Tax Insights for Indian Companies in the U.S. Market
February 22, 2024
There are incredible advantages to expanding and conducting business in the U.S. that encourage Indian companies to grow globally. When beginning to look at the implications and regulations in the U.S., one item to take into careful consideration is U.S. sales tax. As businesses in India are accustomed to the goods and services tax (GST) on their goods and services, the U.S. sales tax regime often mystifies international sellers.
Both GST and sales tax are consumption-based taxes, but they differ in several important key areas:
| U.S. Sales and Use Tax | India GST | |
| Taxation Structure | Tax is applied at the point of sale to the end consumer. | Tax is applied at each stage of production and distribution. |
| Taxation Rates and Jurisdiction | Rates vary from state to state and even some local jurisdictions. | Rates are mostly uniform across the country. |
| Input Tax Credit | Not applicable. | GST can be offset with input tax credits against the GST collected from customers. |
| Compliance | This can be complex due to states and local jurisdictions having a wide variety of reporting requirements and timelines. | Requires periodic filing that can vary by state.
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U.S. Sales Tax Principles
While it may seem daunting to begin understanding the complexities of U.S. sales tax, the essential elements to understanding is based on these principles:
Nexus: Nexus is when a business has a connection or sufficient presence in a state or local jurisdiction that requires a business to collect and remit sales tax. This connection or sufficient presence can be established through a physical presence in a state or having a certain level of sales.
Taxability: There are varying rules state by state on which products and services have tax imposed. Many states have exemptions for basic necessities, such as food; many states exempt services, such as repairs and installations. Most states tax all tangible products, and a growing number of states tax a lot of electronic services, digital goods and SaaS.
Rates: Every state and certain local jurisdiction have different tax rates that can vary down to the specific street address. There are more than 10,000 different rates, and they change frequently.
Re-Sale Certificates: Each state in the U.S. (excluding Hawaii) has a provision for exempting items that will be resold after the original purchase. Ultimately leading to the tax being paid by the final consumer.
For international and U.S. companies alike, it is challenging to understand where, when and how much tax to charge. The U.S. legislature is working towards efforts to simplify sales tax, as sales tax remains complex and ever-changing. Cherry Bekaert’s sales and use tax professionals can guide companies through the complexity in order to be compliant with all U.S. tax laws and, most importantly, provide expertise and technology solutions for international companies to remain in compliance with the least amount of cost and effort.
Guiding Your Business Through Sales Tax Compliance
Cherry Bekaert’s Sales and Use Tax and International Tax teams are here to be your trusted advisor when working through the complicated sales tax obligations that are presented to international businesses doing work in the U.S.
Related Guidance
The State and Local Tax Landscape: Insights from 2023 and Strategies for 2024
BOI Reporting Regulations: Coming January 2024
The Moore Case: Section 965 Tax on Foreign Earnings