International Internet Sales
There is little certainty about the effect of current US legislation on the taxation of sales made from non-US web-sites.

The Internet Taxation Moratorium
Since 1999 there has been a moratorium on the imposition of Internet access taxes.

International Internet Sales

As regards international transactions, the existing rules are clear about sales of physical products delivered in the United States: if the seller is in a country with which the United States has a double tax treaty (almost all high-tax countries) then there is no sales tax unless the company has a "permanent establishment" in the United States; for other countries (including almost all offshore jurisdictions) products are taxed on arrival if the sale is "effectively connected with the conduct of a US trade or business".

There is little certainty about the effect of current US legislation on the taxation of sales made from non-US web-sites. Some indications given here are not definitive answers, and any trader should seek professional advice relevant to their own particular situation.

The location of the server in or on or with which a contract was concluded has an uncertain impact on taxability. It is thought unlikely that a server based in the US constitutes a 'permanent establishment', but sellers are well-advised to avoid such if possible. Even if the server is not a problem, the server's host might be an 'agent', who can be deemed a 'permanent establishment'. A host who also provided transaction-processing, support and marketing functions would probably cross the line into being a permanent establishment, especially if the host does not have many clients.

It is also unlikely that the positioning of a server in an offshore jurisdiction by a 'treaty' country business would change the origin of the sale, but no-one knows for sure. By the same token, it is unlikely that an offshore (non-treaty) company could avoid taxability by using a server in a high-tax (treaty) country.

So for physical products, the conclusion seems to be that e-commerce doesn't really change much, unless a company moves from a treaty to a non-treaty country. Usually this would happen in order to gain corporation tax benefit and that benefit would have to be set against the taxability of US B2B sales.

For digital products other than software there is the additional difficulty that it is not clear what is being sold. The rules for software say that it is delivered where it is downloaded, and taxed accordingly, as if it was a physical product (see above). Other types of download may be treated equivalently to software, but may instead be treated as generating royalty income, which would be taxable regardless of whether or not there is a permanent establishment in the US. There are, at the time of writing, no rules. The normal rate of tax (to be withheld by the US buyer) would be 30% on royalties, which could be partly reclaimed by the seller if in a treaty jurisdiction. But it seems most improbable that a private buyer of, say, recorded music in the US is going to deduct and remit tax on purchases from a remote vendor, and only slightly less improbable that a business would do it unless they are buying on a large and noticeable scale.

The problem for a business selling downloadable product into the US, and not needing to allow for tax as things stand, is evidently that retrospective legislation may make it liable for large amounts of tax on past transactions. Businesses will have to make their own decisions about what to do. For a small business with occasional US sales, the danger can probably be disregarded, but for a larger business with a substantial Internet trade in the EU, there is a real chance that the IRS will come after them one day.

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International Internet Sales
There is little certainty about the effect of current US legislation on the taxation of sales made from non-US web-sites.

The Internet Taxation Moratorium
Since 1999 there has been a moratorium on the imposition of Internet access taxes.