VATMOSS

[drplokta]

For the benefit of the EU, here's how taxing things that are both sold and delivered over the Internet works.

Can we tax them based on the location of the vendor? No, because vendors will simply relocate to a jurisdiction that doesn't tax such transactions (e.g. Amazon in Luxembourg).

Can we tax them based on the location of the purchaser? No, because we never discover the purchaser's location during the process of sale and delivery.

Can we tax them based on the location of the purchaser's IP address? No, because the purchaser can choose to use a proxy or VPN in a jurisdiction that doesn't tax such transactions.

Can we tax them based on the location of the purchaser's payment account? No, because the purchaser can open an account in a jurisdiction that doesn't tax such transactions.

Can we tax them based on the purchaser's self-declared location? No, because the purchaser can lie.

Is there any other way to determine the purchaser's location? Not as far as I know.

Can we harmonise tax rates for any of the above across 194 different countries? Ha ha ha ha ha.

Therefore, such transactions can't be taxed at all, and the EU should simply give up trying, and only tax things that can be unambiguously located within a single taxation jurisdiction.

Comments

[bart-calendar.livejournal.com]

This is why America doesn't tax online sales.

[sbisson.livejournal.com]

Except where it does.

[bart-calendar.livejournal.com]

I thought it was only if you made an in-state online purchase?

[autopope.livejournal.com]

Which runs into all the same objections Dr Plotka just pointed out. (Except it's a nominally monolingual trade bloc, which makes things slightly easier to manage -- if you've ever tried filling out a foreign tax form in a language you don't speak.)

[fanf]

With the added fun that in some US states sales tax can vary per county or per municipality.

[watervole.livejournal.com]

Why not tax based on the delivery address?

[kevin-standlee.livejournal.com]

Because you don't need a physical delivery address for non-physical goods, such as e-books, knitting patterns, WordPress themes, etc.

This whole VATMOSS mess is a case of people who haven't a clue about how the internet works trying to figure out a way to tax it based on business models that don't work anymore.

[kevin-standlee.livejournal.com]

California has lots of different local sales tax rates, and no minimum turnover threshold. SFSFC (parent non-profit of the 1993 San Francisco and 2002 San Jose Worldcons and of the 2018 San Jose Worldcon Bid) had to take careful note of this when running our art shows, for which we had to collect and remit the sales tax for the specific jurisdictions in which our events happened.

Fortunately for us, convention memberships are not subject to sales tax in California.

[drplokta]

I believe that some US states require their residents to declare and pay tax on their out-of-state online purchases. I also believe that compliance rates for this are not high.

[andrewducker]

All of this assumes that perfection is necessary.

Taxing based on payment account and IP address will be accurate for 95% of people. Sounds good enough to me.

[kevin-standlee.livejournal.com]

Even if it does, the fact that the sales threshold for reporting is zero -- that is, any sale of any sort is taxable -- is absurd. It's going to impose overhead accounting costs on very small businesses that are such that the most economical thing they can do is shut down.

The UK threshold for goods sales (GBP81,000) is fairly generous, but even the most-common EU threshold of EUR35,000 would be more sensible than zero.

[andrewducker]

I entirely agree.

[kevin-standlee.livejournal.com]

Forget about online purchases: many states (California among them) says that you have to pay "use tax" (effectively the same thing as sales tax) on any goods purchased outside of California. This has significant impacts on the northern border, because Oregon (the state just north of California) has no sales tax at all. However, about the only time California can enforce this is on bigger-ticket items like cars where you have to register the vehicle.

The fact that most people ignore the use tax actually shows up in commercials, such as one for a local chain doing a "we pay the sales tax" event that had the character saying he was asking his brother-in-law to buy him a barbeque grill while he was in Oregon and the announcer saying, "Don't bother; just buy it at [store]." The law is effectively unenforceable.

Similarly, I think the EU asserts that a US-based company selling to the EU has to pay VAT. Good luck collecting. That's why I think you'll see some EU-based micro-businesses virtually relocate themselves to the US or Canada or somewhere else friendly.

The sad thing is that rule changes intended to take out Amazon's tax-avoidance scheme are actually going to benefit Amazon because so many micro-businesses are likely to find that one of the only ways they can do business is to give most of their profits to Amazon.

I sort of wish that the regulators would just come out and say, "We want everyone to work for a handful of Big Corporations so we can tax and regulate them more easily."

[drplokta]

You're neglecting to account for tax changing people's behaviour. It's 95% accurate now, because there's no great advantage to having an IP address or payment account in a different country. If you can save hundreds of pounds a year in VAT on your books, games, movies and music, then people will set up one-stop shops offering proxies and payment accounts in tax-friendly jurisdictions, and consumers will use them.

[andrewducker]

I doubt that it's worth the effort for most people - and I also think that most people will be happier paying the extra few percent in tax that faffing with VPNs and the like.

I'm happy to be proven wrong - if it turns out that people are using VPNs massively a year from now in order to avoid MP3 taxes then remind me how naive I was!

[vicarage.livejournal.com]

Any idea what fraction of people's VAT payable spending is on intangibles that would be affected? For many, books, games, movies and music still mean physical paper and boxes with dvds and manuals.

I suspect the fraction of tax revenue lost if governments do give up on collection will be pretty small.

Removing VAT on ebooks would just give them the same status as physical books in the UK, which seems sensible to me

[drplokta]

There's a question about whether the UK government is even allowed to make ebooks VAT-free. VAT rules wouldn't normally allow this, and the UK negotiated a bunch of exemptions before entering the EEC to allow it to maintain its lack of a sales tax on things like food and books. Strangely enough, no one had the foresight to specifically include ebooks in the list.

[kevin-standlee.livejournal.com]

I take it that the reason that ebooks aren't considered "books" for the purpose of the VAT exemption is that they're considered "services" rather than "goods," which alas is consistent with the model of the universe that Amazon, Microsoft, et al would like to impose in that you never own any intellectual property at all; you only lease it from them and they can take it back at their pleasure. (Leases are apparently considered services.)

Mind you, I was always surprised that physical books were VAT-free in the UK. They aren't tax-free in any US jurisdiction that has a sales tax of which I'm aware. Certainly I pay sales tax purchasing books in California where I work and Nevada where I live. Even if I were to order a paper book from Amazon, I'd pay Nevada sales tax because I live in Nevada and the Amazon warehouse from which it would likely ship is (until the end of this year when it moves to Reno) in Fernley, not just the same state, but the same city in which I live. (And no, they don't have a will-call, convenient as that would be for us northern Nevadans.)

I freely admit to not being a VAT expert and only learning much of this VATMOSS stuff by way of being the US agent for Wizards Tower Press, which may well have to relocate to the USA in order to stay in the business of publishing ebooks.

[vicarage.livejournal.com]

VAT was originally seen as a luxuries tax, so certain items, like bread are exempt, when biscuits are not. Railway tickets are exempt too. And books were not considered a luxury. I'm sure you know that Jaffa Cakes are viewed as essentials too.

The distinction has blurred over the years, but is an example of the confusing morass of exceptions any international sales tax collecting organisation has to face.

American sales tax seems more sensibly applied to all things, except for the fiddly Parks Department levies in each city, and daft idea that its not included in the prices on the shelves

um, sort of (taxing online purchases in the US)

[bibliofile.livejournal.com]

AIUI, that depends on the delivery's postal address and whether the vendor has any brick-and-mortar locations. I've had state sales tax applied to my online purchases only when a) I buy a concrete thing, which b) I have delivered to a state in which c) the vendor has a brick-and-mortar store.

So if I order something online from Sears, which indeed has physical shops in my state, I pay state sales tax. If I buy something at a Sears near me, I pay state and local sales taxes.

OTOH, if I purchse something in a shop and have it shipped out-of-state, I don't have to pay any sales tax. This practice predates online shopping by decades, and I believe it parallels the charging of VAT for (say) British goods shipped to the US.

(IANAE, mind; I just know from experience how things seem to work.)