Lay of the Land: Simplified Digital Goods Tax in North America

Luc Bleylevens | Fri Jul 23 2021 | Product guidance

Taxes are part of the cost of doing business. They come with the territory, literally. 

US Digital Goods Tax vs. Canada Digital Goods Tax

Digital goods tax requirements vary by country. For example, in North America tax requirements for broadcast media subscribers differ widely between the U.S. and Canada. Even within both of these countries, the tax code for digital products and services varies on federal and local levels. 


The challenge for media subscription companies is staying on top of regional tax requirements while keeping track of different reports from various payment providers. 

Managing tax compliance across multiple regions and keeping your subscription viewers up to date on fee changes can be a tedious and time-consuming task. Compliance errors can lead to fines and negative attention. And while those of us in the Entertainment & Media industry may benefit from attention, we want engagement and views, not regulatory penalties.


Cleeng did some research on the bottlenecks and boondoggles that media subscription businesses confront when managing tax compliance across borders. North America is a great example.


Applying Taxes in North America: U.S. and Canada

Canada and the U.S. may share a border but they have different tax codes. In the U.S., digital sales taxes vary between states, cities, and even counties.

U.S. Tax

Tax compliance experts from our partner Avalara explain that each state in the U.S. has its own definition of digital goods.

For instance, states that are members of the Streamlined Sales Tax Governing Board (SST) have adopted the SST definition of digital goods in their tax law. Other states have developed their own definitions of digital goods. These are often based on pre-existing IRL taxable goods, products, and services.

Then there are some states that don’t define digital goods in their sales tax code at all. That’s a lot of laws to keep track of.


Canada Tax

The same degree of variation in the digital sales tax requirements occurs in Canada. The digital services and products taxes are contingent on federal and local tax requirements by province. Just as in the U.S., the tax rate is based on the subscriber’s initial purchase location. 

Prior to 2021, foreign companies selling digital goods and services in Canada were excluded from paying standard goods and services taxes that were required of domestic Canadian companies. However, on July 1, 2021, new tax requirements for non-Canadian businesses went into effect. That’s a major development.


Simplifying Digital Sales Tax Management

So, how do we manage all these complicated tax compliance requirements for your global subscriber base? Cleeng partnered with Avalara—a globally recognized tax management software—to develop Cleeng Merchant, a subscriber billing and tax compliance tool built into Cleeng’s subscription software. 


What can a tax compliance tool do for you?

Cleeng Merchant automatically calculates regional tax rates based on your subscriber’s location. If a customer applies a coupon in MyAccount, the tax fee will automatically update. Subscribers can click the ‘?’ to learn exactly how their purchase fees meet regional digital sales tax obligations. 


Additionally, Cleeng Merchant acts as your compliance coordinator by contracting directly with your payment service provider to fulfil all compliance requests for Cleeng clients. Cleeng Merchant also reduces the tedious process of sorting through fees—taxes, revenues, refunds, and surcharges—by consolidating reports from payment service providers. 


With Cleeng Merchant, media subscription companies can focus on what matters most, optimizing business operations, attracting subscribers, and keeping audiences entertained, informed, and tax compliant.


Curious to learn more about streamlining your tax processes?

Get in touch


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