US Sales Tax vs VAT: What EU and UK Sellers Get Wrong

TL;DR

US sales tax is not a VAT, and the difference is mechanical, not cosmetic. It is a single-stage tax collected once at the final retail sale, with no input-tax credit and no reclaim — the opposite of VAT’s multi-stage, invoice-credit system (OECD International VAT/GST Guidelines). There is no federal sales tax and no US VAT number: the tax is imposed by the 45 states and the District of Columbia that levy it, and you register state by state, triggered by nexus — not by a single national threshold like the EU’s €10,000 OSS figure. No reverse charge. No import VAT. Run an EU or UK VAT mental model over the US and almost every instinct is wrong.

The whole difference in one line

VAT taxes value added at every stage; US sales tax taxes the final sale, once. Under a VAT, each business in the chain charges output tax on its sales and deducts the input tax on its purchases, remitting only the tax on its own margin — a staged collection process in which, in the OECD’s account, the full right to deduct input tax through the chain leaves the tax burden resting on the final consumer (OECD International VAT/GST Guidelines). That staged, self-cleaning credit mechanism is the defining feature of a VAT.

US sales tax has none of that machinery. It is “a general tax on the transacting of goods or services paid at the time of the transaction” (Cornell Law School), collected by the retailer from the customer at the final retail sale and remitted to the state. There is no chain of credits, because the tax is designed to land exactly once. State rates run roughly 2.9% to 7.25% at the state level, before local add-ons.

Mistake 1: expecting to reclaim your input tax

There is no input-tax credit in US sales tax, so there is nothing to reclaim. In the VAT world, tax you pay on business purchases is an asset — you deduct it. In the US, if you pay sales tax on something you buy for your own business use, that tax is simply a cost. It does not come back.

The substitute mechanism is the resale (or exemption) certificate: buy inventory to resell, hand your supplier a certificate, and buy it tax-free up front, so tax is not charged until the final sale. That is not a refund — it is how the single-stage design stays intact. The trap for anyone used to VAT: tax you collect from customers is never “your” money to net against costs. It is the state’s money you are holding, which is why collecting it in a state where you are not registered is worse than not collecting at all.

Mistake 2: expecting one registration to cover the country

There is no national US registration and no US VAT number. Because there is no federal sales tax — “no provisions exist for a sales tax or value-added tax (VAT) at the federal level” (PwC Tax Summaries) — there is nothing to register for federally. Sales tax lives at the state and local level, across the 45 states and DC that impose it. (Five states — Alaska, Delaware, Montana, New Hampshire and Oregon — have no statewide sales tax at all.)

So you register with each state’s Department of Revenue separately, and you file returns in each one. What triggers the obligation is nexus: a connection to the state, either physical (inventory, staff, an office) or economic (enough sales into the state). After South Dakota v. Wayfair (2018), physical presence is no longer required — the Supreme Court upheld collection based on economic activity alone (Sales Tax Institute). For the state-by-state picture, see sales tax nexus by state.

Mistake 3: hunting for the OSS single threshold and single return

There is no US equivalent of the EU’s One Stop Shop. In the EU, once your cross-border distance sales pass a single €10,000 EU-wide threshold, you can register once and file one OSS return covering every member state (European Commission). US sellers instinctively look for that number and that return. Neither exists.

Instead, each state sets its own economic-nexus threshold and takes its own return. South Dakota’s original Wayfair thresholds were $100,000 in sales or 200 transactions in a year (Sales Tax Institute); $100,000 is the most common figure today, but several states differ, use a dollar test only, or measure the period differently. There is no combined filing — you measure your sales state by state and file state by state. As of 2026 these thresholds still vary and change by legislation, so confirm the current rule for each state before you act.

Mistake 4: assuming reverse charge handles B2B

US sales tax has no reverse-charge mechanism. In EU B2B trade, a cross-border supplier often invoices at 0% and the registered business customer self-accounts for the VAT, deducting it in the same return so the net cash cost is nil (reverse charge, explained). That shortcut does not exist in the US. Selling to a business does not make a sale exempt, and the buyer does not self-assess on your behalf.

If your sale is taxable and you have nexus in the state, you collect and remit — business buyer or not. The only thing that removes tax from a B2B sale is the buyer handing you a valid resale or exemption certificate, which you must keep on file. No certificate, no exemption.

Mistake 5: budgeting for import VAT

There is no US import VAT. EU and UK sellers are used to paying recoverable import VAT at the border. The US does not have it. What the US does have is customs duties (tariffs) on many imported goods, collected at the border by U.S. Customs and Border Protection — a separate charge, generally not recoverable, and not a consumption tax you can reclaim. Sales tax, if it applies at all, arises later — when the goods are sold to a US customer.

So what is US sales tax, in one breath?

A state-and-local, destination-based, single-stage retail tax, collected once from your customer, with no credits and no reclaim, that you owe wherever you have nexus. Every VAT instinct — reclaim, one registration, one threshold, reverse charge, import VAT — maps onto something that either does not exist here or works the opposite way. Get that straight first, before you build US compliance on a European template.

An honest limitation

Knowing that US sales tax is not a VAT tells you which system you are in — it does not tell you where you have to register. That answer depends on your actual sales by state, your inventory locations, and each state’s current threshold and rules, which change by legislation. This article corrects the mental model; it is not a substitute for a state-by-state nexus review.

And multi-state registration and filing is a specialist discipline with its own software and its own recurring returns. What a federal-focused practice can do is tell you which questions are actually yours — separating the sales tax question from your federal filings — so you are not paying to solve a problem you do not have. Where genuine multi-state registration is needed, our sales tax registration and returns service handles the nexus review, the state registrations and the ongoing filings, priced per state.

Frequently Asked Questions

Q: I have a UK VAT number. Does it do anything for me in the US? A: Nothing. It is a UK registration under a different tax system. The US has no VAT and no national registration, so there is no US number your VAT number maps to. You register with individual states only where you have nexus.

Q: My EU accountant says to charge 0% and let the buyer handle it. Is that right for US sales? A: No — that is the reverse-charge reflex, and it has no US counterpart. If you have nexus in a state and the sale is taxable, you collect the tax yourself. Only a valid resale or exemption certificate from the buyer removes it.

Q: I sell digital services, not goods. Different rules? A: Possibly, but not in the way you would expect from VAT. US states differ on whether digital products and SaaS are taxable at all, and nexus still turns on state-level thresholds rather than an EU-style digital-services rule. Check each state where you may have crossed a threshold.

Q: Do the five no-sales-tax states mean I can ignore sales tax if I form there? A: No. Where you form your LLC does not control sales tax — nexus follows your customers and your inventory, not your certificate of formation. A Delaware or Montana LLC still collects in every other state where it has nexus.

Next Steps

Most EU and UK sellers who arrive worried about “US VAT registration” do not actually need to register anywhere yet — they have carried over a European threshold and a European reflex that do not apply here. The useful first step is small: measure your US sales by state, list where any inventory sits, and compare that against current state thresholds. Once that is on paper, the real question — whether you have crossed nexus anywhere, and where — usually answers itself, and it is a far shorter list than the internet implies.

Sources

• OECD, International VAT/GST Guidelines — VAT as a staged collection process with input-tax deduction (accessed 2026-09)
• Cornell Law School, Legal Information Institute — Sales Tax (accessed 2026-09)
• PwC Tax Summaries — United States, Other Taxes (no federal sales tax/VAT; 45 states plus DC; state rates 2.9%–7.25%) (accessed 2026-09)
• Sales Tax Institute — South Dakota v. Wayfair economic nexus FAQ ($100,000 / 200 transactions) (accessed 2026-09)
• Congressional Research Service — State Sales and Use Tax Nexus After South Dakota v. Wayfair (accessed 2026-09)
• European Commission — VAT One Stop Shop (EUR 10,000 distance-sales threshold) (accessed 2026-09)
• Fonoa — EU VAT reverse charge mechanism (recipient self-accounts; net nil for a VAT-registered buyer) (accessed 2026-09)
• U.S. Customs and Border Protection — Customs Duty Information (customs duty is a tariff/tax imposed on goods crossing international borders, collected by CBP) (accessed 2026-09)

This article is general information, not tax advice. State sales tax rules — and every threshold in it — vary and change frequently; confirm the current rule for any state before acting.