United States

United States

RSM is in 90 locations across the United States and is headquartered in Chicago, Illinois. If the U.S. middle market was its own economy, it would be the fifth-largest in the world.

The following content was reviewed and updated as of Mar. 9, 2018.

Legislative effective date

Varies by state

Name of tax

Sales tax

Statute of limitation

Varies by state but three to four years is typical

Standard rate of sales tax

Zero to 10 percent depending on the particular state

Electronic supplies

In the United States, electronic services are differentiated as digital goods or digital services.

Digital goods covers:

  • Electronically delivered software
  • Digital consumer goods
  • Books
  • Music
  • Video games
  • Films
  • Downloadable applications (apps)

Digital services covers:

  • Transaction facilitation (e.g., trading platforms)
  • Social media
  • Data hosting and processing
  • Advertising
  • Software as a Service (SaaS)
  • Infrastructure as a Service (IaaS)
  • Platform as a Service (PaaS)
  • Enterprise as a Service (EaaS)

Registration

Registration in a particular state is determined by whether the business has nexus in that state.  The nexus rules vary across the United States and not all states apply each of the following tests, but for guidance purposes a nexus could potentially be created by:

  • Physical presence
  • Click-through nexus—Third-party web link established in the state
  • Affiliate nexus—Third party generating/maintaining a market
  • Economic nexus—Volume of business generated in the state
  • Marketplace nexus—The online market place operator might have obligations on behalf of the underlying vendor

These rules apply equally to non-U.S. suppliers as they do to U.S.-based suppliers.

Customer identification

There is no differentiation made between a business or end consumer per se, but some types of organization that can provide a valid exemption certificate to a supplier can avoid being charged sales tax.  It is the supplier’s responsibility to confirm the validity of an exemption certificate.

Customer location

Sales tax is typically charged by reference to place of use. This means that a consumer’s normal place of residence is not a relevant factor and that suppliers will need to capture information as to the location where the service is used. Consequently, a user that registers a billing address in one state, but effectively uses the service in another state could be taxed based on the state rules applicable at the location of use.

Supplier identification

Any person making supplies of digital services is potentially subject to sales tax rules, but certain organizations might qualify for exemption. This will need to be tested on a case-by-case basis, but a typical example might be a nonprofit entity in the educational arena.

Procedural matters

Given the structure of the United States as 50 autonomous states (and a number of taxing jurisdictions within each state), the end result is approximately 7,000 taxing jurisdictions. 

Registration for sales tax is made at the state level assuming a nexus event has been created. Tax returns might need to be filed monthly, quarterly or annually depending on the particular state.

Historic transactions

Failure to register at the appropriate time could result in historic transactions being assessed, but if the taxpayer has voluntarily disclosed the failure then the look-back period is generally limited to the statute of limitations (three to four years).

Failure to remit tax that has been collected could result in criminal proceedings and in other circumstances penalties and interest charges could be levied.

 

 

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table of contents

Introduction to the digital services VAT guide

A detailed guide to compliance with countries seeking to tax digital services supplied by nonresident suppliers.

Applying VAT to electronically supplied services

Key points to consider when determining how electronically supplied services should be accounted for with regard to VAT rules globally.

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