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I'm launching a product shortly which is an online service and has (I think) a global market. As a business, I have to charge sales tax* which means I have to add an amount to every sale to give to the government. To make things complicated, the amount of tax I'm supposed to charge varies depending on where exactly the customer is located.

Now, I want the proposition to be as simple as possible for the customer so I'm thinking of just making the price fixed (like $19/month) and then simply assuming everyone is paying the maximum amount of tax and deducting that (so, I take 21% off the $19 and keep $15.70 for myself). Although this is simple, it does mean that I lose money.

The alternative is that I insist on a physical address from all customers and then only deduct the required amount of tax (I still charge everyone $19). This is an extra registration step for my customers and more complexity for me but generates more net revenue.

So my question is: What do you think the best approach is?

  • I'm actually based in Europe so it's called VAT rather than sales tax but the model exists everywhere, AFAIK.
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1 Answer

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VAT is not the same everywhere; it's not even the same among EU countries. :-/

In America, online companies generally don't collect sales tax at all so long as there's no physical deliverable. In fact, some businesses require no delivery exactly to avoid taxes.

I imagine it's different for every country. You can sell into the USA and Canada without worrying about sales tax or VAT at all, but in general I think it's a question for an accountant.

(Although the answer can change over time!)

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VAT is not even the same within some countries. In germany certain ZIP codes are VAT excempt ;) Whoppa ;) Here comes the nightmare for the software ;) – NetTecture Jul 2 '11 at 4:18
The alternative is that I insist on a physical address from all customers - which you may have to anyway. Legal reasons, you know. Know your custoemrs ;) Can get dirty if you collect money wihtout checking address, for example. – NetTecture Jul 2 '11 at 4:19

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