Both Sales Tax and Value Added Tax (VAT) can present a number of challenges to tax practitioners who are well versed in one, but not the other. To begin, the basic structures of how sales tax and VAT are imposed are largely different. But once you delve a little further into each one, you may notice that the terminology used looks foreign and unfamiliar. Sales tax and VAT have different terms for essentially similar concepts, but sometimes the concepts themselves are handled altogether differently. We’ll take a look at some of the language and terms used in sales tax and VAT, how they’re similar and what makes them different.
Nexus vs. Permanent Establishment
In the U.S., nexus is the basic concept of whether a company has sufficient presence in a state which then requires them to collect sales or use tax. Nexus refers to links, connections, or contacts between a political jurisdiction and a taxpayer. If a taxpayer has sufficient nexus with a state, it is deemed to be “doing business” in that state and will be liable for the state taxes. In VAT countries, a permanent establishment for VAT purposes is a factual inquiry. It could include: having a facility located in the country, bookkeeping facilities located in the country, and the ability to Read more