How Exactly Does Tax Work With SubscriptionBoss?

The short answer is that for most businesses there is a relatively straightforward solution – but the details depends on your tax jurisdiction and type of product you sell – specifically whether it is physical or digital, and also if the product is always sold to a business (“a business product”), or sold to an individual (“a personal product”), or can be sold to either businesses or individuals (“an ambiguous product”)

US Taxes

As I understand it, in the USA, sales tax is charged for physical products when the buyer is in the same state but not when the buyer is out of state. The rate of tax is determined by the state. Most states do not charge tax for digital purchases.

EU Zone Taxes

• Personal products attract seller based taxes – the tax rate is based on the seller’s tax jurisdiction
• Business products attract buyer based taxes – the tax rate is based on the buyer’s tax jurisdiction

If the buyer and seller are in the same country then sales tax is charged at the country rate. However, if the business buyer and seller are in different countries then tax is handled through a ‘reverse charge’ mechanism where no tax is actually charged on the purchase and the buyer must account for the sales tax. See Reverse Charging Mechanism

PayPal Tax Tables

If you have a “personal” product (seller based taxes) or a business product (buyer based tax) then PayPal allows you to set up Tax Tables however PayPal tax tables are ignored when using Express Checkout so they are not of any use to us.

SubscriptionBoss

SubscriptionBoss supports 3 tax options: “no tax”, “seller based tax” and “destination based tax”.

Most US businesses selling B2B (business to business) will use the “no tax” option.

Typically you will use seller-based tax if you are selling B2C (business to customer).

Most EU businesses selling B2B will use “destination based tax” and specify a tax rate only for their own country. For example, a UK Business will specify “GB 20%” in the Country Tax Table to indicate that Value Added Sales Tax is 20%.

Ambiguous Products

What is difficult to handle is the scenario where the product could be either for business or personal use.

I have not dealt with this case in practice but what I would do is have a order form that forces the buyer to enter a VAT code/Company Number and tick a checkbox to verify it is a business sale. Then based on their buyer selection either sell them a “personal product” with seller based tax or a “business product” with country based tax. So for a UK business selling a product which could be used for personal or business to an American citizen then the tax would be 20% in the former case and 0% in the latter.