Sales Tax vs VAT: Key Differences for Businesses Operating in Both Markets

VAT and US sales tax are both indirect taxes, but they operate differently.

UK VAT is generally applied throughout the supply chain. VAT-registered businesses may collect VAT on sales and recover eligible VAT paid on business purchases, subject to the applicable rules.

US sales tax is generally charged to the final customer. The responsibility to register, collect and report sales tax can depend on factors such as the customer's location, the nature of the product or service and whether the business has sufficient connection, or nexus, with a particular state.

Key Differences

• VAT is administered nationally, while US sales tax is managed across state and local jurisdictions
• VAT commonly allows input-tax recovery
• US sales-tax rates and rules can vary by location
• Registration obligations may arise in multiple US states
• Product and service taxability may differ between jurisdictions
• Filing frequencies can vary by registration

Businesses operating in both markets should not use the same tax logic for every transaction.