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How to manage Sales Taxes on your Online Store

When setting up an online store, more often than not, people tend to overlook or consider sales tax requirements, somewhat late in the process. However, it’s imperative for online retailers to get familiar with the local regulations, in a timely manner.

And if your online store is already fully functional, then you might want to make sure that you’re handling your sales taxes the right way.

Simply put, sales taxes will impact your overall business revenues and should be carefully studied, from the beginning. In this article, we’ll cover some of the basics concepts that you should be aware of. However, the laws and regulations change in each country and a qualified person should be consulted.

Selling locally and collecting sales taxes online

When selling locally, within your state or country, the computation of sales taxes should be, mostly, quite straightforward. In this case, you pass the costs on to your customers. In other words, you charge your customers the due sales tax, upon making a purchase – at checkout. However, how do you know ‘if’ and ‘how much sales tax’, you should charge your customers, when you sell outside your business jurisdiction or abroad?

US Online Merchants

According to the current law, if you have a physical presence in a State (also known as ‘nexus’), i.e. a brick-and-mortar store, you are required to charge your customers, the applicable local sales tax rate. If, however, you do not have a physical presence in a specific State, you are not required to collect taxes. The Supreme Court ruling in 1992, affirms that catalog and, by extension, online retailers are only required to collect taxes in the States where they have an actual physical presence.

However, under the Market Fairness Act (2013), things could change. If the current legislation passed into law, online merchants would be required to pay sales tax, just as any other business. According to this legislation, each State would be entitled to collect sales taxes from remote sellers.
You can consult the applicable sales tax law in your State, here.

European Online Merchants

The EU defines ‘distance selling’ as: ‘a supplier that sells goods to private individuals or customers established in another Member State who do not apply VAT to their intra-Community acquisition of goods’.
Within the EU, the ‘VAT of the Member State of destination’ is applied and must be collected, in that Member State, if sales exceed a certain threshold – €100,000 or 35,000 or the equivalent in national currency. To find out more about each country’s threshold, see the Commission’s information document – Thresholds – Annex I.

Canadian Online Merchants

The Canadian sales tax system is still divided. This means that different sales tax rates are applicable and vary in each province. Generally, when you sell and deliver goods to another province, your customer’s location determines the percentage of tax you should collect. And if you sell goods abroad, outside of Canada, you are not required to collect GST/HST and PST, according to the Canada Business Network’s guide, which you can find here.

Let Avalara help you out with Sales Tax Compliance!

Accurately calculating, collecting and remitting sales taxes is no easy task. Avalara helps businesses of all sizes to become compliant and manage sales tax, rapidly and easily. They will do all the necessary research on your behalf and automate the process, ensuring the system is up-to-date with the most recent sales tax and VAT rates and regulations.

Thanks to AvaTax – Avalara’s certified module for PrestaShop, you will be able to benefit from the following features:

- Address Validation included
- Rooftop Accurate Calculations
- Product and Service Taxability Rules
- Out-of-the-Box Sales Tax Reporting
- And, the filing can be done for you!

Avalara’s module is available native in the software or can be downloaded, for free, via PrestaShop’s Official Marketplace. It is compatible with PrestaShop v1.4.0.1 to v1.6.0.6.

  1. Author: tuxen

    Date: June 12, 2014 at 6:27 pm

    You write: Within the EU, the ‘VAT of the Member State of destination’ is applied and must be collected

    Please note: https://www.gov.uk/dispatching-your-goods-within-the-eu

    How to handle VAT within the EU
    If your EU customer is VAT registered and can provide you with a valid EU VAT Registration Number.

    However if your buyer is not VAT registered, or you cannot obtain their VAT number, then as the seller you must charge the UK rate of VAT.
    —————————
    So it is the sellers VAT rate and not the destination.

    • Author: Deborah Penna

      Date: June 13, 2014 at 2:06 pm

      Hi,
      thanks for your comment.

      You’re absolutely correct. Unfortunately, it is not always possible to go into details…
      And in this article, I focussed more on B2C (or customers not registered for VAT).

      Since, it is not possible for private persons to obtain a VAT number, the EU established that if your turnover
      does not exceed the threshold, as you state – you must charge your local VAT rate.

      According to the EU, the VAT of the Member State of destination is applied “if sales in that Member State exceed a certain threshold”.
      In this case, a company must register locally for VAT and charge customers the applicable VAT rate.

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