Do We Charge Sales Tax for International Clients?

Exports to foreign clients are not subject to sales tax. That sounds open and shut, but in practice it gets complicated. States have no intention of letting someone avoid sales tax just by saying he's taking his purchase to another country. To avoid your state demanding its sales-tax cut, you'll probably have a few hoops to jump through. It may take a lawyer to figure out.


Constitutional Law

There's no ban on charging foreigners sales tax. If you run a restaurant and your customer's from another nation, she still pays sales tax on the meal. It's exports where you're supposed to be off the hook. Article One, Section Nine of the U.S. Constitution says "No Tax or Duty shall be laid on Articles exported from any State." As with many laws and constitutional principles, the problems lie in the interpretation.

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Defining Exports

Supreme Court rulings have held that the Constitutional prohibition applies when the "stream of exportation" is smooth and unbroken. In one Ohio case, for instance, National Cash Register manufactured registers for an overseas client. Because they sat in a warehouse, sometimes for months, before being shipped, the Supreme Court ruled that the export stream broke, so the state had every right to collect sales tax. The court has ruled that storing goods in different circumstances doesn't subject them to sales tax.



If a client in Mexico or Canada calls you up and asks you to ship an order, it's pretty clear you're exporting goods. Your state, however, may want evidence you were entitled to waive the sales tax. In Texas, for instance, if you're not certified with U.S. Customs as an exporter, you need documentation. The options are to provide import documents from the other country or a bill of lading showing that the items were shipped across the border.



Picking It Up

If your customer arrives in-state to pick up the goods, that involves a different set of rules. In California, for example, purchases you ship overseas are sales-tax exempt. If you deliver property in-state to the purchaser or her agent before exporting it, or the buyer picks it up in your store, it's taxable. It doesn't matter if the purchaser immediately ships it overseas or tells you that's what she intends. In Texas, you charge tax, but once the buyer proves she exported it, you can deliver a refund.



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