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VAT Rates in Europe, e-commerce and U.S. Sales Tax
This is a brief view of the main taxes on goods and some implications for e-commerce.
The following list of the standard rates of VAT in many European countries was correct on 14 January 2011. Normally, VAT is only one of several taxes on households and consumption. Some countries with a high incidence of VAT may have low excise duties on alcohol, motor fuel or cigarettes, so that the effective tax on consumption may be lower than it seems to be.
Whilst the Centre for Retail Research is happy to provide this list from its own research, it is primarily an aid to understanding and discussion. Its accuracy should not be relied upon in any negotiations or inter-state pricing.
|Value Added Tax: Standard Rate|
[Source: Eurostat 2010, corrected for changes]
E-Commerce and VAT
Payment of VAT by online retailers is a very sticky area, although the principles are simple. VAT is chargeable on goods sold within a country using e-commerce or distance selling methods (eg mail order). If you ship goods from one European country to another then VAT remains payable. Smaller businesses can simply charge their national VAT rate until a value threshold is reached, above which VAT must be charged at the national rate of the European consumer. In the UK the threshold is £70,000, €100,000 in France, Germany Netherlands, and Austria, and €35,000 in most other countries like Spain, Italy, Portugal, and Finland. Retailers need to register in each of the countries where they have customers and pay VAT to the national authorities. So a UK e-tailer could simply charge 17.5% on sales until his foreign sales had reached £70,000 after which point he would charge 19.6% on goods to France, 25% on goods to Norway etc.
The Channel Islands are not part of the UK and no VAT is charged on low value merchandise sent from the Channel Islands to the UK (termed Low Value Consignment Relief, LVCR). As long as the consignment is below £18.00, online/mail order retailers of CDs and DVDs and sometimes books can use this facility to gain a price advantage over mainland-based retailers who are required to pay VAT at 17.5%. Whilst formally, this seems to be a breach of the Sixth VAT Directive and Directive 83/181/EEC HMRC has not taken any action against it.
US Sales Tax
In the US, sales tax of fascinating complexity is imposed on the final transaction in stores and services in 45 autonomous jurisdictions. If you exist ('nexus') in a state (eg you have stores, inventory or employees there) you must charge sales tax there also. It is levied at a relatively low level, may not be included on the sales receipt or marked retail price, and exemptions such as food and clothing may vary from state to state.
Exciting possibilities include: stating delivery charges separately (often excluded from sales tax); reviewing where you accept delivery or ship from as, when you are located in a high Sales Tax area this places you at a disadvantage when selling into a low Sales Tax area; reviewing payment and sales errors, omissions, frauds and thefts as some of these can be offset against Sales Tax in certain states but not in others. Sales tax may also be paid by businesses on business equipment for their own use.
Alabama has a sales tax of 4%, food is not exempt; Arizona has a transaction privilege tax on gross receipts that allows cities and counties to add up to another 6% to the tax; California's sales tax is 10.75% (including local sales tax) on many categories, but it is 6% in Washington DC, Vermont and Florida. In Connecticut, California, Florida, and New York and many other states groceries and prescription drugs are excluded from the sales tax. In New York the state tax is 4% and local taxes add a further 3.0% to 4.75% and no tax is payable (theoretically) on low-cost clothing and shoes.
Sales tax is probably easy to apply by a single store or a chain within a state, but multi-state and e-commerce retailers face a maze of different regulations and rates of tax at state and local level. And you thought VAT was hard to understand!
Online Retailers and Sales Tax In New York online retailers with sales of more than $10,000 have to charge local and state taxes. Amazon and a number of other large online retailers refuse to charge sales tax to their clients. They argue that because they are not located in a state (ie no 'nexus') they are not required to collect sales tax. Tax collection then passes to the state authorities, which do not find it economic to recover small amounts from individual consumers. There have been a series of court cases on this issue. Online companies prefer to locate where there is no U.S. sales tax or rates are low.