Anyone who thinks technology is complicated has clearly never looked into managing taxes for a globally diversified membership website. Honestly, just thinking about it has the potential to cause blurred vision and lightheadedness.
The first piece of advice when it comes to managing taxes for a membership website is to seek professional advice. Even at that, the issue can be so confusing that even your accountant may be left scratching his/her head. But don’t use the complexity of the issue as a reason for avoidance.
In this post, we’re going to focus on providing you with a general overview of the current tax environment as it relates to the digital economy and, more specifically, membership websites.
Keep in mind that not every membership website is the same. Yours may strictly offer information while someone else's may provide downloadable goods or even ship physical products. There could be different tax rates involved for each one.
The Changing Tax Landscape
Sales taxes are made more complicated by the fact that every country has slightly different rules. Sometimes it becomes even more granular, such as in the USA or Canada where sales taxes vary by state and province. Sales taxes are often self-regulating as well – something that many people are unaware of.
For example, imagine I purchase an item from you that should be subject to sales tax. For whatever reason, you fail to charge me the applicable sales tax. If you think the issue is closed, you’d be wrong. As the purchaser, technically I would be responsible for self-assessing the amount of sales tax due and sending it to the appropriate tax authority. You can imagine how often this happens, right?
The digital economy has grown to the point where governments are no longer willing to turn a blind eye to the tax revenue lost as digital services, products and memberships travel across local and international borders. The most sweeping example of which can be seen in the regulations put forth by the EU in January of 2015.
Basically, what the EU has said is that if you sell digital goods or services to EU customers, you must charge those customers EU VAT. And yes, that means exactly what you think it does. Not only might you be collecting, reporting and remitting taxes locally, you’ll also be filing a return for the EU taxes you are responsible for collecting.
It can seem overwhelming to say the least – but there is some good news. By using MemberPress, the whole process can be made easier in a relatively simple way.
Managing Your Tax Liability With MemberPress
The last thing you want to deal with is spending an inordinate amount of time tracking sales taxes from each required jurisdiction. Luckily, if you use the MemberPress plugin, the scenario won’t be as complicated as you might think.
Not only are you responsible for collecting and remitting sales taxes, you are also responsible for reporting and record keeping. In the case of the EU, the requirements include maintaining records for 10 years, identifying the transaction as b2b or b2c, and collecting two pieces of evidence that confirm the location of the customer. Oh, and in case that wasn’t enough, in the EU alone there are apparently 23 different VAT rates. Yikes!
If your membership site is based in the US, you can quickly see how onerous the requirements might become. Luckily there are some options available that can make your life a little easier.
Quaderno is the first solution for MemberPress users and it offers an easily integrated solution whether you’re using Stripe or PayPal Standard.
When a customer signs up on your website, Quaderno automates everything including custom designed invoices that are sent directly to customers, real-time recordkeeping, and reporting. It can even be integrated with Xero or QuickBooks to simplify your accounting even more.
Quaderno offers various plans to suit your business, depending on how many membership transactions you process per month. From Startup to Enterprise, pricing starts at €49/month for up to 250 charges. Considering the time you’ll save, plus the peace of mind that your taxes and accounting are all accurate, that seems like a fair price to pay.
While MemberPress handles the VAT, Quaderno is useful for automatic invoicing, data storage, and other tax compliance.
Taxamo represents our second option. Although not specifically created to integrate with MemberPress, it is compatible with three popular gateways including Braintree, Stripe, and PayPal and support for subscriptions is included.
Taxamo offers a very similar feature set that includes managed VAT rates, tax settlement files, compliant invoicing, full reporting and more. They are also in the process of rolling out tax solutions that include other global jurisdictions as required. For example, Australia is introducing GST on digital services in July 2017 and that’s just one of many countries.
Pricing for Taxamo is a slightly different model based upon transactions. For a pay-as-you-go plan, the cost is €0.20 per transaction for up to 20k transactions. Beyond that level, the enterprise plan drops €0.05 per transaction.
Nobody likes taxes. Unfortunately, they are just a fact of life. As the digital economy grows in size, Governments around the world are waking up to the fact that they are missing out on a big chunk of tax revenue.
When the EU regulations were initially rolled out there was an outcry over the potential complexity of managing taxes for the average small business. Fortunately, as new service providers come on the scene, the amount of work required on your part will decrease. You’ll be able to spend your time managing your site and providing value to your members.
One thing's for sure, the rules are slowly being put into place, requiring digital businesses to collect taxes regardless of their location. The ability to monitor and track each transaction is also already in place. It goes without saying that that it’s only a matter of time before enforcement kicks in. And you can be sure that there will be cooperation between government authorities in order to make sure that everyone's tax dollars are being collected.
If you have already implemented a global tax solution for your membership site, please share your experiences below.
If you would like more information on the specifics of setting up tax related features in MemberPress, click here to see the tax section of the MemberPress User Manual.