Why Doesn’t the United States Have a VAT? Key Differences Between VAT and US Sales Tax
November 18, 2025
English
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Short answer: no. The United States does not use a national Value Added Tax (VAT). Instead, consumption taxes are handled at state and local levels as sales and use taxes. This article explains what VAT is, how it works in other countries, and why the U.S. relies on a decentralized sales tax system — and what that means for foreign entrepreneurs and investors. You’ll find clear explanations of sales tax collection, remittance, nexus, and use tax rules, plus concrete steps for foreign businesses to register, comply, and price for multi-state sales. We include practical checklists, state comparisons, and examples geared to Latin American sellers and international e-commerce merchants to make compliance actionable. Finally, we summarize key federal and state filing obligations — EIN/ITIN, BOI reporting, annual reports, and income tax exposure — and show how Prodezk helps foreign businesses with formation and multilingual compliance services. Keep reading for a usable roadmap that turns VAT expectations into U.S. sales tax realities.
There’s no federal VAT in the U.S. because states historically control consumption taxes, which produces a decentralized system where state and local governments administer sales taxes. VAT is a broad-based, multi-stage consumption tax with input tax credits at each production step. U.S. sales tax, by contrast, is usually charged once at the final retail sale by the seller or a marketplace facilitator. Those different collection methods change bookkeeping, documentation, and cross-border treatment — and they matter a lot for sellers used to VAT invoices and crediting. Knowing these distinctions helps foreign businesses anticipate registration needs, pricing impacts, and documentation requirements, and sets up why nexus and state-by-state variability are critical.
At a practical level, VAT and U.S. sales tax differ across five dimensions important to cross-border sellers:
Those differences create a gap for firms accustomed to routine input credits. If you expect VAT-style uniformity, the next section explains how U.S. sales tax mechanics work and why they matter for registration and collection.
Value Added Tax (VAT) is a consumption tax applied to the value added at each stage of production and distribution. Businesses charge VAT on sales and reclaim VAT paid on purchases via input tax credits, producing a chain of invoices where intermediaries pass the tax along until the final consumer bears the net amount. Many countries use VAT or GST with consistent invoicing, regular returns, and predictable crediting, and exports are often zero-rated for VAT purposes. In Latin America, for example, VAT systems commonly provide reliable crediting and nationally consistent rates — a contrast with the U.S., where states require separate registrations and different documentation standards. That contrast can create operational friction for sellers moving goods into the U.S.
Shifting from a VAT environment to the U.S. sales tax system usually requires process changes and tighter point-of-sale controls. The section that follows contrasts those operational differences directly with U.S. sales tax practice.
In the U.S., sales tax is generally collected at the point of retail sale and remitted by the seller; there is no federal input tax credit system. Instead, sellers rely on resale certificates and specific refund procedures where available. States and localities set different rates and rules, creating thousands of combined rates and local variations that complicate pricing and invoicing. Many states have marketplace facilitator laws that shift collection responsibility to platforms, further changing reconciliation and reporting. These operational differences add burden for foreign sellers, who must adapt billing systems and manage filings across jurisdictions.
With that context, the next section lays out the exact steps a foreign entrepreneur should follow to collect and remit U.S. sales tax, including registration triggers and marketplace considerations.
U.S. sales tax is a consumption tax imposed by states and localities where the sale is sourced or where the customer is located. If a seller has nexus in a state, it must register, collect tax at the appropriate local rate, and remit on the prescribed schedule. Practically, foreign businesses should identify nexus exposures, obtain sales tax permits where required, conp accurate tax calculations at checkout, keep exemption documentation, and file returns on time. Marketplace facilitator rules mean platforms often collect and remit tax for marketplace sales, which can reduce liability for some channels but doesn’t remove registration risk for direct sales or other platforms. Mastering these operational steps is essential before we cover use tax and its role in state consumption taxation.
The collection and remittance workflow can be broken into four operational steps you can implement:
Following these steps reduces penalty risk and supports consistent pricing across channels. Next, we explain how use tax complements sales tax and why tracking out-of-state purchases matters.
Sales tax applies to retail sales of tangible personal property and, in many states, certain services. The seller — or a marketplace facilitator under state law — is usually responsible for collection. Sellers must charge tax at the point of sale based on destination or origin rules, apply exemptions for resale or exempt buyers, and keep receipts that document taxes collected. Marketplace facilitator rules have expanded in recent years, shifting collection responsibility to platforms for many marketplace transactions; that eases collection for some sellers but changes reconciliation and reporting tasks. Ensure your POS systems, e-commerce checkouts, and order records capture jurisdictional tax and the basis for any exemptions.
Keeping valid exemption certificates and reconciling marketplace transactions are key audit controls. The following subsection explains use tax and common situations where it applies.
Use tax complements sales tax by taxing the storage, use, or consumption of goods when sales tax was not charged at the point of purchase. Businesses that buy goods from out-of-state suppliers may owe use tax to the state where the goods are used or stored; consumers can also owe use tax for untaxed purchases. For foreign sellers, use tax matters when you import goods into states for fulfillment, warehousing, or internal use — those activities can trigger tax obligations even if sales tax wasn’t collected at purchase. Regular recordkeeping and periodic self-assessment help avoid surprise liabilities and improve financial reporting.
Track purchase origins and match them to state use tax rules to reduce inattentive noncompliance and to prepare for nexus assessments covered next.
Sales tax nexus is the legal threshold that gives a state the right to require a seller to register, collect, and remit sales tax. Nexus can arise from physical presence or economic activity that meets state-specific thresholds. For foreign businesses, nexus analysis is the first compliance step: if you have nexus in a state, you must obtain a sales tax permit, collect tax on transactions sourced to that state, and file returns on the state’s schedule. Nexus carries registration obligations, potential liability for uncollected tax, and ongoing compliance duties across jurisdictions. Regularly assessing nexus and tracking rule changes is the practical way to avoid surprises and manage multi-state obligations.
Common nexus triggers include:
Monitoring these triggers lets you register early and stay compliant. If you see potential nexus exposure, the next subsection gives concrete physical and economic examples.
Understanding Sales and Use Tax Nexus in Remote and Electronic Commerce
In discussing sales tax principles, the term "sales tax" is used broadly and distinguished from "use tax" where context requires. "Remote commerce" and "electronic commerce" refer to transactions across state or national borders.
Sales and Use Tax Weaknesses & Possible Remedies: Nexus Uncertainty, A Nellen, 2007
Physical nexus commonly arises when a foreign seller stores goods in a U.S. warehouse, uses fulfillment centers, has employees or contractors working in a state, or maintains an office — all of which can require registration. Economic nexus is triggered when remote sales into a state exceed that state’s thresholds, typically measured by annual revenue or transaction count; after the Wayfair decision, many states adopted these rules. For sellers using third-party logistics or marketplaces, inventory in a fulfillment center or frequent in-state returns can create unexpected physical nexus. Regularly monitor sales volumes and operational footprints to know when registration and collection should begin.
Understanding these triggers leads naturally into how state-specific variations affect multi-state compliance, discussed next.
States differ widely on economic nexus thresholds, lookback periods, and what activities count as taxable presence. That means identical sales patterns can be compliant in one state and noncompliant in another. The administrative burden includes different registration processes, filing frequencies, and penalty regimes — all of which complicate multi-state operations. Practical strategies include using tax automation software, appointing a local agent, or hiring professionals to centralize compliance tasks. Maintain a nexus matrix listing thresholds, registration dates, and filing windows to streamline ongoing work and reduce audit risk.
When nexus is likely or unclear, a professional assessment can quantify exposure and plan registration steps. Prodezk can help evaluate nexus risk and assist with registrations and filings for foreign clients to ensure timely compliance.
The majority of U.S. states impose a statewide sales tax and allow local jurisdictions to add layers, creating a wide range of combined rates and thousands of local tax jurisdictions; a small group of states does not impose a statewide sales tax. For foreign businesses, knowing which states tax retail sales, which allow local levies, and how combined rates apply is essential for pricing, checkout accuracy, and registration planning. Local variability means the tax on a single sale can differ depending on the buyer’s precise address, so automated rate lookups and careful invoicing are important. The table below highlights states without a statewide sales tax and notes local caveats to help you prioritize registration efforts.
State
Statewide Rate / Local Variability
Registration Thresholds / Notes
Alaska
No statewide tax; some boroughs and cities impose local sales taxes
Local taxes exist in parts of the state; confirm obligations at the local level
Delaware
No statewide sales tax; corporate gross receipts taxes may apply
No retail sales tax, but businesses still face other state-level taxes
Montana
No statewide sales tax; some resort areas levy local taxes
Limited local taxes; remote sales rules may still affect sellers
New Hampshire
No general sales tax; selective taxes apply to specific services
No statewide sales tax but other business taxes may be relevant
Oregon
No statewide sales tax
No retail sales tax; still monitor nexus triggers for out‑of‑state sellers
A few states do not have a statewide sales tax, but that absence doesn’t always eliminate local taxes or other business-level levies. Check Alaska, Delaware, Montana, New Hampshire, and Oregon for local exceptions — some cities or boroughs may still charge transaction or resort taxes. For sellers using national marketplaces or fulfillment centers, local taxes in these states can still create registration or collection responsibilities. Understanding these nuances helps you decide where to register proactively and where to monitor activity.
Knowing where statewide tax doesn’t apply leads to the next priority: calculating correct rates where taxes do apply, discussed below.
Combined sales tax rates (state plus local) range from relatively low to significantly higher totals in certain localities. Thousands of local jurisdictions create a patchwork of rates that change frequently; in some areas, municipal and district levies can push combined rates well above the state base. This variability requires real‑time rate lookups or reliable tax databases to ensure accurate checkout pricing. Use automated services to calculate destination-based taxes and update rates promptly to avoid under-collection. Clear customer-facing information about tax charges and exemption handling reduces disputes and supports compliance.
Because rate complexity is operationally significant, many sellers outsource multi-state registrations and rate configuration. Prodezk helps map state rate exposure and manage registration filings for foreign clients to reduce administrative overhead.
State
Statewide Rate
Local Rate Variability
Example low combined
4.00%
Minimal local additions in many jurisdictions
Example high combined
9.50%+
Multiple local districts can push combined rates higher
Typical range
4%–8%
Wide local variability across urban and rural areas
Foreign businesses selling in or to the U.S. must manage core compliance obligations: obtain an EIN or ITIN as needed, meet Beneficial Ownership Information (BOI) reporting requirements, file state annual reports where entities are registered, determine income tax exposure for U.S.-source or effectively connected income, and register for and remit sales tax in states where nexus exists. Start by choosing the right entity structure, obtaining required identification numbers, and scheduling recurring federal and state filings. Centralizing a compliance calendar and using professional help reduces mistakes and missed deadlines that trigger penalties. The checklist below summarizes common obligations and typical applicability.
Key compliance items for foreign-owned entities include:
These essentials form the baseline compliance framework and prepare you for the filing details in the next sections.
BOI reporting requires companies to report certain ownership and control information to the designated federal registry when applicable. State annual reports typically update registered agent details, officers or managers, and include a filing fee. BOI focuses on identifying individuals with significant control or ownership; failing to file BOI or required state annual reports can result in penalties or administrative dissolution. Foreign entrepreneurs should compile accurate ownership, address, and ID information early to speed filings and avoid corrections. Maintaining a compliance calendar for federal BOI deadlines and each state’s annual report window streamlines ongoing obligations.
Having BOI and annual report data organized helps businesses respond quickly to audits and inquiries. That leads into how income tax rules apply to foreign entities operating in the U.S.
Income tax obligations depend on whether a foreign business has U.S.-source income or income effectively connected with a U.S. trade or business (ECI). ECI triggers federal filing and withholding requirements and may create state-level filing obligations depending on nexus and apportionment rules. Sales of goods and services can be sourced differently for tax purposes, and payments to foreign persons may require withholding absent treaty relief or proper documentation. Work with qualified tax counsel to assess ECI exposure, apply tax treaties where relevant, and set up withholding and reporting. Early assessment prevents unexpected liabilities and supports accurate tax planning.
With these compliance obligations in view, the final section explains how Prodezk helps foreign entrepreneurs with formation, registration, and ongoing filing responsibilities.
Prodezk is a resource and service partner for foreign entrepreneurs, offering end-to-end U.S. company formation and compliance support with multilingual assistance tailored to Latin American and international clients. Our services combine incorporation, office services, corporate documents, bank account facilitation, and tax support — including income tax, sales tax, annual reports, and BOI reporting — in a single place. This consolidated approach reduces the need to coordinate multiple vendors and speeds the path from formation to operational compliance. The sections below outline our practical service workflow and the broader menu available to foreign-owned businesses.
Prodezk simplifies sales tax and compliance through a stepwise service approach:
This workflow reduces administrative friction and helps entrepreneurs meet state deadlines and keep accurate records across jurisdictions.
Prodezk starts with a nexus assessment to pinpoint the states where registration is required, then handles multi-state sales tax registrations and conps collection tools so rates apply correctly at checkout. Our process flows from assessment to registration, collection setup, and periodic filing, with guidance on exemption documentation, marketplace facilitator rules, and reconciliation best practices. Multilingual support in English, Spanish, and Portuguese helps clients navigate state forms and communications, and a centralized service model minimizes coordination between formation and tax compliance tasks. Clients benefit from a single point of contact for registration and ongoing filings, simplifying day-to-day compliance.
These practical steps connect company formation with tax compliance, and Prodezk’s broader service menu covers additional needs described next.
Beyond sales tax support, Prodezk provides a coordinated set of services from company formation through operational compliance: incorporation, corporate documents, registered office services, bank account facilitation, and ongoing tax services for income tax, annual reports, and BOI reporting. We emphasize transparent paperwork handling, efficient processing, and multilingual assistance tailored to international clients. Acting as a single partner for the administrative lifecycle of a U.S. entity reduces the need to manage multiple vendors and makes recurring compliance easier to handle.
Our service suite helps foreign businesses move from information to action, ensuring the steps described earlier are executed reliably and in the correct jurisdictions.
Foreign businesses commonly struggle with the decentralized nature of U.S. sales tax — rules vary by state and locality — which creates complex compliance requirements. Adapting from a national VAT system to state-level sales tax changes invoicing and crediting workflows. Determining nexus, handling diverse rates, and maintaining accurate exemption documentation (resale certificates, etc.) are frequent pain points. These challenges often call for professional help or software to stay compliant as you scale.
Determine nexus by reviewing physical and economic activity in each state. Physical nexus can come from inventory in a warehouse, employees, or local contractors. Economic nexus is typically based on sales volume or transaction count thresholds set by each state. Regularly monitor sales and operations, and consult tax professionals to confirm obligations and timing for registration.
Noncompliance can lead to fines, penalties, and interest on unpaid taxes. It may trigger audits, create administrative burdens, and harm your reputation with customers and platforms. In severe cases, states can assess back taxes and penalties that materially affect cash flow. Staying proactive with registration, documentation, and filing reduces these risks.
Local sales tax rates can materially affect checkout pricing because rates vary not only by state but by city and district. To keep prices competitive and accurate, businesses should calculate destination-based tax at checkout and decide whether to show tax-inclusive prices or add tax at the end. Automated tax tools help ensure correct rate application and simplify pricing strategy across regions.
Useful resources include state tax authority websites, professional tax advisors specializing in cross-border commerce, and SaaS tax engines that calculate rates and handle filings. Trade associations, webinars, and Prodezk’s multilingual guides can also help you understand obligations. Combining expert advice with automation reduces manual work and compliance risk.
Prodezk provides end-to-end support: nexus assessments, multi-state registrations, collection setup, and periodic filings. We guide clients on exemption documentation, marketplace facilitator rules, and reconciliation best practices. With multilingual support and a single point of contact, Prodezk simplifies the paperwork and communications needed to stay compliant while you focus on growth.
To stay current, subscribe to updates from state revenue departments, follow tax advisory firms and industry newsletters, and attend webinars on U.S. sales tax. Maintain a relationship with a tax advisor who monitors legislative changes and consider using automation that updates rates and rules in real time. Regular reviews of nexus and filing calendars are essential.
Understanding U.S. sales tax is essential for foreign businesses that want to enter the market without costly compliance surprises. By appreciating the differences between VAT and U.S. sales tax, and by following practical registration and filing steps, you can operate across states with confidence. Prodezk offers tailored, multilingual support to simplify registration, filings, and ongoing compliance so you can focus on growing your business. Ready to get started? Explore our services and let us help you enter the U.S. market with clarity and control.
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