How To Collect Tax For Online Programs

If you sell online courses and digital products, then chances are you have customers from all over the world. Which is great! And it adds complexity to your tax compliance.

This is especially true in regions like the European Union, or state-specific tax within the US, and provinces in Canada and Australia.

There are so many things to think about when you sell globally as a small business owner.

In this post, we’ll look at the different types of taxes and how they can be calculated and collected automatically.

The best part? With the right software, this tax calculation and collection will be fully integrated with your order forms!

That way you can stay focused on scaling your business and leave local tax laws, calculation, and collection to the pros.

Automatically Calculate Taxes For Your Digital Products

Types of Taxes For Digital Services

Let’s dive in. First off, digital services are any online course, program, membership, or digital download that you may sell online. Like physical products, these digital services may be taxable.

As an online business owner who sells digital services, you may be responsible for calculating and collecting taxes.

Some online business owners who sell digital products choose to pass along these taxes to their customers.

Others pay the digital service taxes on their own. Talk to your tax professional to help decide whether you should be paying these, or automatically calculating and charging your customers.

Sales Tax

Sales tax is when a government adds a percentage of the cost of a physical product, service, or digital service. It’s common for the consumer to pay this tax.

Value-Added Tax (VAT)

VAT stands for value-added tax. This is when a government taxes a physical product, service, or digital service along the value chain. That means it’s taxed at every stage of production when value is added, from initial production to final sale. The value-added tax is a type of consumption tax. VAT is based on the cost of the product.

VAT gets more complicated than a sales tax because it can be taxed at various stages rather than at the point of sale.

The most important thing to remember about VAT or value-added taxes is that it’s usually businesses that pay these taxes directly unless they’re passing it onto the customer.

That being said, it’s doable (and becoming more common) to pass along this value-added tax to the customer.

When you have robust tax software that integrates seamlessly with your order forms and payment processor, it’s easy as pie to add VAT to your customers who are purchasing in specific regions.

The other thing to keep in mind here is that certain jurisdictions may not charge VAT, while neighboring ones will. There can also be nuances with digital services vs. physical products.

If you sell digital services within the EU, Canada, and Australia especially, be sure that your tax software calculates based on location and takes into account these nuances.

The most important thing to remember here is that all these things can be handled automatically for you!

You don’t need to pay a tax preparer or tax expert to go through every sale for your online course, membership, or other digital services.

Man watching video about how to calculate sales tax and VAT for online programs and courses

Choose Your Tax Compliance Software

The right tax compliance software will:

  • automatically calculate taxes based on location, type of product, and nuanced tax laws
  • give clear instruction on how to remit taxes to the correct authorities and governments
  • free up your time so you can focus on anything other than taxes :)

How To Find The Right Fit

As you research tax compliance software for your online courses, memberships, or coaching programs, there are a few factors to consider.

Some of these will be deal-breakers while others are personal preferences.

Key Factors To Research:

    1. Does the tax compliance software fully integrate with your order forms?
      This is a deal-breaker. If the tax compliance software doesn’t fully integrate with your order forms, it won’t work for you. Your customers will have no idea that multiple systems are being used to calculate tax. As you research, check this integration first.
    2. Does the tax compliance software work worldwide with the specific tax laws in each area?
      The best choice will be software that calculates based on location and local tax laws there. You don’t need to spend your time keeping up with local tax laws instead of scaling your business.
    3. Does the tax compliance software calculate and collect taxes?
      Be aware that some tax compliance software only calculates the tax, but then it’s your responsibility to collect it. This isn’t ideal for most businesses. Be sure the software you choose calculates based on location and collects tax from your customers.

My Recommendation

 

Nathalie working on her computer with tax compliance software

We recommend Quaderno for your tax compliance software. We recently released a full integration with Quaderno and AccessAlly.

Now, when you use AccessAlly order forms, it’s easy to collect taxes worldwide, stay in compliance with all the tax laws, and get easy-to-understand remittance instructions.

Quaderno

Quaderno is a paid service that allows online businesses to automate sales tax calculation and collection worldwide.

With Quaderno, you can automatically calculate and collect sales tax, no matter where your customers are located.

Quaderno calculates the appropriate tax rate on every transaction. It will verify the buyer’s location, apply the accurate tax calculation, and add it to the transaction. Quaderno stays on top of the changing tax laws, so you can focus on marketing your course or coaching business.

Full disclosure: We are affiliates for Quaderno. We never let an affiliate commission sway our opinion though. We heard our clients asking for a tax compliance software integration, and found Quaderno to do exactly what they were looking for. It truly does make tax calculation and collection a breeze.

AccessAlly

AccessAlly is a WordPress plugin for online courses, memberships, or any type of digital offering. AccessAlly works with Stripe and PayPal to give you flexible order forms and payment processing options.

It’s also packed with advanced LMS features like progress tracking, course certificates, and video and audio bookmarking.

AccessAlly integrates with your marketing automation software or CRM, like ActiveCampaign, ConvertKit, Keap, and Ontaport.

AccessAlly makes it easy to offer online courses, memberships, and coaching programs. It’s everything thing you need to create, sell, and scale your digital services.

With AccessAlly order forms give you payment flexibility, so you can offer one-time payments, payment plans, or subscriptions as you wish.

How Quaderno and AccessAlly Work Together

logo Quaderno + AccessAlly logo shown on laptopAccessAlly and Quaderno integrate seamlessly. That means that you can use your powerful AccessAlly order forms combined with Quaderno to automatically calculate and collect sales tax and VAT automatically for all your digital services.

When you use AccessAlly order forms and Quaderno, your customers will see a line item for the specific taxes that you have set up based on their location. If they don’t qualify to pay sales taxes, then no line item will show up for them.

But if they’re located where tax law applies, they’ll automatically see the sales tax or VAT added to their order form.

The setup is straightforward, and we have articles to support along the way. And of course, you can always reach out to our incredible support team.

Quick Recap

If you sell online courses, memberships, or coaching programs you need tax compliance software that calculates and collects taxes based on location and local tax laws.

Full integration with your order forms is necessary in order to have a seamless checkout experience for your customers.

We recommend usingAccessAlly and Quaderno to have a seamless checkout experience for your customers, and automatically calculate and collect tax worldwide.

Take Action

Get a free, live demo of AccessAlly to see exactly how it can work for your business.

Click here to see a free demo of AccessAlly

4 Comments

  1. BJ Ahlen on October 12, 2021 at 2:34 pm

    Please add a section on incidental sales.

    If you are not marketing directly to customers in sales tax/VAT areas, any sales to them would be incidental to your overall sales revenues, and for the payment of sales tax etc. it is my understanding that this would be up to the end customer (like paying “Use Tax” on something taxable that you import to your state in the U.S. for example).

    But these rules can change in a jiffy…

    • Nathalie on October 13, 2021 at 8:30 am

      Thanks for adding this nuance BJ! I think it does depend on how much of a percentage of your sales it becomes, right? If you end up with say 50% of your sales in one of these areas then you might need to pay those taxes. Otherwise, if it’s a small percentage it might fall under incidental.

      I appreciate you taking the time to share your experience as well!

  2. Rod on October 16, 2021 at 10:34 am

    Extremely helpful and the timing is serendipitous. Pushing out content takes effort; thanks for doing this for our benefit, Nathalie!

    • Nathalie on October 19, 2021 at 2:13 pm

      I’m so glad this was useful for your Rod! I hear you on the content side, and I’m excited we can do it! :)

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