International Sales Tax

There are a number of different ways of handling sales tax on a sale when the vendor is one country/state and the buyer is in another.

No Tax

Advantages

• Simplest for both the vendor and consumer.

Disadvantages

• Both vendor and consumer jurisdictions forgo any tax revenue. They must subsidise the sale from other revenue.
• Local vendors might have to pay sales tax. They are at a disadvantage compared with foreign vendors.
• You have to talk all the other countries on earth to forgo tax too.

Two Tax

Advantages

• Precisely and fairly shares the revenue as negotiated on a country by country basis.
• If your country decided on vendor-only tax and you did business with a county that insisted on buyer-only tax, your vendors would be up the creek. Their computers would not be able to handle it. With two-tax all you have to do is adjust a table.

Disadvantages

• Insanely complicated. Vendor must know the latest tax rates and exemptions of every country and state on earth.
• Vendor must potentially send a cheque to every country and state on earth every month.
• The cost of preparing and clearing each cheque/wire transfer is most cases will exceed the value of the cheque.

Customer Country Tax

Advantages

• Only one tax rate for the customer to deal with, the same as he uses in local stores.

Disadvantages

• Complicated. Vendor must know the latest tax rates and exemptions of every country and state on earth.
• The vendor must know the customer’s country, state, county and city to sell from the USA.
• Vendor must potentially send a cheque to every country and state on earth every month.
• The cost of preparing and clearing each cheque/wire transfer in most cases will exceed the value of the cheque.
• It is very difficult for a country to collect revenue from foreign vendors. They don’t know who they are. They cannot inspect them. They have no idea how much money they owe. They have no means to drag such vendors into local court.
• The cost of a sale accrues mostly in the vendor/manufacturer country. You have cost of fire protection, roads, sewers, air traffic control, water, subsidised post office… It makes sense that most of the tax revenue should go to the vendor country not the customer jurisdiction.

Vendor Country Tax

Advantages

• Simple. Only one tax rate to deal with. Only one vendor remittance cheque each month.
• If the vendor and buyer countries want to negotiate some cross subsidy, they can do it without making the millions of vendors do all the needless paperwork. Those bills are much more likely to be paid honestly than ones from millions of individual vendors.

Disadvantages

• Vendors could rip customers off by lying about the tax rate. Customers do not know what it is supposed to be.

Toting up all the advantages and disadvantages, I think we should go for the vendor country tax. Unfortunately, within the USA they have already locked themselves in to a customer tax further complicated by every county and city having its own rates and rules. There is not even a list posted anywhere of American sales taxes. You have to look them up country by county and city by city, all in a different format. It is a mess. In Canada you have both federal and provincial sales taxes, but no city sales taxes. Happily, there are only 12 provinces/territories and the taxes are stable.

~ Roedy (1948-02-04 age:70)