The overhead is indeed laid down on the buyer eventually, and that drives the prices we pay rise. On the other hand the practice serves to protect the customers too. If there are no local representatives, what can a dissatisfied customer do against a foreign company in the case of a dispute?
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I think this is ācoercion from nations levying VAT taxesā. Tax laws are laws. Companies scramble to keep up.
(But thereās quite a lot of mechanism worked out to keep things relatively simple. Thatās the point of the original Patreon post: they were able to handle the entire EU VAT system from one office in Ireland. Then Brexit happened and they had to split the UK paperwork off and handle it separately.)
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Right, the theory is that if a business isnāt really doing much in a jurisdiction except an occasional unsolicited sale, they probably donāt have a sufficient nexus to have to pay the tax in the first place. But if they do, they can probably take advantage of economies of scale (like, Iād assume Patreon groups each userās pledges to minimize the impact of swipe fees) and do the work required to comply with the tax laws ā and generally jurisdictions have incentives to make this process reasonably painless since they want to collect as much tax as possible, vs. other areas where bureaucracies are less responsive.
On the competition point, I guess I donāt get this because the effect of folks complying with the law is that everybodyās on a level playing field, so those who are able to operate with lower overhead and fees actually can get the benefit, rather than being left at a disadvantage because less-efficient firms arenāt paying taxes. Of course neither international trade nor tax are areas where perfect equity or perfect efficiency are possible, but the world with full tax compliance seems better on these fronts (and is more politically sustainable) as compared to the one where domestic firms subsidize their international competition.
EDIT: though I should definitely say there are some aspects of tax policy that I think are deeply unfair ā I experience straight-up rage when I contemplate the mortgage interest deduction ā but this seems like a really hard one to get worked up about.
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Australia is a country that recently (a few years ago) started requiring GST to be charged on low value goods bought online. So my $5 Linode server that runs Parchment becomes $5.50. Yes it feels a little annoying that these things are more expensive than before, but the purpose is basically a protectionist one. This is especially the case with digital products where companies donāt have to compete on shipping costs. So I can ultimately understand and accept the taxes being charged.
Isnāt it overly burdensome to small foreign businesses? Well for any sales done through a platform like eBay, Etsy, Kickstarter, Booking.com etc, the GST will be handled by the platform. So it is only business that are selling directly to Australian consumers, and are selling at least $75K (AUD). So itās not a burden on actually small business, more for mid-sized businesses, who will no doubt likely also need to charge taxes for multiple jurisdictions. And mid-sized businesses will almost all be using a payment platform like Stripe, which will handle the various taxes for you. After registering for Australian GST once itās unlikely to be an ongoing concern for the company.
Also, I suspect the flip side is that registering for foreign taxes benefits people from countries with lower sales taxes. A small UK business which wasnāt registered for Australian GST would probably charge me 20% VAT instead of our 10%. (Depending on how their online sales are set up.) If I bought something in person in the UK Iād definitely be charged 20%. I didnāt realise how many countries had sales taxes greater than 10%! Someone from Denmark with their 25% might not see any benefit, but at least they wonāt be paying more than they would locally.
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It might be because Iām from āsocialist Scandinaviaā (jk), but I donāt really understand the problem with VAT on Patreon payments. Why would it be excempt when the patron is in a country with VAT? Donations to charities/non-profits are tax deductible in most jurisdictions, of course, but Patreon usually isnāt that. Does it feel āwrongā because in the US you usually just pay import/sales tax on tangible goods or something along those lines, while VAT applies to more transactions than just payment for physical items?
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I donāt think this trouble is limited to big companies wanting to put roadblocks in front of smaller entrepreneurs. Thereās a lot of obvious government greed as well.
Zarf, I know you know, but this is for non-US readers. The US saw this same clamour a few years ago over sales taxes. Each state has its own rate (or none at all). Some counties and cities add their own. It used to be easy: charge the rate based on where the store is. For well over a century and a half of mail order, that meant you paid sales tax only if you were in the same state as the seller. But now each taxing authority wants its slice, which means keeping track of thousands of constantly changing combinations and rates. Thatās expensive to deal with, but nonetheless the federal courts made it law under questionable justification. Itās still a mess, and we have a federal government to theoretically help with that. This crap of collecting and remitting VAT for the buyerās locale is so much worse because of the lack of the aforementioned coordination. Then I wonder why the these governments are making such a stink anyway - customs tax laws are supposed to handle the concern, not VAT laws. In the US, customs taxes between states are forbidden by the US Constitution (which is kinda what the courts imposed here). Whatās the excuse here?
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The key here is that the governments that want the tax monies are going after the sellers. That leads to sellers being expected to track thousands combinations of differing and constantly changing rates and tax authorities. Itās forcing the sellers to do the work of many customs offices.
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I didnāt know that the VAT situation for cross state trade in the US has changed. That makes me wonder, how do other countries with states apply VAT for buying online from another state? Can someone from Germany or Australia enlighten us? Or even from UK, does a Londoner pay VAT for buying online from Cardiff or Edinburgh?
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On the domestic side of things, there were two main drivers: states and localities seeing stagnating or even dropping sales tax revenues (with far more to come), and brick-and-mortar-focused businesses raising a big stink about their online competitors not paying taxes (and arguing this would lead to in-state job losses).
The US doesnāt have VATs as defined as the tax is rendered only at the last step between producer and consumer. If you have a reseller certificate, you can buy things sales-tax-free, but the things MUST be for resale and then YOU collect and remit if the buyer does not have such a certificate.
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I think most other countries realised that itās stupid (or at least excessively convoluted) for sub-national regions to have different sales tax rates, especially in the age of internet shopping. From what I can see, the UK has always had just a national VAT.
The Australian GST was introduced in 2000 to consolidate various national and state taxes. Likewise the federal government took over all income taxes in 1942, though states can charge payroll taxes. Each state now gets roughly half of its budget revenue from federal government distributions. Thereās no state tax on general purchases, just things like car registration and gambling. The states do set royalty rates on resources, so for the last year Iāve been getting constant Youtube ads from the Resources Council, complaining about our 40% tax on coal. Seems to me that rate could be increased substantially, so I donāt know what theyāre complaining about!
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Thereās no VAT in the US (just sales taxes, assessed only at the retail point), and domestic customs taxes (i.e., taxes assessed when moving goods from one state to another) have always been disallowed because theyād allow for states to engage in trade wars and protectionism against each other. The issue of when out-of-state sellers needed to collect and remit sales tax has shifted a fair bit over history via federal legislation and court decisions; earlier, an actual physical presence by the seller in the state was required, but more recently itās been ruled that the nexus can be satisfied in other ways (like sales volume, intentionally-targeted advertising, etcā¦)
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Iāve got far less knowledge about this than the rest of yāall, but I do think this is a notable framing, at least from a US perspective. The anonymity of sales taxes are often cited as an advantage over other kids of taxes, but it implies a burden on the seller.
One interesting bit of context is that in many states, āuseā taxes exist which notionally require individual buyers to self-report and pay tax on purchases that werenāt subject to sales tax ā basically a way to get around the previous limitations on taxing non-local sellers. In practice very few people pay these things, because itās incredibly burdensome on the individual and hard for a state to enforce, but itās also not great to have tons of people wandering around with significant unpaid tax liabilities that could subject them to penalties if anyone ever comes after them!
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Indeed. This is a tangent of its own and Iām biased toward the itās-silly-to-have-many-overlapping-jurisdictions camp, but I do find it funny the bind tax policyās in in the States, where:
- most people want lower taxes
- many people prefer anonymous/indirect taxes
- taxes generally and especially duties are easily tarred as āmarket distortionsā
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(I saw 13 new messages in this thread and thought āOh no, itās turned into a screaming argument!ā But it hasnāt! Itās just that taxes are very complicated and thereās a lot you could say about them.)
I donāt know if every state does this, but Massachusetts has a little table which says āThe average citizen in your income bracket buys $X amount of stuff over the Internet, and the use tax on that would be $Y, so just pay that and weāll both be happier.ā Itās very silly but itās also simple ā one line on the tax form. And the amount is under $100 even for well-paid engineers like me, so you roll your eyes and do it. (Itās a drop in the bucket compared to my state income taxes.)
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But Patreon does it for you, though? https://support.patreon.com/hc/en-us/articles/205259549-How-VAT-works-for-creators-on-Patreon
Yeah, thatās where the discussion started.
It does. Patreon has the resources to do it. Where does that leave a small operation? It used to be easy: just run the card, ship the product, and remit to your local tax authority. How much does it cost to have up-to-date database access to see what tax to charge for what shipping address and who to remit to? Then there are the costs of remitting to each taxing authority and thereās no expectation that the different procedures will be like any of the others. But, not a problem, I guess. I could just contract with a company to handle that for me. How much does THAT cost? See how this escalates when you require someone (company or individual) to be aware of and obey laws from thousands of different jurisdictions?
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But who exactly are the small operations that donāt find that it makes business sense to pay for one of the many intermediary services that help with this, but nonetheless are deriving nontrivial revenue from so many different foreign jurisdictions they canāt be expected to keep up their tax compliance?
Iām not a professional in this area but I do stay reasonably up on local, state, and federal tax issues in the U.S. and donāt recall this being raised as a significant issue either broadly or for particular sectors - and given how solicitous politicians are of small businesses, the avidity with which big business uses them as stalking horses, and the fact that e-commerce is decades old makes me suspect that the common-sense view that this is generally no big deal is correct.
I will admit though that Iāve done a fair bit of tax policy advocacy from the progressive side of things, so I know Iām temperamentally much more skeptical of arguments of the form āsome small business might notionally be less profitableā than arguments of the form āgiant corporations will starve the welfare state by offshoring revenue and operations.ā So if there are places where these administrative burdens have been lifted up as significant Iād be genuinely curious to read up on that - though knowing, again, that super-profitable companies love to grumble about paying taxes.