Doing business with USA member states

Nicole Lee6 said: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?

Is it this request, specifically point 4?

http://www.irs.gov/Forms/PdviUSA/....06.2013.).pdf

Thanks, guys 🙂

Check this out:

The regulations are finally here! ☕

Alright. I'm currently wading through the regulations.
Article 197: (copy-paste):

For any taxpayer looking at the rules as they stood through the end of 2014, the obligation to calculate sales tax kicks in the moment you actually receive or collect payment for goods or services rendered. However—and this is where things get unnecessarily complicated—there are a handful of specific exceptions to that rule. We aren't talking about standard domestic transactions here; instead, the rules shift when dealing with goods acquired from within the EU, certain transfers of assets outlined under specific sections of the tax code, or those specialized service categories defined by the law. There’s also the matter of reverse charge scenarios, where the recipient is the one on the hook for the tax, and those peculiar edge cases tucked away in the secondary statutes. It’s a dense thicket of regulatory fine print, frankly.
Let’s take a moment to dissect this specific section of the tax code, because if you don't pay close attention to how the taxable base is calculated, you're basically asking for an audit nightmare. According to the regulations regarding settlements based on received or charged compensation under Section 139, we have to look at what the recipient actually considers payment for the goods or services provided—and I mean everything *except* the sales tax itself. But here is where people usually trip up: the taxable base isn't just the direct cash changing hands between the buyer and the seller. It also includes any additional amounts that a third party might pay, or is even obligated to pay, to the taxpayer for those same goods or services. Essentially, if someone else steps in to cover part of the cost, that amount gets pulled back into the calculation for the tax base. You can't just ignore those side payments; they are legally part of the transaction.
When you’re transferring an entire business unit, VAT is always calculated based on the actual invoices issued. It doesn't matter whether the buyer is actually permitted to claim tax credits on the reimbursements they receive—it’s all about those specific invoices. Period.
The taxpayer identified in paragraph 1 of this section. You absolutely have to make sure that "R-2" designation is clearly marked on all the invoices. It’s not just a suggestion; it's a requirement.Look, let me be perfectly clear on this point because I know there’s been some confusion floating around: you can absolutely claim that input tax credit during the specific accounting period in which the invoice was actually settled. It's straightforward once you stop overcomplicating it.
Look, let’s be clear about the compliance side of things here. Under the regulations laid out in Section 1 of this article, any taxpayer falling under that umbrella is absolutely required to maintain their books with total precision. You can't just wing it when it comes to sales tax. You are legally obligated to track and document every single shred of data necessary to calculate and settle your tax liabilities, strictly following the specific procedures dictated by Article 168 of this Regulation. It’s not a suggestion; it’s a requirement.

Alright, who has actually lost their mind here?! The law clearly states that R-1 and R-2 are being scrapped, yet those responsible for the CDC tax filings are pointing to this new clause about "calculation based on collected fees." Then, just to make things even more infuriating, I woke up this morning to an email from Pupille saying the exact same thing—that starting July 1st, the R-1 and R-2 designations are being wiped from all modules, and anyone previously under R-2 now has to include that specific clause at the bottom of their invoices?!?!?

I’ve been combing through the regulations, and as far as I can tell, there isn't a single word in there about what kind of documentation we actually need to collect. We’re supposed to be asking our partners in non-EU countries for specific proof to ensure a valid transfer of tax liability, but the guidelines are completely silent on the matter. We were all just sitting around waiting for the official manual to be released because we assumed it would finally lay out those requirements... and now what? We're just left hanging.

Carol Price4 said:Is it this request, specifically point 4?

http://www.irs.gov/Forms/PdviUSA/....06.2013.).pdf

I actually filled out that exact paperwork this past Wednesday and headed down to the IRS office with it. Let me tell you, I spent half an hour being shuffled from one desk to another because absolutely nobody wanted to touch it, and even fewer people had any clue what they were supposed to do with it once they took it! Eventually, I had to track down the supervisor, who just looked at it and said, "Just give it to that guy over there," and that was that. 😬 But after basically touring the entire facility and visiting certain agents twice, I have some very choice words about how organized our government agencies actually are...

So, I was digging through the FASFA site earlier and stumbled upon this whole mess regarding the R1 vs. R2 dilemma:

And then, get this—I found this specific bit on the IRS website regarding their official interpretations about the acquisition threshold:
"12. Who does the acquisition threshold apply to?
The threshold is determined for taxpayers who exclusively provide supplies of goods or services for which VAT input credits aren't allowed, for small business taxpayers, and for legal entities that aren't registered taxpayers."

ruggedmaker2 said:So, I was digging through the FASFA site earlier and stumbled upon this whole mess regarding the R1 vs. R2 dilemma:

And then, get this—I found this specific bit on the IRS website regarding their official interpretations about the acquisition threshold:
"12. Who does the acquisition threshold apply to?
The threshold is determined for taxpayers who exclusively provide supplies of goods or services for which VAT input credits aren't allowed, for small business taxpayers, and for legal entities that aren't registered taxpayers."

Small business taxpayers = those covered under Section 90 of the new law (under $230k)
Legal entities that aren't taxpayers = government bodies and public institutions
Taxpayers who exclusively provide goods or services for which VAT deduction isn't allowed = which ones would those even be?

And as for these "R" designations—honestly, it’s a mess. We haven't even harmonized the law with the regulations, so instead of simplifying things, they're just adding more layers of bureaucracy.🙂 To make matters worse, Pupilla already sent out notices stating that all "R" designations have been completely scrapped in the new modules. Just wonderful... absolutely brilliant planning there.

Nicole Lee6 said:Small business taxpayers = those covered under Section 90 of the new law (under $230k)
Legal entities that aren't taxpayers = government bodies and public institutions
Taxpayers who exclusively provide goods or services for which VAT deduction isn't allowed = which ones would those even be?

And as for these "R" designations—honestly, it’s a mess. We haven't even harmonized the law with the regulations, so instead of simplifying things, they're just adding more layers of bureaucracy.🙂 To make matters worse, Pupilla already sent out notices stating that all "R" designations have been completely scrapped in the new modules. Just wonderful... absolutely brilliant planning there.

Honestly, I think it covers pretty much everything sold to people who aren't even in the VAT system—like those small-time operators who can't claim credits, or government offices, etc. Plus, anyone doing strictly tax-exempt business can't deduct their input tax either. It’s just a giant loop of paperwork for nothing.

Nicole Lee6 said:Alright. I'm currently wading through the regulations.
Article 197: (copy-paste):

For any taxpayer looking at the rules as they stood through the end of 2014, the obligation to calculate sales tax kicks in the moment you actually receive or collect payment for goods or services rendered. However—and this is where things get unnecessarily complicated—there are a handful of specific exceptions to that rule. We aren't talking about standard domestic transactions here; instead, the rules shift when dealing with goods acquired from within the EU, certain transfers of assets outlined under specific sections of the tax code, or those specialized service categories defined by the law. There’s also the matter of reverse charge scenarios, where the recipient is the one on the hook for the tax, and those peculiar edge cases tucked away in the secondary statutes. It’s a dense thicket of regulatory fine print, frankly.
Let’s take a moment to dissect this specific section of the tax code, because if you don't pay close attention to how the taxable base is calculated, you're basically asking for an audit nightmare. According to the regulations regarding settlements based on received or charged compensation under Section 139, we have to look at what the recipient actually considers payment for the goods or services provided—and I mean everything *except* the sales tax itself. But here is where people usually trip up: the taxable base isn't just the direct cash changing hands between the buyer and the seller. It also includes any additional amounts that a third party might pay, or is even obligated to pay, to the taxpayer for those same goods or services. Essentially, if someone else steps in to cover part of the cost, that amount gets pulled back into the calculation for the tax base. You can't just ignore those side payments; they are legally part of the transaction.
When you’re transferring an entire business unit, VAT is always calculated based on the actual invoices issued. It doesn't matter whether the buyer is actually permitted to claim tax credits on the reimbursements they receive—it’s all about those specific invoices. Period.
The taxpayer identified in paragraph 1 of this section. You absolutely have to make sure that "R-2" designation is clearly marked on all the invoices. It’s not just a suggestion; it's a requirement.Look, let me be perfectly clear on this point because I know there’s been some confusion floating around: you can absolutely claim that input tax credit during the specific accounting period in which the invoice was actually settled. It's straightforward once you stop overcomplicating it.
Look, let’s be clear about the compliance side of things here. Under the regulations laid out in Section 1 of this article, any taxpayer falling under that umbrella is absolutely required to maintain their books with total precision. You can't just wing it when it comes to sales tax. You are legally obligated to track and document every single shred of data necessary to calculate and settle your tax liabilities, strictly following the specific procedures dictated by Article 168 of this Regulation. It’s not a suggestion; it’s a requirement.

Alright, who has actually lost their mind here?! The law clearly states that R-1 and R-2 are being scrapped, yet those responsible for the CDC tax filings are pointing to this new clause about "calculation based on collected fees." Then, just to make things even more infuriating, I woke up this morning to an email from Pupille saying the exact same thing—that starting July 1st, the R-1 and R-2 designations are being wiped from all modules, and anyone previously under R-2 now has to include that specific clause at the bottom of their invoices?!?!?

I’ve been combing through the regulations, and as far as I can tell, there isn't a single word in there about what kind of documentation we actually need to collect. We’re supposed to be asking our partners in non-EU countries for specific proof to ensure a valid transfer of tax liability, but the guidelines are completely silent on the matter. We were all just sitting around waiting for the official manual to be released because we assumed it would finally lay out those requirements... and now what? We're just left hanging.

Honestly, I have no clue who's running the show anymore, but if you ask me, the smartest move would be to just leave the R1/R2 labels in place (since nothing explicitly forbids them) while also adding the legally required note for income tax payers...
As Prince would say: (http://www.youtube.com/watch?v=wOXeBGou-TI)

I haven't quite wrapped my head around this one.
In the IRS manual, what exactly is the distinction between:

"DELIVERY OF GOODS TO OTHER MEMBER STATES"
and
"DELIVERY OF GOODS WITHIN THE EUROPEAN UNION"
?

Could someone please clarify which specific section of the new Value Added Tax Act we should cite when dealing with entities that aren't part of the VAT system? Essentially, since they aren't registered for VAT, no tax was calculated based on article of the Value Added Tax Act. Thanks!

Zachary White17 said:I haven't quite wrapped my head around this one.
In the IRS manual, what exactly is the distinction between:

"DELIVERY OF GOODS TO OTHER MEMBER STATES"
and
"DELIVERY OF GOODS WITHIN THE EUROPEAN UNION"
?

The regulations clear this right up.
That first one refers to:
"under item I.2., you report data from column 8 of the Issued Invoices Book (Form I-RA), basically entering details regarding goods deliveries under Article 13, paragraphs 3 and 4 of the Act, where the taxpayer, acting as the supplier or through someone else on their behalf, transports or ships goods from the United States to another state where the VAT obligation kicks in because the taxpayer hit that specific delivery threshold set by that state, or they just chose to opt into that state's threshold instead.,"

But this second one is different:
"under item I.3., you pull data from column 9 of the Issued Invoices Book (Form I-RA), which covers goods deliveries within the European Union per Article 41, paragraph 1 of the Act—specifically, data concerning tax-exempt goods deliveries to taxpayers registered for VAT purposes in other member states. You also log details for triangular transactions from Article 10 of the Act, plus deliveries under Article 7, paragraph 5, or the transfer of goods that are part of the taxpayer's business assets, which counts as delivering goods to other European Union member states. Also, this line includes the value of goods sent to other European Union member states under customs procedures 42 and 63 or the value of exempt deliveries to other member states involving imports from a third country into the United States under certain VAT exemptions.

Brenda Chase3 said:Could someone please clarify which specific section of the new Value Added Tax Act we should cite when dealing with entities that aren't part of the VAT system? Essentially, since they aren't registered for VAT, no tax was calculated based on article of the Value Added Tax Act. Thanks!

It’s Section 90, Paragraph 1 of the Value Added Tax Act, 🙂

Carol Price4 said:It’s Section 90, Paragraph 1 of the Value Added Tax Act, 🙂

Hey devil, thanks so much for the help... 😉

I’ve been wondering if anyone has actually managed to figure out how small business owners handle this mess at the end of the month. Specifically, when they're dealing with invoices from overseas partners under a "reverse charge" setup—where the VAT is basically just an accounting entry on paper rather than actual cash moving around. Does everyone just report the liability and the input tax simultaneously in the same filing? Or is there some convoluted requirement where you have to actually settle the tax payment first, creating a real cash outflow, before you can claim it back as an input credit in a later period? I can't tell if it's all handled in one go on the return, or if we're looking at two separate steps involving real money.

Could someone please help me make sense of the difference between receiving services from within the USA at a 25% rate versus receiving the supply of goods and services from non-resident taxpayers at a 25% rate
? Thanks.

Could someone help me wrap my head around this:
If a business delivers goods or services to another state within the USA and the total value exceeds that state's specific threshold, are they required to register for sales tax in that state?
Basically, if our partners in Oregon ship us goods worth more than $90000, do they need to register for sales tax here? And if so, which line on the tax return should we use to record that acquisition?

Thanks!

restlessnomad10 said:Could someone please help me make sense of the difference between receiving services from within the USA at a 25% rate versus receiving the supply of goods and services from non-resident taxpayers at a 25% rate
? Thanks.

stormygardener44 said:Could someone help me wrap my head around this:
If a business delivers goods or services to another state within the USA and the total value exceeds that state's specific threshold, are they required to register for sales tax in that state?
Basically, if our partners in Oregon ship us goods worth more than $90000, do they need to register for sales tax here? And if so, which line on the tax return should we use to record that acquisition?

Thanks!

Maybe these two questions are actually part of the same issue. I'm just typing what comes to mind right now; tomorrow I’ll dig through the IRS regulations and try to figure out if I'm even on the right track.

Once they cross the delivery threshold, they register here, and then we record them as domestic turnover (they get a US Tax ID and charge sales tax at our rates).

Does that make them the ones referred to as being without a headquarters in the US at a 25% rate?

At this seminar, they were explaining how to handle this specific section—you know, where you record goods and services received from tax entities based outside the USA at the 25% rate. Apparently, I’m supposed to be entering invoices from third-party countries there, because that's when I have to calculate and pay the sales tax myself here in the States 🤷

Yeah, even the instructions say you should list services provided by taxpayers from third countries, but then they go and throw in taxpayers from the USA too.
Specifically, the guidance for section II.12 states that you enter the value of received supplies where the provider isn't based here in the States (meaning a taxpayer based in the USA or a third country), and where the recipient is responsible for calculating and paying the sales tax according to Article 75, paragraph 2 of the law.

And for section II.10, they say: Enter the value of the service received from another state and the amount of sales tax at the 25% rate that the recipient taxpayer needs to calculate and pay in accordance with the provisions of Article 75, paragraph 1, point 6 of the law.

Of course, Article 75 references a bunch of other sections... and honestly, that's where I lose the thread. I am completely lost here... 😵