Not sure where to ask sales tax question

[thewood1]

I am a resident of Mass. I have never had sales tax charged on an online order that I noticed. For an $80 game, that adds $5. I looked up the tax code and check with my accountant, and unless Matrix has substantial physical operations in Mass., they should not be charging sales tax. My accountant said that should be especially true if not physical goods are shipped.

I can send you the link from the IRS site if needed.

[Erik Rutins]

Unfortunately, this is due to the so-called "Amazon Tax". Because of their budget shortfalls, many states have started passing laws that treat online stores with affiliates as having a "tax nexus" in any state where an affiliate may be. This was originally passed to collect taxes on Amazon.com. Amazon responded by canceling their affiliates program in any state that passes such a law.

Unfortunately DR also has an affiliates program. We do not participate in it and we do not have
affiliates. However, since DR does and they technically collect the payment, they have had to add many additional states to their list of states where they have to charge sales tax over the course of the last year. That's why you're seeing this now and did not see it in the past. We're not happy about it at all, but there's not much we can do.

Regards,

- Erik

[thewood1]

I would make a strong suggestion that you have DR's accountants revisit this.  I am very familiar with the Amazon tax rulings and there has been almost no pursuit of these taxes by the states.  In fact, there are a number of cases where states were not allowed to collect.  I am a little teed off about this.  Not only just get myself over the hump to put down $80 for a game I am skeptical is worth that much, but I just got stiffed on an extra $5.  You are making it very hard to like doing business with you.

Also, why are you the only ones doing this.  I buy digital games and mail order games from HPS, BFC, and Shrapnel, as well as NWS.  Either you are stiffing me or DR is stiffing you.  I will gaurentee you if I have pay that $5, I will be dropping a dime to MA Dept. of Revenue to make sure that all sales tax collected by you goes to our coffers.

btw, I would suggest you look for an alternative to DR. There are plenty of them around and if they are sticking you with the affiliate excuse, I would suggest they are not the company you should be in bed with.

[Erik Rutins]

We've pursued this with DR several times and have gotten nowhere. Moreover, we've spoken with other online store companies with affiliate programs and they are all heading the same way or have already done the same thing. Any tax collected by DR is remitted to the appropriate state/country. I assume that whether the states are "going after" companies is irrelevant to them as once the law is on the books, they either have to comply or disband all their affiliates and they don't want to put their business at risk. I am not happy about this either, but we pushed back hard on this and got nowhere.

Note that if we were collecting the money ourselves, we would only have to charge tax in one state as we have no affiliates. This is strictly because of DR and their affiliates program and the fact that they actually collect the money from the customer when the transaction is complete.

Regards,

- Erik

[thewood1]

My accountant, who is my uncle just sent me this because I had asked him tonight.
 
from excerpt from MA Dept of Revenue:
 
TIR 03-1: EXEMPTION FROM MASSACHUSETTS USE TAX FOR TAX PAID UNDER LAWS OF ANOTHER STATE:
 
"In contrast to the Massachusetts sales tax, which is usually collected by and paid to the Department of Revenue by the vendor who sells the tangible personal property, the purchaser generally pays the Massachusetts use tax directly to the Department of Revenue. The use tax is 5% of the sales price of the tangible personal property."
 
Now theoretically, I would pay the $5 to the DOR myself.  But compliance with this is less than 1%.  But DR should not be collecting it.

[thewood1]

If that is your answer then you have pursued a business relationship that is screwing your customers.  There are several ways around the affiliate issue for DR and the fact they either won't or aren't savvy enough to get around it says a lot.  As I have said, your competition isn't having this issue and the fact you are starting to drop $70 - $80 games on us is only exacerbating that issue.
 
I am disappointed at having convinced my self to buy an over-priced game to begin with, and then to put just the right icing on it, I get to pay an extra $5 that I am skeptical is even going to my state. 
 
This will be the last game I purchase from Matrix.  I feel like you got me coming and going.

[Erik Rutins]

If you think we see a cent of that sales tax, you are confused. Our goal has never been to overcharge our customers in any way, but we are not above the law. If you want, e-mail me and I'll send you the exact explanation from DR so you can forward it to your uncle.

[loyalcitizen]

 Or list your [;)] "Summer Home" [;)] in a tax-free state as your address, use Paypal, and do the digital download. No tax for you.

[thewood1]

I don't think you're keeping it.  Read my post again.  I think DR is keeping it.  If not, they are one of the few companies without substantial assets in MA that is actually delivering sales tax to the state.  My wife's best friend is an auditor for the DOR.  There are 3 people that are dedicated to auditing out-of-state tax compliance.  Compliance is less than 1% and cases have been lost by the state on collecting online sales tax.  So if they are complying, they are one of the few.
 
As I stated, I do digital downloads from other software companies and this is the first time I have seen this.  Do you really think whatever benefit you get from DR, its worth costing your customers an extra $5.  I feel kind of stupid.  I thought of buying the CD version from NWS but thought I would support Matrix and give them a little margin.  But instead, I feel Matrix has done everything it can to make me second guess purchasing a game that was already the most expensive SW game purchase I have ever made.  You can blame DR, but its you that continues to use them.

[thewood1]

ORIGINAL: loyalcitizen

 Or list your [;)] "Summer Home" [;)] in a tax-free state as your address, use Paypal, and do the digital download. No tax for you.

You know, if I had thought that any company still does this, I would have.

[Erik Rutins]

ORIGINAL: thewood1
I don't think you're keeping it.  Read my post again.  I think DR is keeping it.  If not, they are one of the few companies without substantial assets in MA that is actually delivering sales tax to the state.  My wife's best friend is an auditor for the DOR.  There are 3 people that are dedicated to auditing out-of-state tax compliance.  Compliance is less than 1% and cases have been lost by the state on collecting online sales tax.  So if they are complying, they are one of the few.

Ok, I'll definitely make sure that they are then.

As I stated, I do digital downloads from other software companies and this is the first time I have seen this.  Do you really think whatever benefit you get from DR, its worth costing your customers an extra $5.  I feel kind of stupid.  I thought of buying the CD version from NWS but thought I would support Matrix and give them a little margin.  But instead, I feel Matrix has done everything it can to make me second guess purchasing a game that was already the most expensive SW game purchase I have ever made.  You can blame DR, but its you that continues to use them.

To be clear, I don't want to charge our customers the extra $5 at all. It's especially absurd because we don't participate in the affiliates program at all. We're a little guy and this is between big government and a much larger corporation. The first we heard of this actually was when a customer asked us about it last year and we pursued it with DR, which should also tell you how happy we are about it. DR is not budging on this, we've already tried. The next option would be for the states to stop passing these ridiculous additional taxes.

We've also looked for alternatives to DR in the past, we are really always looking as part of being responsible about our business. All of those that could truly replace them are in a similar boat on this tax issue. The only other option would be for us to completely take over the store ourselves and run it on our own servers and our own software, which for our volume would be prohibitive at this time and would also likely have its own share of new problems.

Regards,

- Erik

[thewood1]

I would suggest looking at Battlefront's order processor and download partner.  They seem to be able to do it.

[GoodGuy]

While you're at it, Erik....

even though you had promised to verify/research this, You NEVER answered to my Request (that was endorsed by at least one other German Matrix customer) to research/verify whether Matrix customers were violating GERMAN tax laws by purchasing Matrix titles through Digital River or not.

In fact, I am somewhat pissy right now about the fact that you never got back to me and the other German customer in that General forum thread.

Background:

DI was adding 16% VAT for customers in Germany - instead of 19% -, for at least 2 years, that's what their invoices said, at least. So, if they're claiming to collect 16%, ALL German Matrix customers owe the German goverment the remaining amount of tax. Also, I can't imagine that the German tax agency would be fine with relinquishing on 3% with each sale.

So, my question back then was, did DI pay over the VAT amounts at all, or did they KEEP the money, since it wasn't the correct VAT amount anyway? Did they try to rectify their mistake at all (means did they direct additional payments to the German tax authority)?

Either way, German Matrix customers violated German tax laws (by paying a too low VAT amount with each purchase), just because DI was not able to state the correct VAT amount.

I'd like to get a statement now, Erik.

Maybe I should contact the German tax office to get things rolling? If this wasn't just a mistake within the Matrix section of DI's payment-software, I could imagine that non-Matrix products were affected too, means we're talking about a lot of money here.

[Erik Rutins]

Good grief, yes, lock me up now GoodGuy.

I simply forgot. I recall asking DR about this, but I think they did not reply and I forgot to follow up. In the back of my mind though, I thought the facts were a bit different from what you describe? Do you recall where that original thread was? I'll ask them about his again tomorrow.

Regards,

- Erik

[ElchDivision]

DEUTSCH bis auf die Knochen, German through and through [;)]
Even if the 16% thingy would be incorrect I sometimes fear there are some traits in my countrymen I do not realy like.
Any connections "Finanzamts"wise?

Cheerio

Rob

"ALL German Matrix customers owe the German goverment the remaining amount of tax. Also, I can't imagine that the German tax agency would be fine with relinquishing on 3% with each sale."

"Did they try to rectify their mistake at all (means did they direct additional payments to the German tax authority)?"

"Either way, German Matrix customers violated German tax laws (by paying a too low VAT amount with each purchase), just because DI was not able to state the correct VAT amount."

"Maybe I should contact the German tax office to get things rolling? If this wasn't just a mistake within the Matrix section of DI's payment-software, I could imagine that non-Matrix products were affected too, means we're talking about a lot of money here."

[wodin]

Do my eyes decieve me?? Someone is going to contact a tax office incase they never collected enough taxes!!!

Blimey...never seen that before...

I wont write anymore as I don't want to upset Good Guy

[Erik Rutins]

Ok, in reponse to the question on Massachusetts sales tax, I spoke with our contact at DR:

"Just spoke with our US tax manager. Digital River is indeed registered in Mass and collecting and remitting taxes as required by our registration with the state. We have an entire team dedicated to making sure we are tax complaint in all states."

I'm expecting an answer on the German VAT question later today.

[GoodGuy]

ORIGINAL: ElchDivision

DEUTSCH bis auf die Knochen, German through and through [;)]
Even if the 16% thingy would be incorrect I sometimes fear there are some traits in my countrymen I do not realy like.
Any connections "Finanzamts"wise?

Actually, this doesn't deal with some alledged German nitpicker attitude, there's a political background (you might not know/see), plus there are Matrix customers who don't like the fact that Matrix chose DR as the sales/distribution platform:

Products shipped from the European Union (say to the US) are exempt from any VAT charges. Yet the EU imposes local VAT fees on all imports. In theory, if you follow the EU regulations, EU citizens are even supposed to pay VAT for digital download products obtained in say China. I for one, think that this is quite an impertinent if not imperialistic behaviour, putting US businesses like Matrix at a substantial disadvantage.

Some US businesses decided not to deal with sales platforms like DR (DR has subsidiaries in Europe) just for that reason, and - since the EU can't enforce their tax laws in the US (means on US businesses), such US businesses decided to boycott EU tax legislation, as higher prices for their EU customers would hamper their sales efforts, otherwise.

So if then, on top of the whole deal, DR decides to bow to the EU's discrimination of foreign (eg. US) businesses, by establishing registered subsidiaries in Europe and adding VAT to the bills of European customers, then I'd at least expect that they'd do their math right.

If they can't do that, I'd rather prefer Matrix to refrain from doing business with DR in the future, especially since they'd highly benefit from it, by putting up VAT-free price tags for EU customers.

The discrepancy regarding the VAT amount may also leave German customers with a bad taste in their mouths, as they might wonder whether DR really pays over the money or not. Hence my reference to German tax authorities, when I said that I can't imagine that the German tax office would be satisfied with 16% VAT.

Last but not least, US laws don't envision (let alone enforce) the use of EU laws on US territory or businesses.

[thewood1]

I'm with Goodguy on this.  Every other software company I deal with that sells through digital download does not charge sales tax.  Matrix's decision alone is costing their customers money for no reason.

[Erik Rutins]

Hi Goodguy,

Here's the response from DR on the German VAT Tax question:

"Per our EMEA tax team Digital River collects and remits 15% Luxembourg VAT for digital downloads and 19% German VAT for boxed software. The 16% German VAT rate has not been applied since 2006 when the statutes changed. Just checked and the EMEA site confirms the same.

The VAT rate and, hence, the total price, may change once you select your shipping destination. The tax rate that will be applied for each respective EU shipping destination will be as follows: 20% for Austria or Italy, 21% for Belgium, 25% for Denmark or Sweden, 19.6% for France, 19% for Germany or Netherlands, 16% for Spain, 22% for Finland, 15% for Luxembourg, and 17.5% for UK and all other EU member states."

They confirm that they have been remitting the correct amount per the law. If there was an error, it was only in the store text rather than the amount being charged and remitted.

thewood1,

I don't know what you expect us to do - although we may not like this new law, we are not above the law and we do not have a small enough store to run it at this time without the help of a company like DR. We are also not a large enough company to do all of this ourselves. We did not create this additional tax, but since it is law and applies to DR which runs our online store, we have to abide by it. I also think you may be misunderstanding how few companies worldwide can actually handle an online store that does everything that ours does, from the number of downloads to the physical on demand fulfillment process for boxed copies. None of our competitors are running or using online stores that have the same capabilities, especially on the physical on demand side, that we've spent years building into ours together with DR.

Regards,

- Erik