Big Big Paypal Issue

12 years ago

Originally Posted by xtremarketer

I've been searching the forum looking for discussions in this issue and I'm highlhy surprised as I can't find any.

There are some countries and some US states with a particular tax regulation that enforces business people to charge taxes depending on the location of the buyer.

For example, in some US states you have to charge a tax to customers from your same state, or in Europe you have to charge VAT to EU buyers.

So the problem is.... how do you know if these taxes are applicable for each sale if Paypal does not inform about buyer location?

I contacted them and they told me there's no way to know. Taxes can be setup in Paypal, but that doesn't work with JVzoo & Warriorplus adaptative payments or when receiving commissions.

So.... as many warriors will have this same issue, I'm wondering if any of you found a solution.

Someone can correct me if I'm wrong (I'm not a lawyer or tax expert) but I dont believe sales tax in the US applies to digitally distributed products.

Thanks
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OrangeBull 12 years ago

Originally Posted by mauii

Someone can correct me if I'm wrong (I'm not a lawyer or tax expert) but I dont believe sales tax in the US applies to digitally distributed products.

I am a lawyer in New York, and I've studied tax law. The sales tax does apply to digital products in New York.

I haven't followed it recently, but the infamous "Amazon" case the last I heard was going well for Amazon here in NY courts and just having affiliates in NY didn't mean that Amazon or any others had to pay NY Sales tax, which seems to make sense under the ruling in a Supreme Court Case known as "International Shoe" from a long time ago, but that pendulum could've swung the other way since the last time I checked on the case.

The general rule has been that you have to pay the local sales tax IN YOUR STATE, on products as imposed by your state, but mail order businesses DON'T have to pay out of state sales tax, or more importantly, COLLECT THEM.

The so called "Amazon" laws regarding affiliate sales and the imposition of a sales tax in any state where you have affiliates, mind you not all states have adopted this silly tax rule, has made the old rule more complicated!
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Hopeless Bromantic

12 years ago

Originally Posted by xtremarketer

For example, in some US states you have to charge a tax to customers from your same state, or in Europe you have to charge VAT to EU buyers.

So the problem is.... how do you know if these taxes are applicable for each sale if Paypal does not inform about buyer location?

The safest solution is to contact the tax agency wherever you do business and ask them what the current law is.

Thanks
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xtremarketer

12 years ago

I'm in Europe and I know what the current law is, I have to apply VAT to sales within EU. I'm not looking for legal advice here. The problem is how to comply with the law if there's no way to know the country of the buyer of each sale.

Originally Posted by Hopeless Bromantic

The safest solution is to contact the tax agency wherever you do business and ask them what the current law is.

Thanks
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RexMapes

12 years ago

Originally Posted by xtremarketer

I'm in Europe and I know what the current law is, I have to apply VAT to sales within EU. I'm not looking for legal advice here. The problem is how to comply with the law if there's no way to know the country of the buyer of each sale.

You can easily tell what country they are from by the IP address they order from. I would think PayPal is tracking that anyway. Putting an app on your sales page to record that info and automatically add the tax would be the only way I can see to do it. I would imagine a shopping cart program would include what you need.

Thanks
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xtremarketer

12 years ago

Originally Posted by RexMapes

You can easily tell what country they are from by the IP address they order from. I would think PayPal is tracking that anyway. Putting an app on your sales page to record that info and automatically add the tax would be the only way I can see to do it. I would imagine a shopping cart program would include what you need.

Thanks for the suggestion, but I can't do it since I mostly sell and promote WSO's through W+ and Jvzoo, so I can't add tax. I'm willing to pay VAT from my own pocket, but I don't want to apply VAT to worldwide sales....

Thanks

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RexMapes

12 years ago

I tend to agree with mauii. Currently digitally distributed products aren't being taxed. If some state is trying to I haven't heard of and doubt that it could be enforced. However, I think the US congress is probably going to venture into discussions about taxing the internet market with a federal sales tax soon. I know we are all excited about that!

Physical products sold online are subject to state sales tax and it is determined by the ship to address of the buyer and depending on the state the physical location of the seller.

My understanding of the European VAT is that currently only sellers located in Europe are expected to collect it. Sellers in countries that are not a party to the VAT are exempted.

Legal Disclaimer: The writer of this post wishes it to be known that he is not an attorney nor does he desire to be in spite if the fact he has been told numerous times he should be because he likes to argue so much and is very competent at writing long winded statements that no one really understands or cares to read so he will keep this short in order to not appear worthy of those accusations.

Thanks

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Joseph Robinson

Banned 12 years ago

I'd think it's where you sell that matters, not where they buy. Just sayin'.

Thanks
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RexMapes

12 years ago

Originally Posted by Joe Robinson

I'd think it's where you sell that matters, not where they buy. Just sayin'.

Joe, I think (emphasis on think) it does matter for those in Europe. My understanding is if a person from a VAT country sells to a person from another VAT country the seller is responsible for collecting and submitting the tax. :confused:

Thanks
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Joseph Robinson

Banned 12 years ago

Originally Posted by RexMapes

Joe, I think (emphasis on think) it does matter for those in Europe. My understanding is if a person from a VAT country sells to a person from another VAT country the seller is responsible for collecting and submitting the tax. :confused:

That I wouldn't know. I don't deal much with the European market unfortunately. I was reading in a book yesterday about establishing an LLC though that it is the sellers responsibility to comply with sales tax laws if they apply within your state. I'll try to find an online link to back it up, but the info I read was in the starting an online business for dummies superbook.

Just skip around the basic sections and find the legal section. It's there.

Thanks
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Dan C. Rinnert 12 years ago

Some states do tax digital products. Some such states include Idaho, Kentucky, Nebraska, South Dakota, Tennessee, Maine, Texas, Utah and Arizona.

In Ohio, I have to charge sales tax to buyers of physical products (digital goods are still mostly exempt) within Ohio. The rate that is charged is based on the sales tax rate of their area, not mine. Each county may have its own sales tax rate (that is added onto the state's rate), plus cities may have their own rates too. You cannot use zip codes to determine, because tax rates aren't based around zip code.

So, you have to do a lookup based on their complete address in order to determine which sales tax rate to charge. Then, of course, you need to keep track of all that, so that when you remit the taxes to the state, you can fill out on the form how much goes to each sales tax district.

There are 88 counties in Ohio, so that means there are around 100 tax districts, because of cities and whatever other local sales taxes may be in the mix.

Bear in mind that Ohio is compliant with the politician's Steamlined Sales Tax Initiative. Yes, this convoluted scheme is considered "streamlined" by the politicians. So, if Ohio has around 100 sales tax districts, and it's just one state, just wait until you have to collect and remit sales taxes for all 50 states (and presumably all their varying tax districts), which may happen sooner than you think, given that Amazon.com is now largely dropping opposition to collecting sales taxes on online purchases, so there goes a powerful ally in fighting against what will inevitably be a major headache for small businesses.

However, if I sell a book through Amazon, I don't have to worry about collecting any sales taxes, because Amazon is the seller to the consumer. Likewise with Clickbank. I'm just the wholesaler to Clickbank and, fortunately, we don't have something like a VAT in the United States (which some politicians would dearly love) that tacks on a sales tax at every point of sale.

The bottom line is to check your state's laws to see whether you are required to collect sales taxes on purchases made by other people in your state. At this point, so far as I am aware, you need not worry about collecting sales taxes from people who purchase from out-of-state.

If you sell direct through PayPal, you are the seller. It is not PayPal's responsibility to determine your buyer's location. They're just the payment processor. It's your responsibility to determine whether any sales tax need be collected and to collect it if applicable. I think PayPal's API does have a mechanism for passing along sales tax information, but your website has to be able to determine whether it's necessary to collect it.
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pbarnhart

12 years ago

Believe it or not, for your US customers, the customer, not you, is responsible for the sales tax if they purchase from outside their state and the company has no presence in that state. For example, in Massachusets:

Individuals may report and pay their unpaid use tax on their personal income tax returns - Form 1 , Form 1-NR/PY , or WebFile for Income. Taxpayers may also, if they prefer, use Form ST-11 (Individual Use Tax Return) or ST-10 (Business Use Tax Return). These returns are due with payment on or before April 15 for purchases made in the prior calendar year. Make check payable to the Commonwealth of Massachusetts and send to: Department of Revenue, PO Box 7009, Boston, MA 02204.

Most other countries outside the EU are the same. Unless there is a treaty or agreement in place, you have no responsibility to collect VAT outside the EU, and I don't think that any are in place right now (maybe Turkey or Switzerland). the buyer/purchaser is responsible. You most definitely do not have to collect or pay for any sales or use tax.

If you ship a physical item, you must declare its actual value when shipping outside the EU.

Thanks

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WillR

12 years ago

Originally Posted by Ken_Caudill

If you don't know where your customers are from, chances are the government doesn't either.

Exactly. How are the government going to know if there are no records of where the customers are from?

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WillR

12 years ago

Do you yanks over-complicate EVERYTHING?

Seriously, what a joke.

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Joseph Robinson

Banned 12 years ago

Originally Posted by WillR

Do you yanks over-complicate EVERYTHING?

Seriously, what a joke.

*Looks for the tax code* Um...*keeps looking for the tax code* Well crap.

We don't even have a copy of the full tax code available to read. Whaddya think

?

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OrangeBull

12 years ago

Originally Posted by Joe Robinson

*Looks for the tax code* Um...*keeps looking for the tax code* Well crap.

We don't even have a copy of the full tax code available to read. Whaddya think

?

The full federal Tax code is 26 USC, available a few places, including here:

USC : Title 26 - INTERNAL REVENUE CODE | LII / Legal Information Institute

Unfortunately, there are 50 states, 1 federal district, and 5 federal territories that also have tax codes to consider when dealing with the US and has been mentioned, each state has multiple counties and cities with their own quirks too.

Congratulations, welcome to US tax policy quirkiness 101!

Thanks

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oda

12 years ago

Just put it in the price!

If a product costs $10 and the tax is 10%, that means you have a small extra expense of:
91 cents per sale.
Your product actually costs $9.09 + 10% tax.

Put the 10% in a separate account and if in a year no-one wants it as Tax then draw it out and buy............

Oda,

Thanks
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WillR

12 years ago

Originally Posted by oda

Just put it in the price!

If a product costs $10 and the tax is 10%, that means you have a small extra expense of:
91 cents per sale.
Your product actually costs $9.09 + 10% tax.

Put the 10% in a separate account and if in a year no-one wants it as Tax then draw it out and buy............

Oda,

As Aussies we only need to register for GST (Goods & Services Tax - 10%) if we sell over $75,000 worth of goods and/or services a year. But that is $75,000 worth of sales to Australian customers. Seeing as though Australians account for quite a small percentage of total sales when selling things online like WSO's, etc, you would have to be making quite a substantial amount of money before that tax comes into play.

And here I was thinking our tax system was over-complicated. We ain't got nothing on the US of A.

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rosetrees

12 years ago

I presume you are VAT registered? Just asking, because if you aren't then you don't have to charge VAT.

A friend of mine is having to start charging VAT - she asks all her customers their location as part of their address when they register. Those liable to pay VAT will get directed to a checkout process that charges VAT, those that aren't liable will be directed to a checkout process that doesn't charge VAT.

ip address isn't a reliable indicator of location, in my experience. A few months ago my router assigned me an ip address that placed me in Madrid in Spain. I live in the W Midlands of England.

Btw - I am not a lawyer - maybe check with Customs and Excise to ask their advice on how to handle the issue.

Thanks

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OrangeBull

12 years ago

A good place to start figuring these issues out, but by no means the definitive guide is here:

Taxation of Digital Goods - Wikipedia, the free encyclopedia

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