Welcome back to part two of our blog on the implications taxes have on digital products in the US and around the world. In this part of our series we will give you some tips on how to control aspects of your online business in light of tax regulations. Don’t forget to read part one here.
How can high-risk merchants protect business in light of differing taxes?
Many governments are targeting the lucrative e-commerce market for more taxes, specifically sellers of intangible products. The increasingly popular digital market is making this a necessity in many countries.
So, what you can do now is prepare; even if you aren’t yet required to charge sales taxes on the digital products or services you sell. At this stage, these are just some of the questions you should consider in the interim.
- Is my payment gateway advanced enough to manage changes in tax requirements if local regulations change?
- Can my merchant services account manage the various tax regulations across multiple states and/or countries?
- Do I have a tax specialist, a lawyer, an accountant and a merchant services provider to help me prepare my business for the digital tax push?
- Can my payment gateway facilitate taxes for recurring orders especially where it’s a subscription service?
Laws can change, and quickly too. Your business payment processes, checkout page, etc. needs to be agile and adaptable to these changes. In fact, as a successful online merchant selling digital products, you need a merchant account provider that understands government regulations. They should be up-to-date on local tax changes in the various markets in which you operate and can help guide you on where to get more information.
When and where should you charge sales tax?
Some online marketplaces and CRMs like Shopify have built-in systems and add-ons that can simplify the tax process based on country or state. But, when you manage your own sales, you’ll need to manage collecting and dispersing taxes. With the correct gateway and checkout, this process should be quite simple!
What pricing strategy should you use for your digital products?
Pricing strategy should be based on the location in which you intend to sell. In some areas such as in the US, consumers are used to seeing the price before taxes. However, in other jurisdictions, they generally expect to see the taxes already included in the final price displayed.
Also, you can decide whether to increase your product and service prices to accommodate VAT/GST/Sales Taxes, or absorb the costs.
Can your payment gateway facilitate multiple tax calculations?
As an e-commerce business specializing in digital products, these changes can seem daunting. You have to consider taxes based on different requirements across states and countries. Therefore, it’s essential that you consider the payment gateway you use for your e-commerce business.
Some merchant account providers will have restrictions on what you can sell, especially if you’re in a high-risk industry such as business opportunities, dating advice or coaching. It’s, therefore, useful to get one that facilitates automatic sales tax calculation.
It’s also important to assess your checkout page and shopping cart provider. You need to determine if they comply with the relevant regulations for taxation.
To make the accounting process more efficient, it’s always best to separate your clients by region. As part of this, you’ll often need a merchant services account to make payment processes easier for your customers. You’ll want to remove friction in the buying process as much as possible. And with the right merchant account, charging applicable taxes can be a seamless process.
What’s next for your digital products and services?
To ensure that you cover all the bases regarding taxes and to run a healthy online business, talk to relevant professionals in the industry. They can give you the best advice based on the jurisdiction(s) that you operate and local regulations.
A tax professional or accountant can help you determine the taxes liable and any specific conditions that may affect your business. A merchant services company will work with you to ensure you have the best options possible for processing payments for your online digital products.
If you sell an info product, then it’s important to have an advocate on your side to navigate compliance. They can also assist you with how to sell to customers without risking termination of your merchant account. You can always contact DirectPayNet to get help in that area.
Our team can help you get approved for a merchant account for your digital product no matter how risky your business model is. Our services can also ensure you meet compliance requirements necessary for a successful digital product or service business. Contact our team for help today!