Implementing Taxes for your Membership Site
If you think technology is complicated has clearly not considered coordinating taxes for a globally diversified member site. Honestly, just thinking about it has the possibility of causing confusion and even lightheadedness.
The first piece of advice when it comes to handling taxes on a membership website is to seek professional advice. However the problem can become complicated enough that even your accountant could be scratching his/her head. However, don't turn the complexity of the matter as an excuse to avoid the problem.
In this blog, we're going to focus on providing an outline of the present tax environment as it relates to digital commerce and particularly web-based membership websites.
Remember that not all membership websites has the same features. You may only provide details, while another's might have downloadable items or ship physical products. There could be different tax rates involved in each case.
The Changing Tax Landscape
Sales taxes are made more complicated by the fact that each nation has its own rules. Sometimes it becomes even more granular, such for the USA or Canada where the sales tax is different by state and province. Taxes on sales are usually self-regulating also - a fact that many people are unaware of.
Imagine, for instance, that I buy an item from you, which is exempt from sales tax. For whatever reason, you don't charge me the applicable sales tax. If you think the issue is closed, you'd be wrong. Being the customer, I'm responsible for self-assessing the amount of tax that I owe and then submitting the tax to the appropriate tax authority. It is easy to imagine how frequently this occurs, isn't it?
The online economy has grown to a point where governments are no longer willing to turn a blind eye to the tax revenue loss as the digital economy's products, services, and memberships cross local and international borders. A perfect example of which can be seen in the rules enacted by the EU in the month of January.
In essence, what basically, what EU has essentially said is that when you sell digital goods or services to EU clients, then you have to cost them EU VAT. Yes, it's exactly what you believe it does. You may not only be paying, reporting and reporting taxes locally, you'll also need to submit a tax return in respect of taxes from the EU taxes you are responsible to collect.
The process can be difficult at times, However, there's good information. With the help of a software, the entire process can be made easier with a fairly simple approach.
Controlling Your Tax Liability
What you don't want to do is spend the time tracing sales tax from every required state. If you're using the plugin, the scenario won't be as complicated as you think.
You are not only responsible for collecting and remitting sales tax, but you're accountable for the reporting process and keeping records. For the EU, the requirements include maintaining records for 10 years, marking the transaction as either B2C, and obtaining two documents that prove the place of residence of the client. In case this wasn't enough, within the EU there's 23 different rates for VAT. Yikes!
If your site's membership has its headquarters in the US and you're in the US, it's easy to discover how burdensome the rules might turn out to be. Luckily there are some solutions that will simplify your work easier.
Quaderno
Although it handles VAT issue, Quaderno is useful for automating invoicing, data storage, and other tax conformity.
Taxamo
Taxamo offers a second choice. While it was not designed specifically to integrate with Taxamo, it's compatible with 3 popular gateways like Braintree, Stripe, and PayPal as well as support for subscriptions are included.
Taxamo offers a very similar set of features that include taxes that are managed, VAT rate management as well as tax settlement files complete invoicing that is compliant, and more. Taxamo is working on rolling out tax services that incorporate additional jurisdictions around the world as needed. For instance, Australia is introducing GST on digital services in July 2017, and it's only one of many countries.
Pricing for Taxamo is a slightly different method based on the number of transactions. For a pay-as-you-go plan it costs EUR0.20 per transaction up to 20k transactions. Above that, the enterprise plan drops EUR0.05 per transactions.
Wrap It Up
Taxes aren't something that people like. Unfortunately, they are just an everyday thing. As the digital economy grows in scope, the governments of the world are coming to terms to the fact that they're missing out on a big portion of tax revenues.
When the EU rules were first rolled out, there was a ruckus regarding the likely complexity of managing taxes for the average small business. Fortunately, as new services providers emerge on their way, the volume that you have to do from you is going to decrease. Your time will be free to devote the time you need managing your website and providing value to your members.
There's one thing for certain, the rules are slowly being put into place, requiring companies that operate online to collect tax regardless of their location. The ability to monitor and track the transactions of each one is established. It goes without saying that there is only an issue of time until enforcement begins. It is certain that there will be cooperation between the government agencies to make sure that everyone's tax dollars are being collected.
If you've implemented a global tax solution for your site's membership and would like to share your thoughts below.