Sales Tax and VAT: what every LLC owner needs to know

You have formed your LLC, your first US client pays, and a question comes up: should you add a tax to the invoice? The answer depends entirely on what you sell and to whom, and the most common mistake is to reason as if US Sales Tax were a VAT. They are two radically different mechanisms.

This article sets out the rules for a non-resident LLC owner, without unnecessary jargon, and shows how LLC Place builds the question into your annual compliance instead of leaving you to discover it after a letter from a state.

Two opposite logics, one expensive confusion

VAT is a tax on added value, collected at every stage of the chain, deductible by businesses, and harmonised across a country or even an economic area. US Sales Tax is a tax on the final sale, collected only from the consumer, not deductible, and set not by the federal government but by each state, often topped up by county or city taxes.

In other words, there is no national Sales Tax in the United States. There are dozens of regimes, with different rates, exemptions and thresholds. Which is why the right question is never what the rate is, but whether you have a collection obligation in that state at all.

Nexus, the concept that decides everything

A state can only require you to collect Sales Tax if you have a sufficient link with it, called nexus. There are two forms:

• Physical nexus, as soon as you hold an office, inventory or staff in the state, including stock held in a marketplace warehouse.
• Economic nexus, generalised since the Wayfair decision, as soon as you cross a sales threshold into that state, very often $100,000 of annual revenue or 200 transactions, with variations by state.

For a non-resident entrepreneur selling services to businesses, the question almost never arises: most states do not tax professional services. For a seller of physical goods or consumer software, it becomes central as soon as volume grows.

The trap to avoid

Believing that ETBUS status and Sales Tax are linked. They are independent. Your LLC can owe no federal tax on its profits while still having to collect Sales Tax in a state where it crossed the threshold. Two different administrations, two different logics.

What applies depending on what you sell

How a threshold is actually calculated

A threshold is never assessed globally but state by state. Selling three hundred thousand dollars into the United States triggers nothing if that amount is spread across thirty states without any of them passing its own floor. Conversely, one hundred thousand dollars made with clients located in Illinois creates an obligation in that state, and in no other.

Three details separate a correct reading from a false positive:

• The reference period, which is the calendar year in some states and the last twelve rolling months in others, shifting the crossing date.
• The measured base, gross revenue for some, taxable sales only for others, a huge difference when much of what you sell is exempt.
• The registration deadline, generally thirty to sixty days after crossing, before the state considers the collection due.

Once the threshold is crossed the procedure is always the same: register with the state, collect the tax at the rate applying to the delivery address, then file periodically, monthly or quarterly depending on volume, including for periods with no sales.

Digital products, the most unsettled area

Nothing varies more than the treatment of digital goods. The same software subscription can be exempt in one state, taxed as tangible property in another, and filed under an information services category in a third. An ebook, a video course and SaaS access do not always follow the same rule, even within a single state.

The practical consequence is simple: if you sell digital products to US consumers, the point is not to find one rate but to know in which states your volume makes you liable, then handle those states and only those. That is monitoring work, not a redesign of your business.

Marketplaces, often misunderstood

Under Marketplace Facilitator laws, the large platforms collect and remit Sales Tax themselves on the sales they host. A seller who works only through those channels generally has nothing to collect personally, but must check that the platform really does it for each state, and keep the evidence. The subject is covered more broadly in our article on LLCs for e-commerce and dropshipping.

And what about VAT

Your LLC is American, it has no European VAT number and charges none on its invoices for services rendered to foreign businesses. Responsibility for the tax sits with the client, who reverse charges it at home. The point to watch is sales to consumers, where some countries require a foreign seller to register above a threshold, wherever it is established.

The trap to avoid

Charging a tax you do not have to collect is as risky as failing to collect one you owe. Taking Sales Tax without being registered in the state concerned puts you in the position of holding funds that are not yours.

Conclusion: a question of business model, not of country

Sales Tax does not depend on your nationality or your place of residence, but on what you sell and the volume you do in each state. For the vast majority of freelancers, agencies and software publishers selling to businesses, the answer is simple and reassuring. For sellers of goods it is a parameter to monitor, not an obstacle.

You can form your LLC with LLC Place or have an expert qualify your model before your first sale into the United States.

Frequently asked questions

Does my LLC need a VAT number?

No. A US LLC has no VAT number. It has an EIN, which is a US tax identifier with nothing to do with VAT. Your foreign business clients reverse charge the tax at home.

I sell an online course to consumers, am I concerned?

Potentially on both sides. Some US states tax digital products above a threshold, and some countries require a foreign seller to collect their local tax on consumer sales. That profile deserves a dedicated review, which we run with you.

What happens if I cross a threshold without noticing?

The state can claim the uncollected tax plus interest and penalties. That is precisely why threshold monitoring is part of the service rather than being left to chance.

Does Sales Tax undo my 0 % federal tax?

No. They are two separate regimes. Collecting Sales Tax in a state does not make your LLC liable for federal income tax, which depends on the ETBUS status explained in our guide on the US LLC for non-residents.