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Understanding US Sales Tax System
Unlike many other countries, the United States does not have a federal value-added tax (VAT) or national sales tax. Instead, sales taxes are levied at state and local municipal levels. This creates a fragmented system where tax rules, exemptions, and rates vary significantly:
State-level taxes: States like Oregon, Montana, New Hampshire, and Delaware impose 0% state sales tax.
Local taxes: Counties and cities can add local district taxes on top of the state rate, meaning combined rates can range from 0% to over 10%.
Destination-based sourcing: Most states require online sellers to collect tax based on where the buyer is located rather than where the business is domiciled.
Understanding UK Value Added Tax (VAT) System
The United Kingdom utilizes a centralized Value Added Tax (VAT) system governed by HM Revenue and Customs (HMRC). Unlike US sales tax which is added at the final point of retail purchase, VAT is charged at each stage of the supply chain where value is added:
Standard Rate (20%): Applies to the majority of goods and services sold in the UK.
Reduced Rate (5%): Applies to specific goods like home energy, children's car seats, and certain mobility aids.
Zero Rate (0%): Applies to essential items such as most books, newspapers, and children's clothing.
VAT Registration Threshold: UK businesses must register for VAT if their taxable turnover exceeds £85,000 within a 12-month period.