[tehwalrus]

This is insane. Either add a sales tax (fixed %) to all B2B transactions (like UK VAT, which you're exempt from if you're tiny) or just don't.

This minefield of regulations about what's taxable and what isn't will just make it much more expensive to sell things, as people pay for lawyers/accountants to figure out what "tax" to add to every outgoing invoice. Since this will decrease consumption, it will reduce other tax revenues, as well as making this pot smaller.

Mad. Stark Raving.

[neltnerb]

Agreed. I run a small business (thankfully not doing software) in Massachusetts. I don't mind collecting sales tax, but when they make it an overhead nightmare it's impossible to figure out. I'm just one person; when your revenues are in the $10k range, hiring someone to figure it out is impossible. If they just charged a fixed rate for everything it would at least not so heavily favor big business over small companies.

I'm also confused because it seems that most of the reasoning is that companies sell the software for cheap and then make the service contract expensive. I've seen this done by companies like Autodesk and National Instruments for sure, so I can see why they'd dislike it. I design custom equipment, and I'd be tempted to do the same (charge at close to cost for equipment and charge as a service for labor). But this seems like an incredibly poorly conceived way to fix the problem that will cause more issues than it will address, and it's surely not limited to software. I could pull the same trick in any kind of contract work.

[mvc]

> software for cheap and then make the service contract expensive

If the software is cheap, it is expensive to service it.

[pc86]

I know what you're saying, but I think his point was if you spend $100k developing software, sell it for $100 and sell service contracts for $10k instead of selling it for $5k with a similarly priced service contract.

[thecodeore]

I have never heard anyone describe "Autodesk" as "cheap software"

However the "Sell software cheap and then charge for service" is the OPEN SOURCE MODEL, where the software is given FREELY, and if you need professional help you have to pay, that is certainly not the model Autodesk uses.

[neltnerb]

Cheap compared to the service contract. If you sign up for things like paid training they'll basically give you the licenses for free. This is from experience, at least for new companies where they want to get lock-in.

I don't see how it being the open source model is relevant. I'm not judging the validity of the practice, this is literally what the representatives claimed the logic was.

[jt2190]

Agree. I lived in Toronto when the Canadian Government introduced the Goods and Services Tax (GST) as a replacement for the old Manufacturer's Sales Tax (MST) of 13% on all products manufactured in the country, as this hurt the international competitiveness of manufacturers.

The proposal was to replace all provincial sales taxes with the GST, and to apply GST to everything, to keep it super-simple to implement. Well the provinces hated the idea, and the tinkerers just had to have exemptions added for various reasons. The result was that there were two sales taxes in Ontario, each with a complex set of exemptions. The popular example was that buying five donuts was taxable, because that was "dining", but buying six was exempt, because that was "groceries".

[stan_rogers]

The MST wasn't just on products manufactured in the country and didn't have much to do with either international or domestic competitiveness; moving to the GST merely lowered taxes on luxury goods at the expense of raising them on what would be considered necessaries in contract law. By waiting a month to buy the (all foreign-made components) stereo God would have had if he could afford it (I had the audiophile bug bad back then) until the system transitioned, I saved over $5000. Meanwhile, folks buying cheap, basic clothing, cleaning supplies, toilet paper and low-end fast food (all of which were exempt from the MST) were making up the difference.

[keithpeter]

http://www.hmrc.gov.uk/vat/index.htm?_nfpb=true&_pageLabel=p...

Not quite easy but if your business turns over more than £79k then you will have registered for VAT in the UK.

A US state VAT system would, presumably, result in a matrix multiplier (52 by 52 or whatever the number of different rates are) and require companies to track transactions in the various states.

[Dylan16807]

52x52 would be so easy compared to what we have right now, with sales tax varying street by street based on vague and inconsistent categories. Plus wouldn't it be closer to adding two out of 52 numbers together? Either way you can fit the rates on a single piece of paper and be done with it.

[tehwalrus]

State of seller determines the tax rate.

In the EU, if you're British and buying from Germany, you pay German, not British, VAT rates - they should copy that.

Agreed though, that British VAT isn't as simple as it could be (whole categories exempt, etc.)

[TomaszZielinski]

Not quite true.

The rule of thumb is that VAT is a tax on consumers, not businesses. Of course there are hundreds of exceptions to that.

If you are a British company buying services from Germany then the seller shouldn't charge you a penny, then you charge the British VAT on the purchase and then deduct it if only the purchase is related to _your_ taxable sale(s).

But if you are a British consumer then the seller should charge you the German VAT.

That's the general case, there are exceptions to that and exceptions to exceptions so don't bite me please :)

By the way, the national VAT bills have to be complex simply because they are meant to mirror the EU directive: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:...

[mjn]

That's not true in the EU across the board. If you're buying by mail-order, and the seller is above a certain size (small sellers exempt to reduce the compliance burden), they have to assess VAT based on the shipping address. For example, when I order from Amazon.co.uk to Denmark, Amazon charges me Denmark's VAT rates (which are higher and don't exempt books, alas).

[tehwalrus]

interesting! I was basing my knowledge here on having paid "German VAT" on a smartphone from amazon.de (they had it slightly cheaper and much earlier than anyone in the UK.) Maybe I got confused, but I was sure at the time it was a different %age. Maybe I was above the threshold.

[jbooth]

MA is actually in the lower third of states both in terms of their income tax rate (5.3%) and sales tax rate(6.25%). They could increase one or both of those by a small amount, raise a ton more money and still be a low-tax state, without getting into crazy crap like this.

[twoodfin]

But it's in the top fifth of per capita tax burden:

http://taxfoundation.org/article/state-tax-collections-capit...

Part of that is having both a sales and an income tax. Some states have one or the other.

[jbooth]

Apples and Oranges. I'm talking rates, you're talking dollars. People in MA make and spend more money than people in Alabama, so you'd have a higher per-capita tax burden even with lower rates in MA.

Per capita income minus dollars taxed or the ratio of the two might be a better measure than either of ours for what you're trying to get at.

Point being, the rates are low and could easily be added to without dumb-ass industry specific things like this.

[bostonpete]

Whether the sale of customized software is subject to sales tax or exempt, you're going to have "industry specific things like this".

This sort of software is in something of a hazy middle ground between shrink-wrapped software on the shelf and IT consulting services. Taxing it may seem dumb to us when compared with other states, but probably seems like a reasonable move to at least consider to most.

[damian2000]

Australia used to have a system like the US model - all of the states had their own arcane sales tax laws. This was scrapped in 2000 in favour of a blanket 10% goods and services tax. It didn't make everyone happy but it was a lot easier to manage. Also, imports under AU$1000 are exempt from it, which means online sellers like Amazon who ship from the US or UK are fairly popular.