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A person who is neither a citizen, nor a resident in the US (a US non-resident alien), has a website which brings him some income, for example from Google AdSense.

In what cases would this person have to pay US income tax as a non-resident alien to the IRS? This question is only about the tax liability to the US, not about any taxes the person has to pay in the country where he is resident.

This IRS page says that:

A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. The general rules for determining U.S. source income that apply to most nonresident aliens are shown below:

and there is a nice table, which says that the factor determining source is "Where services performed".

Which doesn't explain me much, as how does one determine where are services provided by a website performed? Is it based on where is the person developing this website located or where is the server hosting the website located, or something else?

The person itself was not physically in the US when developing this website.

Please also explain cases when the person visits the US for a short time (for example a weekend) while this website is online (for reasons unrelated to the website, for example attending a conference).

What if the person while visiting US, notices that his website is down, and logs in to the server to restart it? Does that small event make him liable to US income tax on the whole income from his website?

Or maybe it all doesn't matter, because Google is a US company and any income received from a US company is US-source income anyway?

What if the income is not from Google AdSense, but a webshop selling something to customers worldwide? Does it matter if he has any US customer buy something from his website?

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The answer to this question is not actually well defined. It is one of those things that will likely depend on how much money you make, and is there any way the IRS Auditor can find to tie it to the US.

Were I going to make the decision about did I want to poke the beast that is the IRS here are the criteria I would use:

I would define this as US Based Income if any of the following are true:

  • Is the web server, Database Server, or Transaction processing server(chances are all are in one server farm) hosted on in the US.
  • Is the bank used to receive the Transaction proceeds in the US?
  • Are the physical orders being fulfilled from a location in the US?
  • Is the primary source of any service being provided in the US?
  • Is their any digital distribution of purchased product from a server based in the US?

Please note that even if you answer No to all of these that does not mean you automatically are safe. And there may be a situation where you answered yes but are not subject to US taxes.

Fortunately the US Tax code is super easy for the laymen to understand... But if you happen to be among the 8 billion people in the world who have difficulty with it there are professionals who can help. If you are unsure then I would consult one of them.

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  • I recall a case where they differentiated between a server owned by a provider and one that was colocated (owned by the foreign entity but sitting on US soil- space power and internet connection provided for a fee by an arms-length company). What seemed like a simple technical decision had major tax implications by arguably creating a "permanent establishment".
    – Spehro Pefhany
    Jul 25 '16 at 18:19

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