If you’re not familiar with VAT, it’s likely that you’ve at least heard someone mention it. With the context clues, you realize it’s maybe related to taxes and/or eCommerce. If that’s all you know, let me see if I can give you a bit more context.
Most of the time, when someone buys something online, they don’t pay taxes. And this gets a bit crazy. Because even if the seller (the online store) doesn’t collect it, it’s still owed. If I buy something at your store, and you’re in another state, I’m supposed to pay attention to that and then send that state the taxes I owe.
In essence, the buyer is responsible for the tax, even if the vendor doesn’t collect it.
As you can imagine, almost no one sends it in. So states, and governments miss out on the revenue.
In the US, there was a Marketplace Fairness Act that was trying to get passed that would change how online stores were responsible for taxes, but it didn’t pass. The one nice thing about it though, was that it was only applicable to those earning more than a million dollars a year.
Whew – not for me or you.
I’m giving you context for taxes and online eCommerce because it applies to me and this site. But VAT itself (value added tax) isn’t focused in a country or just on eCommerce.
All about VAT
It’s simply a tax. You know, like corporate tax or personal income tax. Only it is applied to things that are for sale. In some countries it’s the main form of governments collecting taxes if unemployment is high.
It is a tax that applies at the point where you sell something. Almost like, but not really, sales tax. And what’s important to know is that the money goes straight to governments. And to that end, it needs to be tracked. Everything needs to be tracked.
On January 1st, 2015, new legislation in Europe stipulates that VAT must be applied (regardless of how much money your online store makes) to electronic goods and services.
There’s a lot of questions that people have, and here’s some clear writing on the new VAT rules.
But the long and short of it goes like this:
- Online stores are now required to track purchases and calculate VAT tax
- VAT tax rates differ per country (so you need to track that too)
- The rate you charge isn’t based on where the credit card is, it’s where the buyer is
- That means you have to track IPs and such to know that an Italian is buying an eBook from Spain
- Then you must calculate payments and send off taxes to each country
I don’t know about you, but the revenue I get from online sales doesn’t warrant the investment to stay compliant. And I don’t want to simply say that I will only sell things to folks in the US.
Will they come after you?
It’s not likely. At least not right away.
But here’s the thing – when they do, if they do, they can go backwards. Compliance isn’t a “going forward” kind of thing. So there will be penalties. And I don’t want to save off funds to deal with it, were it to happen some day in the future.
What is not taxed?
There is good news, however. Customized services (not eBooks, not video courses, etc) where you’re involved in the deliver of the service (even if it’s electronic) isn’t part of the scope of the new legislation. So my question-answering on Clarity, and my coaching, are all still ways to generate income online without dealing with VAT.
And if you have eBooks, you can sell them on Amazon and they’ll take care of VAT for you.
So that’s what I’m going to do
So I’m going to be doing an overhaul that will put a lot more focus on making it easy for you to ask questions via Clarity, and to get some coaching.
I’m going to narrow my post topics to:
- Membership Plugins
- WordPress evangelism (where I help you use WordPress effectively)
And I’m going to make my eBooks free, using Drip to send the chapters to you via email.
And I’ll figure out where to sell my online video courses that won’t cost me tons of time on VAT tracking. Likely not on my own site.
So there you have it – My site will be changing… all because of VAT.