Tax is a government-imposed levy added to the cost of goods, services, and transactions to generate revenue. Each country has its own unique and specific tax regulations. These varying details can become quite complex and confusing for retailers aiming to sell various products across multiple countries.

The taxes covered in this guide are all forms of indirect taxes. Unlike direct taxes, which are paid directly to the government (such as income tax), indirect taxes are collected at various stages of the supply chain and remitted to the government, typically included in the purchase price of goods or services. There are two main types of consumption taxes, often referred to as value-added tax (VAT) or goods and services tax (GST), depending on the country. These taxes are calculated using a standard percentage set by the importing country's government.

Most countries utilize VAT as their primary taxation method. The rates, rules, and exceptions for VAT are established at the individual country level. VAT is applied at each stage of a product's production, distribution, and consumption, charged whenever value is added—from the sale of raw materials to the final consumer purchase. Although VAT is collected at each transaction point, a portion reimburses the VAT paid by the previous buyer in the chain, with the government receiving a portion from every stage. Ultimately, the consumer bears the full VAT cost in the final transaction.

GST, or Goods and Services Tax, is another term for VAT used in some countries. It functions similarly to VAT, applying to goods and services at each stage of production and distribution, with the tax included in the final consumer price.

Another form of indirect tax is the United States (U.S.) sales tax. Unlike most countries that levy VAT or GST, the U.S. uses state sales tax for taxation. Several criteria must be met for sales tax collection to occur. While VAT is paid multiple times at various production, distribution, and consumption stages, sales tax is only charged to the consumer at the point of sale.

Sales tax is a one-time tax applied at the point of purchase. The consumer pays it to the retailer, who then remits it to the government. Only the end consumer pays sales tax. Manufacturers or retailers purchasing items for resale are exempt from paying sales tax on those purchases. Sales tax rates, rules, and exceptions are determined at the local and state levels.

Retailers are not required to collect or remit sales tax on interstate online sales unless they have a business presence (nexus) in the state. Nexus can be established through physical presence (such as buildings, employees, or salesperson visits) or economic presence (meeting sales thresholds set by each state). Retailers must either have a business presence or exceed sales value thresholds within the buyer's state to be obligated to collect and remit sales tax there.

U.S. import sales tax: The U.S. does not have a national sales tax applicable to imports. International (and domestic) sellers are only required to collect and remit sales tax when they have nexus in the state they are selling to.

As previously discussed, VAT/GST and sales tax are indirect taxes, with the end consumer ultimately bearing the cost. These taxes are implemented by governments to generate revenue. However, their differences become particularly relevant in cross-border transactions.

While VAT, GST, and sales tax are distinct methods of taxation, they all essentially serve the same purpose. Regardless of whether a country imposes taxes at a set rate, a percentage based on added value, at the time of consumption, during production and distribution, at the point of sale, or at the time of import, all these forms of taxation aim to generate government revenue.