The big picture: Tax policy debates have generated countless headlines over the past few years, particularly around how the government measures a company’s “gross profit.” When profits are measured in US dollars, a company’s sales tax can often make up a substantial portion of its gross profit. In fact, a quick glance at online retailer shopify sales tax report will provide a quick snapshot of how many sales tax expenses a business may be in for if the company is not a US-based entity.
Shopify sales tax report
Shopify, an Ottawa-based e-commerce software and services provider, provides an online tool where Canadian businesses can input sales data so that they can see what they need to pay when they do an end-run on the VAT law, according to Business Insider.
The most important feature of the report, according to Business Insider, is that it’s able to tell whether a business is in fact located within the country they’re operating within. So, for example, when you visit the website of an online retailer that is based in the United States, it would appear as though the company is not providing taxable services to Canadian consumers, despite sales that are taxable in the US.
The sales tax report is by no means unique or even unique to Shopify. Companies like SAP SE and Paysafe Group offer similar services.
Why does the sales tax report matter?
While it’s interesting to see how many sales tax expenses are actually coming out of a company’s revenue, Shopify is more than just a standalone tool.
One of the most interesting parts of the report is the breakdown of each merchant’s sales revenue by product type.
Notably, those with goods that only had a digital sales component include Facebook, Snapchat and Pinterest, as well as Amazon and eBay. But who would have expected eBay to be in there?
What is a sales tax expense?
The VAT law in Canada requires that a business that sells products in the country either have a physical location in the country and therefore incur sales tax or a digital presence in the country and incur VAT liability.
VAT, or value-added tax, is a tax levied on products on the same order as sales tax in the US. What this means is that for a retailer who does not have a physical or digital presence in Canada, they will be on the hook for VAT revenue.
While most retailers do not have to collect VAT in Canada, it is nonetheless an expense that is built into the cost of doing business. Any companies that do collect VAT need to pay an amount, known as a VAT return. In addition, any time a business incurs VAT on goods or services, the business must remit a corresponding VAT payment, known as the VAT refund.
What is the Shopify sales tax report?
Earlier this month, Shopify gave Business Insider readers access to an online calculator that can provide a summary of what Canadian companies are likely to pay when they are operating outside of the country. It’s also a tool that can help you determine whether your business needs to collect VAT.
Since its launch on November 7, the Shopify VAT calculator has been used to gather data from thousands of companies across Canada. The results of that research show that 47% of merchants will be paying more VAT on the goods or services they sell, while 61% will see no change.
Shopify is not the first to provide the calculator. It was the brainchild of Oliver Platt, the founding partner of tax advisory firm Platt & Co., who noticed his clients wanted more information about how their expenses would be billed and filed in different tax jurisdictions. Platt approached Shopify about the idea and the company jumped on it.
In fact, Platt and his team spent 10 months putting the calculator together.
While it may seem a little over the top for a platform that helps small businesses to grow their businesses, Platt is no doubt hoping that Shopify’s results will spark some bigger discussions on the VAT issue in Canada.