Understanding Tax Exporting
Tax exporting can take many forms and fulfill equally as many objectives. Therefore, in some instances, the practice is simply a transfer of tax liabilities to out-of-state individuals. In Addition, who happens to engage in the economy of a given state and pay taxes? At the same rate as local taxpayers.
In other cases, a tax may be deliberately structured to impose a higher burden on outsiders. Then it does on locals. Therefore, this could simply be a means of generating extra revenue for a local government. Also, it could be designed to discourage a particular business or behavior. In other cases, a tax could be a political weapon aimed at another jurisdiction’s leadership.
On a federal level, any foreign national earning income from a U.S. source. They expected to file a return and pay tax on that income. This tax may be reduced by a tax treaty between the U.S. and the foreign country. In addition, states may honor those treaties to varying degrees. A corporation based overseas will be subject to U.S. taxation if the Internal Revenue Service (IRS) determines that it earns regular and routine income from U.S. businesses, even if through an intermediary. Consequently, the foreign firm will be taxed at the same graduated corporate rate as a U.S. firm, but a tax treaty can intervene to lower that rate in some cases[1].
What Is Import Duty?
Import duty is a tax collected on imports and some exports by a country’s customs authorities. A good’s value will usually dictate the import duty. Depending on the context, import duty may also be known as a customs duty, tariff, import tax, or import tariff.
Import Duty Explained
Import duties have two distinct purposes: to raise income for the local government and to give a market advantage to locally grown or produced goods that are not subject to import duties. A third related goal is sometimes to penalize a particular nation by charging high import duties on its products.
In the United States, Congress established import duties. The Harmonized Tariff Schedule (HTS) lists the rates for imports and is published by the International Trade Commission (USITC). Different rates are applied depending on the countries’ trade relations status with the United States. The general rate applies to countries that have normal trade relations with the United States. The special rate is for countries that are not developed or are eligible for an international trade program[2].
How are exports of services treated for VAT/GST purposes?
The taxability of service may depend on where the service is performed or where the benefit is received, depending on the taxing state. In general, services exported outside the US should not be subject to sales tax.
Imports – Goods
How are goods dealt with on importation?
Sales of goods from outside a state (whether from another US state or foreign country) for delivery into the state are generally subject to sales or use tax (unless an exemption or exclusion applies). Therefore, If a good is imported into a state by a purchaser that did not pay sales tax on the good, use tax may be due.
Imports – Services
How are services brought in from abroad treated for VAT purposes?
Sales of services that are performed or received within a state from a seller located outside the state (from either another US state or foreign country) are generally subject to sales or use tax. Recall that only specifically enumerated services are taxable in most states. In addition, If a vendor does not charge sales tax on a taxable service performed or received in the state, the purchaser may be liable for use tax.[3]
What are duties and taxes based on?
- The number of duties and taxes you need to pay for a shipment is determined by several factors:
- The HS code is used to classify the product type. Customs authorities use this commodity code to quickly understand what is shipped and to apply relevant taxes, duties, and any regulations.
- The value of the goods, including freight and insurance fees, help customs to determine the duties and taxes and to clear your shipment. That’s why it’s essential to state the correct value on the commercial invoice.
- The goods description on the commercial invoice, including the product’s end-use and country of manufacture. To make sure the goods are classified correctly, the HS code and goods description should match.
- International trade agreements between countries can influence the amount of taxes and duties on a shipment. If you’re shipping goods between nations that share a trade agreement, then they may be exempt from duties or eligible for a reduced rate.
- The Incoterms® on the commercial invoice define the agreement between sender and receiver about who pays for shipping costs, including taxes and duties.
[1] https://home.kpmg/xx/en/home/insights/2018/10/united-states-indirect-tax-guide.html
[2] https://www.investopedia.com/terms/i/import.asp
[3] https://home.kpmg/xx/en/home/insights/2018/10/united-states-indirect-tax-guide.html
