Collect taxes

Customers in the United States, the European Union, the United Kingdom, Canada, or Australia can collect taxes on new subscriptions through their checkout.

In this help doc:

• Enable tax collection
• Member checkout flow
• Reverse charge mechanism
• Existing subscription renewals
• Order receipts
• Information passed to Stripe

Enable tax collection

By default, taxes are not collected when members go through your checkout. You’ll need to explicitly enable the collection of taxes. Navigate to Settings → Taxes in your dashboard and select “Yes - Calculate taxes and add them on top of my prices.”

Once you enable this setting you’ll need to input the physical address where your business has economic nexus. This location is compared against where your members are located so that Memberful can calculate the appropriate taxes (if any) that should be applied to their order.

Memberful currently supports one nexus location, but we hope to support multiple nexus locations in the future.

If your business is located in the European Union, Canada, or Australia you will also be asked to provide your tax registration number (VAT, GST, etc). When taxes are charged to your members, this number will be added to the payment receipts sent to them for bookkeeping purposes and compliance.

Memberful does not file or remit taxes on your behalf to the government; we simply help you collect the appropriate taxes at the time of the transaction. You’ll still need to remit taxes on your own. We pass information to your Stripe account to make that easier.

Member checkout flow

Once you have taxes enabled and a member enters your checkout flow, we determine their location to calculate which taxes need to be applied (if any). The information we collect varies based on where you have economic nexus. For example, in the European Union, we verify two non-conflicting pieces of location evidence to ensure your businesses legal compliance when it comes to remitting taxes.

We always strive to provide a high-converting checkout flow and therefore we do our best to calculate the appropriate tax rate with little or no extra action required from your members.

When members enter the checkout flow we detect which country they’re currently located in using their IP address. Depending on where your business is located, in the EU for example, that may be enough information to make an initial assumption about the appropriate tax rate:

If your business is located in the United States, we need a bit more information before we can calculate the tax rate. Most of the time the credit card field will ask for the payment method’s ZIP Code so, in that case, we’ll use that to calculate the tax rate:

In some cases, regardless of where you are, we might not be able to determine an accurate location immediately. A member might be traveling outside of their home country, using a VPN, etc. As shown above, we always display the location we’re using to calculate the tax rate. If this isn’t accurate, the member should click Edit and select the appropriate country, state, and postal code (if applicable).

Taxes are calculated in the following situations:

• When both your business and the member are in the same U.S. state
• When both your business and the member are in the E.U.
• When both your business and the member are in the U.K.
• When both your business and the member are in Canada
• When both your business and the member are in Australia

Reverse charge mechanism

In the European Union, business to business transactions sometimes treat VAT charges a bit differently. If the member purchasing one of your plans or products has a valid EU VAT number and is located in a different member country than your business, we’ll recalculate the tax rate to 0%—invoking the reverse charge mechanism.

To enter a VAT number within the checkout, click Edit next to the location:

We also support collecting the business tax numbers in Canada and Australia, but we don’t currently validate them or apply any reverse charge mechanisms.

Existing subscription renewals

After you enable tax collection in Settings, new members will be required to enter their billing location when they sign up. Existing members will be required to enter their billing location when they update their payment method.

If your site has active subscribers who signed up before you enabled tax collection, those subscriptions will continue to renew as before. Tax will not be collected on renewal orders until the member updates their payment method. You can direct members to update their payment method to add taxes to existing subscriptions by going to Update Card in their account.

Order receipts

When taxes are collected for an order, we’ll add additional information to the payment receipt that is emailed to the member. This includes:

• The tax rate, and tax amount that was charged
• The total amount that was charged, including taxes
• The member’s billing location
• The member’s tax ID number (if applicable)
• Your business’ tax ID number
• Your business’ nexus address

Information passed to Stripe

All Memberful transactions are processed using your own Stripe account. Your Stripe account is the most accurate reflection of the funds you’ve received, and therefore is the best resource when it comes to reporting and remitting your taxes.

When you have tax collection enabled, Memberful will pass the following information to your Stripe account in addition to the basics:

• Tax rate collected
• Tax amount collected
• Member’s IP address
• Member’s billing country

From there you can export full CSVs from your Stripe account or integrate with a 3rd party service like TaxJar or Quaderno to automatically analyze and report your taxes to the government.