State sales and use tax considerations when entering the US market

By Matthew J. Parrilli, Mowery & Schoenfeld, LLC

The US can be a lucrative market for companies to generate new revenue, but with that new revenue come new tax requirements. The US and its states all have their own taxing jurisdictions. As a company looks to establish a presence in the country, it must consider the tax effects caused by its expansion. The US and its fifty states have both direct and indirect taxes that may apply to a company’s activity.

Unlike a direct tax, such as income tax, which the taxpayer pays directly to the government, indirect taxes are charged to a taxpayer by an intermediary and then reported to the government by that intermediary. Consumers pay indirect taxes in the form of sales and use taxes when they buy goods and services. Within these taxes, companies charge the consumer sales tax, and then report and remit the tax to the appropriate taxing jurisdiction.

The US as a country does not charge sales and use tax, but forty-six of the fifty states do, as well as most cities and other localities. All of them have their own laws and requirements and, while there will be similarities, each state employs and enforces different tax strategies. As a company enters the US market, it will need to be aware of when it is required to register and file sales tax returns in each state.

A company’s registration and filing requirements depend on the company’s presence and activity in the state – known as nexus – which can be established by having property, payroll, or a specific amount of sales within a state. Nexus can also be established on a market basis through sales volume or number of transactions. Your company must first have nexus for the state to require sales tax reporting and filing.

Each state has its own nexus standards that accompany its own sales tax laws. It is important that a company regularly reviews its activity by state to analyse where it may have established nexus, and thus be required to register for and pay sales tax. While it may be painstaking, the diligence and planning put into regular sales tax analysis and projections will prevent more costly consequences down the line, such as audits or the payment of back taxes.

If a company is not familiar with sales tax within the US, the company should consult with a sales tax professional on how to set up invoices and properly charge and report sales tax within each state. Sales and use taxes are prevalent indirect taxes in the US and almost constant factors on activity within all states in the country.


Matthew J. Parrilli

Matthew J. Parrilli

GGI member firm
Mowery & Schoenfeld, LLC
Auditing & Accounting, Tax
Lincolnshire (IL), USA
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Mowery & Schoenfeld is a full-service accounting and consulting firm located in Chicago, Illinois. The firm provides a full range of services to private companies and prosperous families, including accounting and auditing, outsourced SFO, complex tax consulting and compliance, technology management and consulting, and family office and wealth management. The firm is celebrating its 25th anniversary this year with 130 team members.

Matthew J. Parrilli graduated from the University of Illinois Urbana-Champaign with a Bachelor and Master of Science in Accountancy. He has over six years of experience specialising in state and local income and franchise tax compliance and return preparation, as well as nexus analysis and planning. He is a Manager in the Tax Department at Mowery & Schoenfeld LLC.


Published: Indirect Taxes Newsletter, No. 12 Autumn 2021 l Photo: Iuliia Sokolovska - stock.adobe.com

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