VAT and the digital market

If you live outside the US and buy a physical thing, we just charge the insane shipping costs.   And then any VAT stuff that comes after is apparently dealt with by the buyer when the package arrives.

For digital stuff ...  we used to use the scubbly service.  And then one day the VAT police showed up and took two months of my income and said there was nothing I could do about it.  And all of scubbly closed.  

Apparently, most countries in the world do this VAT thing.  And it is something like 20% to 25%.  And it sounds like you have to fill out a fuck ton of paperwork for every fucking country.  So for a $10 item I would need to add on $2.50 for the tax plus $40 for having to fuck with the tax.   Making the item priced so high that nobody would want it anyway - so it is just easier to not sell digital goods outside of the US.  

If you are angry about this, I suggest that you kick a politician.  

Here in Montana, USA, we have no sales tax.  (nor VAT).  Tax crap is processed once a year with income tax stuff (which, I'm pretty sure, all states also do).

Hi Paul,appreciate the effort you and yours  put in to getting the digital copy of the  Sepp Holzer video.
Here in Australia our version of VAT  is  called gst -goods and services tax.
Amazon has a big Australian presence ,and their prices include the gst.
The SH dvd is unavailable atm.
Thanks again for your efforts Paul  

https://www.accountingweb.co.uk/tax/hmrc-policy/vat-may-be-due-on-charity-donations

HMRC guidance

HMRC has its own VAT Charities manual, which deals with most of the common VAT dilemmas facing charities. Very helpfully, the VCHAR3400 section is titled: When is a donation not a donation?

To directly quote the first two sentences of the section:

“If there is a direct link between the payment and a benefit received by the giver the monies cannot be treated as a donation. As long as it is clear that a person is under no obligation to make a payment in order to receive certain benefits then the payment is usually a donation.”

Meaning of guidance

If the donor paid £100 and the charity planted ten trees in his back garden, this is clearly “a benefit received by the giver”. But in the example of the Better Soil charity, the donor has no idea whether his donation will fund trees planted in Edinburgh, Glasgow or Perth (that’s Perth in Scotland and not Australia) – or even no trees at all. The charity is dictating the course of events. So there is no way that the donor has received any benefit from his gift.

More specifics in the HMRC internal manual: VAT Charities.

Check out this article: https://quaderno.medium.com/canadas-gst-on-digital-products-a34a7e5d3c82

It says there are no federal CDN sales tax on digital goods sold from the US, and provincially there are just two (Quebec and Saskatchewan) that have their own rules, but you could exclude those provinces instead of all of Canada.

I could look for more documentation if that would help the cause. There's a bunch of stuff I would like to buy!

I would need a much simpler solution.  

Maybe an upgrade to the current wording would be sufficient.  Currently it says something like "Are you a US citizen or currently in the US?"  If you say "yes" then you can buy.  And if you say "no" then you cannot.

Maybe the message needs to be something like "Proceed only if your county or region would NOT require permies.com to pay VAT/GST."  And then the two buttons offered could be "proceed" and "go back".

??

I think you would have to go one further and restrict based on IP address, and put some hint about using a VPN...

paul wheaton wrote:
Maybe an upgrade to the current wording would be sufficient.  Currently it says something like "Are you a US citizen or currently in the US?"  If you say "yes" then you can buy.  And if you say "no" then you cannot.

Just double checked and it says "are you a US resident?", which covers the above succinctly.

paul wheaton wrote:
Maybe the message needs to be something like "Proceed only if your county or region would NOT require permies.com to pay VAT/GST."  And then the two buttons offered could be "proceed" and "go back".

??

I like the simplicity of this solution, but also worry about those unsure about their VAT/GST status. Is it possible someone will simply hit yes without checking, or without knowing how to check, or being misinformed? What happens to you if someone does this?

R Scott wrote:
I think you would have to go one further and restrict based on IP address, and put some hint about using a VPN...

This solution also works - actually is there anything stopping someone who is not a US resident to simply click yes and grab the goodies? (Other than integrity or fear)

My current suggestion (with my limited knowledge) would also be an update to the wording sounding something like "are you a US resident, or a Canadian resident (excluding Saskatchewan)?"

To go into a little detail:
- Quebec has an annual threshold of $30,000 in sales, so you only pay tax if you exceed that amount in a year.
- BC recently introduced an annual threshold of $10,000.
- Saskatchewan has no threshold, so tax is charged on the first dollar onwards.

Seems unlikely that you'll hit those thresholds, but additional exemptions could be added to the wording.

Lastly I'll link a service that integrates and calculates/files/does all the tax garbage for you for a seemingly reasonable price based on # of transactions, if re-opening up to the rest of the world is something you'd like to consider (and if it makes sense financially of course).
https://quaderno.io/pricing/

I think there is a ton of great content here and it would be awesome to have access to it, and to be able to support the makers at the same time! Thanks for taking the time to consider it.

See, it just gets too complicated - so I just want to not touch it at this time.   Right now, 75% of our traffic comes from the US.  So this change might result in a boost of sales about 4%.  If it can be done with this tiny wording change, then, sure, I'll do that.  

The link you gave is for $49 per month.  I suspect that it would take months of dev on our end to integrate and test.  And then years to get the bugs out.  ROI might be something like six years out.  So 75% of our transactions would be simple and 25% would be hella complicated and ...  there is the risk of whether we would ever break even.  Plus it would force me to learn a thousand times more about this stuff that i don't ever wanna know.

How about this:

     "would your purchase require permies.com to pay VAT/GST?"

And there are three buttons:

     "yes (go back)"

     "no (proceed)"

     "I don't know (go back)"

And if people click on button 1 or 3 they get a message that says "permies.com is currently not set up to process VAT/GST for digital products." and get returned to whatever page they were looking at before.

We currently do an IP check.   If the IP is a US IP the user does not see the message.

Would this work for you?

I've noticed that most people don't know if where they live requires people outside their place to pay VAT or other taxes.

This is why I sell through Etsy because they have a huge legal team that deals with taxation - they collect the tax and pay the tax to the different governments.  Nothing to do with me.

It does mean that they collect tax on sales in BC that they shouldn't be - because I don't qualify to pay GST and PST to the government.  But that's between them and the government.

But the "threshold" depends on where the business is registered.  Not for businesses registered outside the province selling within the province.  So it doesn't apply to me if I'm selling in Ont.  

...

Personally, I think the way the digital market is set up is really good.

I suspect when more people start selling on it and Paul makes enough to hire a team of accountants well versed in international tax laws, it could be expanded to include outside USA customers.

Maybe the thing to do is to leave the current process in place.  And when it asks "are you a US resident?" if you click "no" then

"would your purchase require permies.com to pay VAT/GST?"

And there are three buttons:

    "yes (go back)"

    "no (proceed)"

    "I don't know (go back)"

And under that is some text about how permies.com is not designed to process VAT/GST complete with a link to this thread.

??

Great suggestion! I think having the first "no" redirect to the "yes/no/I don't know" option works out well. People will be able to get insight on the whole issue and be able to make an informed decision.

Plus I can get my goodies!!

paul wheaton wrote:If you live outside the US and buy a physical thing, we just charge the insane shipping costs.   And then any VAT stuff that comes after is apparently dealt with by the buyer when the package arrives.

For digital stuff ...  we used to use the scubbly service.  And then one day the VAT police showed up and took two months of my income and said there was nothing I could do about it.  And all of scubbly closed.  

Apparently, most countries in the world do this VAT thing.  And it is something like 20% to 25%.  And it sounds like you have to fill out a fuck ton of paperwork for every fucking country.  So for a $10 item I would need to add on $2.50 for the tax plus $40 for having to fuck with the tax.   Making the item priced so high that nobody would want it anyway - so it is just easier to not sell digital goods outside of the US.  

If you are angry about this, I suggest that you kick a politician.  

Here in Montana, USA, we have no sales tax.  (nor VAT).  Tax crap is processed once a year with income tax stuff (which, I'm pretty sure, all states also do).

Paul, would you be interested in setting up some sort of international distribution partnership for the resources currently unavailible to non-US residents (like myself)?

I have no experience in something like this but would be willing to get involved to help bring this to fruition.

What do you have in mind?

paul wheaton wrote:What do you have in mind?

Something along the lines of a UK based online shop as a test case for further application elsewhere.
I'll do some reasearch and get back to you.

Do any of your staff have experience with internation VAT managment or sales?

We made a couple of minor tweaks and we might have a solution:

https://permies.com/t/152197/digital-market-test

I have an idea ...

What if I make a package offering?   So if you look at  this:

   https://permaculture-design-course.com/

And you try to buy it, it is a US only thing.  Because of VAT stuff.

What if I set up a package deal that included that with, say, one of my physical books?  So the book goes to the far away country and when it arrives, the VAT stuff must be paid.  And while the buyer is waiting, they can watch the PDC and ATC stuff?

I would like to buy 'The Art of Fire' ebook. I live in the UK. The VAT rules changed in 2020 so that ebooks came into line with printed books and are now zero rated for VAT. I do not know if you still need to do anything on your end for zero rated items or if I can just go ahead and purchase and click the relevant button that says no VAT is charged.

Kenneth Rough wrote:I would like to buy 'The Art of Fire' ebook. I live in the UK. The VAT rules changed in 2020 so that ebooks came into line with printed books and are now zero rated for VAT. I do not know if you still need to do anything on your end for zero rated items or if I can just go ahead and purchase and click the relevant button that says no VAT is charged.

Oh!

Do you know if the VAT rules are that way for all countries?

HMRC have ebooks as zero rated for VAT, no matter what country they are purchased in. Audio books appear to be the only format that still has VAT applied in the UK.

I purchased an ebook from an online seller based in the USA a few months ago. They use gumroad and they just had to change a setting so that it didn't charge the 20% VAT when the payment was processed.

We've been passing stuff to gumroad with a 50% markup.  So a $100 is $150 on gumroad.  The payment processor takes 5%, then VAT can be up to 25%, and gumroad takes 10%.  40%.  40% of $150 is $60.  

So for a thing we sell here for $100, we sell on gumroad for $150, but we get just $90.

If the payment processor and VAT go easy on us, we might get the full $100.  

The important part is that gumroad earns their cut for dealing with all the VAT stuff.

I just remembered that I purchased Ianto Evans & Leslie Jacksons 'Rocket Mass Heaters' pdf version a few weeks ago and VAT wasn't charged on that.

I've just checked and they use digitalproductdelivery. The payment was through paypal. If I remember rightly from when I worked in ecommerce, paypal fees are approx 4%, not sure what dpd charge on top of that though.

People have been doing the gumroad thing.  It seems to be working.