The Road to E-Invoicing Mandates in the United States – Part One

As technology advances and global commerce evolves, the absence of a nationwide mandate for e-invoicing in the United States becomes a notable characteristic. Unlike several nations worldwide embracing the efficiency and transparency of electronic invoicing, the U.S. remains without a comprehensive requirement for businesses engaged in B2B transactions. This raises intriguing considerations about the factors influencing the nation’s hesitancy to mandate the adoption of digital invoicing practices.

This is the first installment of our two-part series delving into the state of e-invoicing adoption in the U.S. Be sure to explore our second article, where we discuss recent e-invoicing initiatives, including the Digital Business Networks Alliance overseeing a market pilot initiated by the Business Payments Coalition.

Why Isn’t Tax the Sole Propeller for E-Invoicing Adoption in the U.S.?

This question gains paramount importance as tax authorities worldwide continually announce new e-invoicing mandates almost weekly. Currently, virtually every country in the EMEA region is in various stages of e-invoicing implementation, such as:

• Consultations
• Research Studies
• Draft Legislation
• Confirmed Legislation
• Confirmed Legislation Awaiting Activation

The driving force behind these initiatives is primarily the need to address the VAT gap, which stands at over €93 billion in the EU alone and is estimated to be around $400 billion globally.

The U.S. is currently not mandating e-invoices for B2B transactions primarily because tax complexities and the absence of a centralized authority hinder nationwide adoption. The lack of a federal VAT or GST system, input tax credit mechanisms, and formal tax invoice regulations in most states contribute to the current situation.

Possible VAT Implementation in the U.S.

Immediate implementation of VAT in the US appears unlikely due to the complexities of the state and local tax systems. The federal level currently shows limited appetite, with upcoming elections adding an element of unpredictability. The adoption of e-invoicing in the US is anticipated to be more driven by commercial factors than regulatory changes. Initiatives from entities like the Business Payment Coalition, Federal Reserve Banks, and the Digital Business Networks Alliance focus on creating a common network and format, facilitating an organic shift toward electronic invoicing driven by business efficiency and cost-saving recognition.

Prospects of E-Invoicing Mandate in the U.S.

The U.S. Congress, bound by the Commerce Clause, can mandate a framework only for inter-state transactions. Intrastate activities fall under the state government's jurisdiction. Any potential future e-invoicing mandate in the U.S. would likely apply to cross-border transactions. Similar to the European Commission's proposal for mandatory e-invoicing in intra-community trade from 2028, achieving this in the U.S. would require persuading individual states to adopt a cohesive e-invoicing framework for cross-border activities.

Precedence exists with a state-level e-standard organization promoting uniformity in transmitting e-documents across states and industries. However, the absence of a centralized indirect tax authority and a unified tax system poses a significant barrier.

Taxation Landscape in the U.S.

The U.S. is the only major economy without a federal VAT or GST system. Sales tax is managed at state and local levels, with complexities arising from various jurisdictions, including special taxes linked to local factors like sports teams. With over 10,000 jurisdictions imposing sales tax, the Streamlined Sales Tax Agreement (SST) simplifies compliance processes at the state and local levels.

E-Invoicing in Government Procurement in the U.S.

In the business-to-government scenario, government incentives and legislation aim to digitize public procurement through e-invoicing. Federal agencies and their suppliers are required to have the option for electronic invoice submission, aligning with the Government Paperwork Elimination Act. However, in the broader B2B landscape, there are currently no e-invoicing mandates at state or federal levels.

Fragmentation and Other Challenges in the Current Business Landscape

Commercial freedom businesses drive the complexity of the current landscape, as the U.S. lacks defined rules for tax invoices and an input tax credit mechanism. This freedom has led to divergence in, among other things:

• E-Invoicing Formats
• Syntaxes
• Data Subsets

Businesses often adopt procurement accounts payable networks to meet customer requests, resulting in point-to-point solutions with benefits primarily accruing to the customer.

A study by the Business Payments Coalition identified over 250 e-invoice providers using more than 15 formats and over 40 subsets across the U.S. This fragmentation extends to industry-specific codes and catalogs, creating a highly intricate e-invoicing environment. Addressing this complexity may involve industry collaboration and standardization efforts to streamline processes and enhance interoperability.

The Quest for Standardization

The abundance of available options presents a significant barrier to the widespread adoption of electronic invoicing in the United States. The lack of interoperability across various syntaxes, formats, subsets, service providers, and systems introduces complexities for end users. Frequently, U.S. businesses looking to transition to electronic invoices feel compelled to integrate directly with their trading partners' systems or join networks their partners use, leading to additional financial burdens.

The absence of a unified standard or network for initiating e-invoicing leaves businesses without a clear starting point. Typically, initiatives in this realm are driven by:

• Suppliers
• Vendors
• Larger Customers

Acknowledging this challenge, the Business Payment Coalition has launched a market pilot to establish an e-invoice exchange across the United States and North America. The overarching goal is to create a production-ready, business-to-business e-invoice exchange framework, facilitating seamless electronic invoice exchange between sellers and buyers in the U.S. market. We’ll cover this market pilot in the next article on the state of e-invoicing in the U.S.

E-Invoicing Compliance Preparation with Comarch e-Invoicing

Although not without challenges, the United States is steadily progressing towards e-invoicing adoption. If your company operates within the U.S., it’s essential to prepare for potential compliance requirements in the near future. Fortunately, Comarch e-Invoicing stands ready to assist.

Leveraging over two decades of expertise in developing diverse electronic document exchange projects, we’ve effectively connected over 130,000 entities across 60 countries. Explore the Comarch e-Invoicing website or contact our experts directly for comprehensive details on how we can support and guide your business through this impending digital transformation.

There’s more you should know about e-invoicing in USA – learn more about the new and upcoming regulations.