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How to collect state or local taxes

The article below is NOT tax advice. We strongly recommend you speak with an attorney and/or accountant to decide the best strategy for collecting and paying your taxes.

Collecting taxes can be tricky whether you're talking about collecting VAT, HST, state sales tax, or something else. A business may need to report and pay tax to specific states or jurisdictions. It's up to the business to collect the correct information and pay these taxes. 

With MemberSpace, it's easy to add a tax to each Member Plan you offer.

However, in some situations, you may want to charge different tax rates based on where someone is located e.g. California vs New York or Ontario vs Québec.

While there isn't a great way to accomplish this exact use case in MemberSpace, we do have alternative options.

Option 1 - Price As Tax Inclusive

Say you charged $100/mo for your Member Plan. The idea would be this $100 includes any tax you will need to pay in the future. For example, if you owe a flat 5% tax, then you would net $95 on each $100 charge after paying taxes.

If you go with this option, make sure your price is high enough to absorb the tax payment you'll eventually have to make and still be profitable.

Option 2 - Collect A Blended Tax Rate

Say for example you want to collect 5% sales tax from one jurisdiction, but you also want to collect 10% sales tax from another jurisdiction.

You could create two Member Plans with two different tax percentages - but that can start to get messy depending on how many different jurisdictions you need to charge for.

A cleaner option would be to create one plan that charges 7.5% sales tax i.e. a blend of 5% and 10%.

When collecting a blended tax rate, you want to make sure you're collecting enough tax on average that you're not undercharging for tax. If you're not sure, don't do a blended rate and instead just pick the highest tax rate across all your jurisdictions. In our example that would be 10%.

This would mean more profit for your business since you would only owe your local government < 10% from people in that lower tax jurisdiction.

Reconciling With Your Accountant

You would need to make sure you collect each customer's location (e.g. zip code) so you know which jurisdiction they are purchasing from. You can accomplish this by having a required custom sign up field before purchase.

Then when it's time to pay taxes to your local/national government, you can export your list of paid members from your MemberSpace backend which will include all the custom sign up fields. You would then hand over this .csv file to your accountant for them to calculate the amount of tax you owe each jurisdiction.

Future Dynamic Rates

We understand the options above may not be ideal for everyone. Eventually, we would like to support dynamically calculating tax rates at the point of purchase, but we don't have a timeline on that (large) feature. Keep in mind, even if we had the feature - your accountant would still need to double check the entire process and calculations.

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