How To Charge Sales Tax & VAT With SamCart
Selling online just got simpler with brand new sales tax and VAT calculations built into every SamCart account. Whether you are selling services in your local area or online training to students around the world, SamCart’s new tax calculations keep your business compliant with ever-changing regulations.
. . .but in this world nothing can be said to be certain, except death and taxes. Benjamin Franklin
A Quick Online Tax History Lesson
Yeah, we know, no one likes to talk about taxes. However, selling goods online is changing. What used to be the Wild West is slowly becoming a normal part of everyday life; with that comes big changes for online sellers. Slowly but surely, different states across the US have extended taxes to include digital goods and services with rates between 1% and 7% percent. Member States in the European Union all have the abide within the European Union’s Value-Added Tax, with rates between 17% and 27%. Australia charges a 10% tax on digital sales, but only after you meet a certain threshold in sales. In Canada, it gets even more confusing, where some provinces charge a tax on digital goods while others don’t. For sellers like us who sell online with customers all over the world, the “Big Ugly Tax” question feels like a minefield. What rates do I charge? Are certain products exempt? Am I collecting the right information? What happens when one country changes their rates? How do I report all of this to the government? Now more than ever, it’s critical to use the tools at your disposal to automate as much as possible, especially for compliance-related tasks that where the liability is on you. With SamCart’s new sales tax feature, we help you answer these questions to keep you in compliance and allow you to remain focused on growing business.
What Tax Rates Should You Be Charging?
The truth is, the IRS themselves likely can’t even tell you exactly what tax rates to charge your customers online, but we’re going to try our best! Before we get into it, let’s define an important term: sales tax nexus.
Simply put, a sales tax nexus occurs when your business has some legal connection to a state. Two of the most prominent ways you establish this connection are through a physical presence or economic connection. First, let’s talk about economic connection. Generally speaking, economic connection is achieved when your business hits a certain dollar amount or percentage of your sales in a state. Second, physical presence can mean many things, but here are a couple good examples of what would further define a physical presence sales tax nexus:
- Having an office
- Having a warehouse
- Storing inventory
- Having an affiliate*
* If you have a strong presence with one of your affiliates, you may have an additional nexus that you are responsible for. Check out this post from our friends at TaxJar to further understand click-through nexus. Whether it’s through economic connection or physical presence if you establish a sales tax nexus in a state, then you must collect sales tax from your customers in those states. Ultimately, there are a significant number of resources online to further define what a sales tax nexus is (and we don’t have a legal team to back us up) so if you suspect you have a sales tax nexus in a specific state, contact that state’s taxing authority. The second factor important to determining your tax liability is whether you live in an origin or destination state. After you’ve determined the state in which you have your sales tax nexus, understanding whether you need to charge your customers the tax rate of where you live (origin) or the tax rate of where you’re delivering your product (destination) will give you a full picture of your tax liability.
What about the European Union’s VAT?
Value Added Tax (“VAT”) is an additional tax that European Union (EU) member countries are responsible for. Lucky for anyone selling in the EU (or with customers buying from inside the EU!) SamCart has you covered!
First, let’s talk about US sellers selling outside of the US. In short, since 2010, US sellers generally don’t need to register for VAT because of the reverse-charge mechanism. However, for ecommerce sellers with a permanent-establishment (PE) in an EU-member country, VAT tax is the principle tax that must be collected on every sale. Ranging from 17%-27%, VAT tax charged based on your customer’s location, rather than the country in which your business has PE. Ultimately, VAT regulations are exceedingly complex and while we make our best efforts to provide you information from our research, we recommend you consult a VAT expert for specific questions or if you are concerned you may be responsible for VAT.
SamCart Keeps Online Tax Simple
Confused yet? I bet you would rather have your full-service ecommerce platform track all of this for you. Fortunately, SamCart takes all the complexity out of trying to determine what tax rate you’re responsible for. Simply add your Marketplace Address and VAT ID (if applicable) into your SamCart marketplace settings. Then, choose which products you want to start collecting sales tax for.