Sales Tax and VAT Guide

Welcome to your guide to Sales Tax and VAT (Value-Added Tax) as a creator selling digital products online!

Navigating the complexities of sales tax regulations across different countries can be daunting. In this guide, we'll explore how sales tax works for digital goods in the United States, Canada, the United Kingdom, and the European Union — and how TCommerce takes the stress of tax compliance off your plate.

TCommerce is Thinkific’s custom suite of selling and payments tools, proven to help you save time and sell more. Included in your Thinkific plan, TCommerce allows our customers to spend more time on teaching and selling, and less time on the complexities of sales tax compliance!

Sales Tax, GST, and VAT Explained

Learn more about tax compliance in Stripe's guide: Navigating tax compliance as a content creator.

If you sell goods or services on an online marketplace, it’s important to understand your tax obligations and responsibilities. Your tax obligations and responsibilities are typically determined by the locations of your students, or customers, not where you’re located as the seller. There’s a lot to keep track of, and these rules can change. As a busy creator and business owner, it can be hard to stay on top of it!

Our Sales Tax and VAT Solution on TCommerce takes care of your tax obligations for all sales made to students in the US, Canada, the United Kingdom and the European Union, so you don’t have to. If you are not on TCommerce or have students outside these jurisdictions, be sure to understand your tax obligations and responsibilities to ensure compliance.

Sales Tax in the United States

Here’s what you need to know if you have students or customers in the United States:

How sales tax is charged: Sales tax is imposed at the state and local levels, not at the federal level. The rate of tax differs in each state and local jurisdiction.
Taxability of digital goods: Many states continue to update their sales tax laws to include digital products and services. These can include courses, online subscriptions, live lessons, e-books, and software downloads. However, the taxability of digital goods can vary by state. It is important that you understand the rules in each jurisdiction where you have students or customers.
Nexus and tax obligation: If you have a significant presence or connection in a specific state or jurisdiction (also known as “nexus”), you may be required to collect sales tax on digital goods sold to customers in that state. Nexus can be established through various factors, including physical presence (i.e. office, warehouse, employees), economic activity (i.e. sales volume), or click-through agreements. For sales made via an online marketplace on their payment processor, individual nexus thresholds do not apply.
Compliance requirements: To comply with US sales tax laws, you may need to register for sales tax permits in states where you have nexus, collect sales tax from your students/customers, and remit the tax to the appropriate state and local tax authority.

Once you’re on TCommerce, we take care of all of this for you with our Sales Tax Solution. Thinkific has reached nexus in all US states, therefore we will charge, collect and remit sales tax for all sales made to students in the US. Thinkific remits the tax through our Company tax return.

Sales Tax in Canada

Here's what you need to know if you have students or customers in Canada:

How sales tax is charged: Goods and Services Tax (GST) is levied by the federal government on most goods and services, including digital products. Some provinces have created either a provincial sales tax or a Harmonized Sales Tax combining GST and provincial sales tax (HST).
Taxability of digital goods: Digital goods and services are generally subject to GST/HST/provincial sales tax in Canada. This can include courses, online subscriptions, live lessons, e-books, and software downloads.
Permanent establishment and tax obligation: Canada uses the term "permanent establishment" to define when a business has a significant presence in the country and is therefore subject to Canadian tax laws. For sales tax purposes, if a business has a permanent establishment in Canada, it may be required to register for and collect GST, HST, or provincial sales tax on taxable supplies made in Canada, including digital goods and services sold to Canadian students and customers. For example, in some provinces like Saskatchewan, just one sale requires tax registration and remittance! For sales made via an online marketplace on their payment processor, individual permanent establishment rules do not apply.
Compliance requirements: If you’re selling to students and customers in Canada, you may need to register for a GST/HST account, collect GST/HST from customers, and remit the tax to the Canada Revenue Agency (CRA). Compliance with Canadian sales tax laws is essential to avoid penalties and fines. Here is a link to the Government of Canada website for creators selling digital products to students in Canada.

As part of our Sales Tax Solution, Thinkific will take care of the tax on your sales made through TCommerce in Canada. You would only need to report the total sales on your GST return and report no tax collected on these transactions. Thinkific remits the tax through our company tax return.

Value-Added Tax (VAT) in the United Kingdom and European Union

Here's what you need to know if you have students or customers in the UK or EU:

How VAT is charged: In the UK and EU, value-added tax (VAT) is levied on most goods and services, including digital products. VAT is generally included in the price of your products or services rather than added on top.
Taxability of digital goods: Digital goods and services sold to customers in the UK and EU are generally subject to VAT. This can include courses, online subscriptions, live lessons, e-books, and software downloads.
Taxable threshold: If your business exceeds the VAT taxable threshold of sales in the UK or EU (which may be anything more than $0!), you will be required to register for a VAT number, collect VAT from customers, and report and remit the tax to HM Revenue & Customs (HMRC) or VAT Mini One Stop Shop scheme (VAT MOSS). For sales made via an online marketplace, individual VAT thresholds do not apply.
When to charge VAT: The UK and EU have specific rules to reverse the charge of VAT from the seller to the buyer, in some situations.
- Charge VAT at your home country's VAT rate if you are:
  - An EU business selling to non-VAT registered customers in the EU
  - An EU business selling to VAT-registered customers within your country
- Charge VAT at your buyer's country VAT rate if you are:
  - An EU business selling to non-VAT registered customers in the EU
  - A non-EU business selling to non-VAT registered customers in the EU
- Reverse charge VAT (do not charge VAT, instead show the VAT rate and amount on the invoice/receipt) if you are:
  - An EU business selling to VAT-registered customers in the EU (not in your own country)
  - A non-EU business selling to VAT-registered customers in the EU
Special VAT rules: The UK and EU have implemented special VAT rules for digital services provided to customers in other UK/EU countries. If you sell digital services to customers between countries in the UK/EU, you may need to comply with the VAT Mini One Stop Shop (VAT MOSS) scheme.

As part of our Sales Tax and VAT Solution, Thinkific can take care of the tax on your sales made through TCommerce to students in the UK or EU. You’ll be able to charge VAT if required (or reverse charge VAT), issue VAT-compliant receipts and download tax reports to use in your VAT return.

Sales Tax for Students Located Outside of the US and Canada

If you have students located outside the US and Canada, the TCommerce Sales Tax Solution is not yet available. You will need to understand your tax obligations in these jurisdictions and remit the applicable taxes as required. Please let our support team know if bringing the TCommerce sales tax solution to other jurisdictions is important to you!

How Sales Tax Is Charged in Different Places

Invoicing requirements for sales tax compliance vary across different countries. Here’s an overview of what your students/customers can expect to see on their invoices:

Student/customer information: Invoices will include student information such as name, address, and any other relevant details required by local tax authorities.
Taxable amount: In the US and Canada, the price is shown exclusive of sales tax/GST/HST. In the UK/EU, prices are generally shown inclusive of VAT. In all cases, the invoice will show a separately itemized tax amount.
Tax number: If you are registered for sales tax, GST, or VAT, invoices include the applicable tax number.

If the student is not registered for VAT, the tax remittance obligation lies with the creator. This rule is designed to address transactions between local UK/EU businesses purchasing goods or services from foreign suppliers located outside the UK/EU.

Selling Digital Products on an Online Marketplace like Thinkific

If you sell goods or services on an online marketplace, it’s important to understand your tax obligations and responsibilities. Some governments have enacted legislation that requires marketplaces to collect and remit tax on behalf of their third-party sellers’ transactions. These laws benefit tax authorities because they can collect more tax from fewer entities, which results in simpler compliance. Sellers benefit by having tax for certain transactions handled by the marketplace, but it’s not always a straightforward process.

Additionally, volume-based thresholds now apply to the marketplace’s total sales, rather than the individual creator or seller’s sales. This means that the US nexus and Canadian permanent establishment thresholds do not apply to you as the creator and that your individual sales volume isn’t a factor in determining whether sales tax must be charged. Instead, the tax authority looks at the platform’s (for example, Thinkific) total sales in the jurisdiction to determine whether the volume based threshold is met.

If you want to read more about how this regulation came into effect and how it is applied to each state, check out this guide by Avalara, a tax solution software company.

What does this mean for you, as the creator?

Sales made on Thinkific TCommerce to students based in the US and Canada are subject to Thinkific’s nexus for marketplace tax regulations, not the nexus rules for individual creators. The good news is that Thinkific will take care of the tax obligations, including assessing taxability, and collecting and remitting sales tax for you!

Are My Sales Taxable or Exempt?

The tax treatment of courses and other digital products can vary depending on the nature of the product or service, the student’s location, and the local tax laws there.

Place of Supply rules: Sales tax/GST/VAT typically applies where the student is located, not where the creator is located. This is also called destination-based sourcing. This means that if a student purchases an online course and is located in a place that imposes sales tax, the creator is generally required to collect and remit sales tax where the student is located.

Exemptions: As a creator (seller), it is rare that your business will be exempt from charging sales tax/GST/VAT. However, there are some cases where the student (customer) might be exempt from sales tax/GST/VAT. The rules around sales tax exemptions vary between jurisdictions, and the student/customer should have a tax exemption certificate. Students that may be exempt from paying sales tax might be registered non-profit organizations and charities, or government agencies and businesses located on indigenous land. The creator is not usually the one that is tax exempt, it’s generally the student. This means that the creator must be able to charge sales tax. Here’s a link to an Avalara article providing more information on nonprofits.

Zero-rated supplies: In the UK and the EU, some supplies are considered to be zero-rated.

Educational services vs. digital products: Whether an online course is considered a taxable service or a digital product for sales tax purposes can depend on how the jurisdiction defines and categorizes it. Some jurisdictions may consider online courses to be educational services exempt from sales tax, while others may treat them as taxable digital products or services.

Once you set up the feature and select your “Product Tax Codes,” the TCommerce Sales Tax Solution will determine your product's taxability. More information is available here.

If your students are in a location where the TCommerce Sales Tax Solution is not yet offered and you have a tax obligation in that location, we recommend seeking tax advice to determine whether your sales are taxable.

How Does Thinkific Help Me with Sales Tax?

The TCommerce Sales Tax Solution provides our creators with a robust and user-friendly tool to streamline sales tax compliance for your online courses, digital products, and services. We’ll determine whether your sales are taxable, and what rate to apply for all sales made for transactions in the US, Canada, the UK and the European Union. For transactions in the US and Canada, we’ll also remit the taxes to the appropriate tax authority for you! You’ll still need to consider your sales tax obligations for any services and products that you sell outside of Thinkific or transactions made through PayPal.

We offer detailed reporting and dedicated customer support to help you with any questions, something that helps creators minimize the administrative burden of sales tax management so you can focus on growing your online business with confidence. Check it out and sign up for TCommerce here!

Additionally, as a creator or seller, you’ll need to take care of any other taxes that you may be subject to, such as taxes on your earnings (income tax) and related forms like 1099 forms. For more information on what Thinkific can provide you to assist with other tax compliance, click here.

If you’re not on TCommerce, sign up today by enabling Thinkific Payments — included on all Thinkific plans.

You’ll get access to proven selling tools like Gifting, Order Bumps, Group Orders, Buy Now, Pay Later payment methods for your students, and our Sales Tax solution — all helping you save time and sell more.

Disclaimer: This guide is for informational purposes only and should not be considered a substitute for professional tax advice. Consult with tax, legal, and other advisors for advice tailored to your business. Thinkific undertakes no obligation to publicly update or revise any information contained in this article, whether as a result of new information, future events or otherwise. While Thinkific has obtained information from sources it believes to be reliable, Thinkific undertakes no duty of due diligence or independent verification of any information it receives.

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