In an interconnected economy, global ecommerce selling has become a standard practice for many retailers. However, ecommerce brings with it a complex web of tax compliance obligations that can overwhelm even the most seasoned retailers.

Understanding tax responsibilities is key, as failure to comply can lead to penalties, fines, and reputational damage. For example, in New York, combined costs of penalties, interest, and audit fees from sales tax noncompliance can exceed 25% of total sales tax liability. This guide will outline what retailers should know about tax compliance and illustrate how Stripe Tax can support you in navigating these challenges.

Global selling and the impact on tax compliance

As retailers expand their reach into new markets, they encounter varying tax regulations that reflect the unique laws of each jurisdiction. This complexity is particularly pronounced when dealing with sales tax in the US and VAT in Europe. Retailers must be well-versed in the tax obligations applicable to each region they operate in, including thresholds that trigger tax collection and compliance with marketplace and platform laws.

Tax compliance checklist for retailers

1. Understand the different thresholds that trigger tax obligations

In the US, retailers have tax obligations where they have met a nexus threshold. Nexus is a connection to a state that requires you to collect and remit sales tax. There are two types of nexus thresholds:

• Physical nexus: When a retailer has a tangible presence in a state, such as offices, warehouses, or even remote employees.
  
• Economic nexus: When a retailer surpasses certain sales revenue or transaction thresholds within a state. Each state has its own economic nexus thresholds.
  

Most US states offer a resale exemption for items that are bought for the purpose of being sold again by the purchaser. In these scenarios, resellers can avoid paying sales tax because they are not the final customer, as long as they have a valid sales tax exemption certificate.

Outside the US, the threshold to register for VAT or GST might be different for local and foreign sellers. For example, businesses based in the UK must register for VAT if their total taxable turnover for the last 12 months was over £90,000 or they expect their turnover to go over this threshold in the next 30 days.

For non-UK businesses, the £90,000 threshold does not apply. Instead, their requirement to register depends on what they’re selling and how they’re selling it. If they store goods in the UK (for example, using a UK warehouse or Fulfillment by Amazon (FBA)) or sell goods valued at £135 or less from outside the UK to UK customers, they must register for VAT immediately.

For shipments valued over £135, import VAT and customs duties are typically handled at the border, and the customer usually pays them before receiving the goods. There is no obligation for the foreign seller to register in such scenarios.

Special rules apply within the EU. For retailers established in an EU country, their VAT registration requirements depend on two different types of thresholds:

• Domestic threshold: Each EU country has its own threshold for domestic sales. If a retailer’s sales to customers within their home country exceed this amount, they must register for VAT there. These thresholds vary significantly from country to country.
  
• EU-wide threshold for distance sales: For sales to customers in other EU countries, there is a single, unified threshold of €10,000. This applies to total cross-border sales of goods and digital services across the entire EU. Once a retailer crosses this €10,000 threshold, they must collect VAT at the rate of their customer’s country. They can register either in the customer country or for the One Stop Shop (OSS), which allows them to declare and pay the VAT for all their B2C sales in the EU within a single quarterly return.
  

For non-EU businesses, the local registration thresholds generally do not apply. Instead, their obligation to register for VAT depends almost entirely on how and where they sell their goods.
If they store goods in any EU member state (for example, using a warehouse or Amazon FBA in Germany, France, or Spain), they must register for VAT in that country immediately. There is no threshold. If they ship goods from outside the EU to customers, the rules here depend on the value of the shipment:

• For consignments valued at €150 or less, the non-EU seller may charge and collect VAT at the point of sale. To do this, they must register for the Import One Stop Shop (IOSS) in a single EU country. There is no threshold for this rule.
  
• For consignments valued over €150, import VAT and customs duties are typically handled at the border, and the customer pays these charges before the goods are released. In this specific scenario, there is no obligation for the foreign seller to register for VAT.
  

2. Determine product taxability

Tax compliance also hinges on accurately classifying products. Since each product type is taxed differently across the globe, assigning the correct product tax code is significant to compliance. While most tangible goods are taxable, there are many exceptions that might contribute to confusion surrounding product taxability.

For example, clothing is a taxable item in most US states. However, clothing is nontaxable in Pennsylvania. And in states such as New York and Massachusetts, clothing items priced under a certain threshold are nontaxable.

In countries that charge VAT, goods often fall into different categories that can be taxed at a standard, reduced, or zero rate. For example, in the EU, the rules can vary by country, but common patterns emerge:

• Food: Basic food such as bread, vegetables, and milk are often subject to a reduced or zero rate to keep essentials affordable. However, “luxury” foods such as candy, soft drinks, and alcohol are typically charged the standard, higher VAT rate.
  
• Books and culture: Books and newspapers frequently benefit from a reduced rate to promote literacy and the arts.
  
• Children’s products: Items such as children’s clothing, shoes, and car seats are often taxed at a reduced or zero rate in several countries.
  

A tax automation software can help make product taxability simpler. Once you assign products a product tax code (PTC), the software will automatically only calculate tax where that product is considered taxable.

3. Be aware of marketplace and platform tax laws

If you sell on a marketplace or platform, it’s important to understand how tax laws might impact your compliance. In the US, marketplace facilitators are required to collect sales tax on behalf of third-party sellers when they reach economic nexus in the state.

However, sellers are liable for tax if the marketplace facilitator does not collect it. This might occur if the marketplace was unable to remit the appropriate amount of tax due to incorrect information provided by the seller, or if the marketplace is not required to collect tax on behalf of the seller. Typically, a seller will receive written certification from the marketplace confirming that the marketplace is collecting sales tax on behalf of the seller.

Most states still require marketplace sellers to report how much sales tax was collected on their behalf by the marketplace facilitator and file sales tax returns, although it might be a zero return. States use sales tax returns as a way to check in on a business, and even though there is no sales tax to remit, a return is often required.

If a seller is only making sales on a marketplace and has confirmed the marketplace is collecting sales tax on their behalf, the seller does not have to calculate, collect, or remit the sales tax from their customers.

In the EU and the UK, VAT laws shift the responsibility for tax collection to marketplace operators in certain scenarios. Both follow the “deemed supplier” model, which means that the marketplace is treated as if it bought the goods from the seller and sold them directly to the customer. This makes the marketplace responsible for the VAT on the final sale.

In the EU, a marketplace is considered the “deemed supplier” and must handle VAT in two key scenarios involving sales to EU customers (B2C):

• Low-value goods shipped from outside the EU: When selling goods with a consignment value of €150 or less from a non-EU country (e.g., from the US or China) to a buyer in the EU
  
• Goods sold by a non-EU seller within the EU: When a business based outside the EU sells goods of any value that are already stored in an EU country (e.g., using a warehouse or Amazon FBA in Germany to sell to a customer in France)
  

The UK has very similar marketplace tax liability rules for sales made to UK customers:

• Goods shipped from outside the UK: When selling goods with a consignment value of £135 or less from any country outside the UK to a customer in the UK
  
• Goods sold by a non-UK seller within the UK: When a business based outside the UK sells goods of any value that are already stored in a UK warehouse or fulfillment center
  

When the marketplace acts as the deemed supplier, the seller doesn’t have to charge VAT on those specific sales. Their sale to the marketplace is typically treated as a zero-rated (0% VAT) transaction. However, the seller’s tax obligations don’t disappear entirely.

• The seller is still liable for VAT on sales not covered by the rules. This includes sales to business customers (B2B) or high-value consignments imported directly to the customer (over €150 or £135).
  
• The seller must provide accurate information as the marketplace operator relies on their data (such as where the goods are shipped from and their value) to calculate VAT correctly. If they provide incorrect information, they could become liable for any uncollected tax.
  
• The seller might still need to be VAT registered. If they store goods in an EU country or the UK, they generally need to register for VAT there, even if the marketplace handles the VAT on their final sales. This is because the seller might have other taxable events, such as moving stock or making B2B sales, that they must report on their own VAT return.
  

4. Gain an understanding of shipping taxability

Shipping taxability adds another layer of intricacy. In the US, shipping taxability varies from state to state. For example:

• If you charge for shipping in states such as Pennsylvania and Texas, it’s generally taxable—regardless of how the charge is presented.
  
• States such as California and Colorado allow shipping charges to be nontaxable if itemized separately.
  

Outside the US, shipping costs are subject to the same tax rate as the goods being shipped. If an invoice includes shipping costs for goods that are subject to different tax rates, or for both taxable and nontaxable goods, the shipping costs must be allocated proportionally based on the value of the goods in each category.

How Stripe Tax supports retailers in tax compliance

While staying aware of tax compliance trends is important for businesses, it’s also complex and time-consuming. Stripe Tax automates global tax compliance from start to finish, so you can focus on growing your business. It identifies your tax obligations, manages registrations, calculates and collects the right amount of tax worldwide, and enables filings—all in one place.

Stripe Tax helps you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.
  
• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and ensuring compliance with local regulations.
  
• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services, and it’s up-to-date on tax rules and rate changes.
  
• Simplify filing and remittance: Stripe Tax manages filing and remittance, allowing users to benefit from a seamless experience.
  

Read our docs to learn more, or sign up for Stripe Tax today.