The political and economic system of the US has created an incredibly large wealth gap between the upper 2% of the super-rich, and the remaining 98%, with a rapidly declining middle class and ever-increasing numbers of low-wage earners. Fashion e-commerce entrepreneurs will have to stand out from the crowd in more ways than one.

Making ends meet in the US is becoming increasingly difficult, leading to people working two or more jobs, just to be able to survive paycheck to paycheck. Online shopping, and specifically fashion e-commerce is therefore – understandably – low on the list of necessities. The market segment is governed by the cheap and fast fashion segment, which is why the Chinese online giant Shein is earning the lion’s share (reportedly more than $30 billion during the fiscal year 2023) of the fashion e-commerce segment in the US.

Americans spend an average of just $50 – $100 per month online, not even 50% of that on fashion. Despite these low individual sales, anyone interested in entering the US fashion e-commerce market must consider the enormous number of possible end customers at a population of over 341 million. Internet saturation in the US has now reached 97%, however, the rural (and significantly less populated) states along the so-called Bible Belt are stagnant at just 60% saturation. Nevertheless, the possible turnover could be staggering. However:

Better, more dynamic online shops for fashion e-commerce

Americans are constantly inundated with adverts on television, radio, and the Internet. Much more so than consumers must endure in Europe. A successful fashion e-commerce online shop will address its clientele specifically, with easy-to-read, concise, informative product information, and favorable payment, delivery, and returns options. Online offerings should be updated frequently, and special offers, discounts, campaigns, and giveaways will further drive traffic. The availability of AI chatbots for frequently asked questions poses another distinct advantage and is worth serious consideration. Another important factor is language. Any online shop in the US must be available in English and Latin American Spanish. Spanish may not be recognized as an official language of the US, but the numbers don’t lie: over 42 million people in the US speak Spanish at home, and it is the most taught foreign language in all 50 states.

Fashion e-commerce in the US of A could therefore be a very interesting proposition indeed. The right kinds of products, keen pricing, and excellent marketing – why you’ve got a winner right there … if the tax laws in the 50 states weren’t the most confusing on the planet, turning selling online into a possible tax nightmare.

US sales tax is governed at the state level. Each state can decide whether to have a sales tax, and forty-five states plus Washington, D.C., all do. Only four states – Delaware, Montana, New Hampshire, and Oregon – do not have a sales tax. Most states that do require sales tax also allow local areas (like cities and counties) to charge their own sales tax. When purchasing at a brick-and-mortar store in the U.S., you might see that you paid an odd number, like 6.75% in sales tax.

This is because you are paying a statewide tax, city and/or county taxes, and maybe a “special taxing district” tax rate. Sufficiently confused yet? No? Hold my beer.

In the U.S., e-commerce sellers (offline or online) are only required to collect sales tax in states where they have “sales tax nexus”.  However, you must have a permit before you collect sales tax from customers.

What is the US sales tax nexus?

Sales tax nexus is just a fancy, legalese way of saying that you have “roots” in a state.

Here are just a few ways that you might create nexus:

  • A location – an office, warehouse, fulfillment center, store, or other physical place of business
  • Staff – an owner, employee, contractor, salesperson, installer, or other person doing work for your business
  • Stock – Most states consider storing inventory in the state to cause nexus even if you have no other place of business or personnel
  • A drop shipping relationship – If you have a 3rd party ship to your buyers, that could create nexus

If you do have nexus, then that state considers you on the hook for charging sales tax to buyers in the state. You’ll always have sales tax nexus in your home state where your business is incorporated, but you may find that certain business activities create nexus in other states, too. For e-commerce, i.e. online shops, this means you must allow for the various tax rates of each state, with special conditions for any states in which you may have nexus. But don’t be discouraged. There are plenty of professionals that can help you out with tax issues, and the benefits of starting a new fashion e-commerce business in the US may far outweigh the drawbacks.

It comes as no surprise then that the four sales tax-free states see increasing numbers of new company incorporations from abroad. There is plenty of good information available online, and one site in particular, Globalfy.com, seems to offer a quite broad view of the pros and cons of incorporating a business in the US, rather than just opening a foreign subsidiary.



Sources

 

autor_eurotext_100Author: Eurotext Editorial Team

We explain how internationalization works, provide tips for your translation projects and outline some of the technology and processes used. We also report on current e-commerce developments and cover a range of language-related topics.