procedure look like for someone filing sales tax
and can I just offset my sales tax obligations against my other taxes?

Yeah, thanks so much for all the input. Honestly, the actual value of the goods isn't even close to that amount. I think the whole mess started right at the beginning when the folks at the IRS gave me some wrong info—or maybe they meant one thing and I totally misread it, though I really doubt that's what happened.

Anyway, it’s a bit of a silver lining that since the tax rate in Spain is 21% and ours is 25%, it’s not like we're dealing with a massive gap here.

silentscout9 said:So if that's how it works, I guess I'd have to become a monthly taxpayer
but what does the actual procedure look like for someone filing sales tax
and can I just offset my sales tax obligations against my other taxes?

Yeah, you can. And when you acquire assets, you just report that on your sales tax return during the month the acquisition actually happens.

My bad, I phrased that wrong
As someone filing quarterly sales tax, how am I supposed to record imports from the USA?
Do I just offset the liability against my input tax?

I gave JPMorgan Chase a call to see what the deal was, and they told me that just by making this one single import from the USA, I’m officially a monthly filer
it doesn't even matter if I won't actually need that number later on

I need a bit of assistance here. A company in our system just picked up a used heavy-duty truck from a firm based in Canada for $1000. The VAT ID is verified and legitimate. However, the invoice includes this specific note: "VAT not charged based on Article 46, paragraph 1." What is the actual implication of that? Should the American company be booking the liability and the input tax under items II.7. and III.7., and then filing the standard sales tax return? Or am I missing something?

Betty King7 said:I need a bit of assistance here. A company in our system just picked up a used heavy-duty truck from a firm based in Canada for $1000. The VAT ID is verified and legitimate. However, the invoice includes this specific note: "VAT not charged based on Article 46, paragraph 1." What is the actual implication of that? Should the American company be booking the liability and the input tax under items II.7. and III.7., and then filing the standard sales tax return? Or am I missing something?

Yeah, basically the tax responsibility shifted to you. Just make sure when you’re filling out your tax forms that you list it under "Purchase of Other Assets" (or whatever the specific line item is called on your software).

ruggedmaker2 said:Yeah, basically the tax responsibility shifted to you. Just make sure when you’re filling out your tax forms that you list it under "Purchase of Other Assets" (or whatever the specific line item is called on your software).

Fine. Thanks.