💸Do you include tax in your pricing?🧐

There's this weird dynamic in the US where the price on objects in the store does not include tax, neither does the price on a menu for services. The game is to show the tax as late as possible, such as after you ate the restaurant meal or after you've filled up your shopping cart with items from all over the store.

It's quasi-manipulative, the idea being that if you're in for $24 you're not going to balk at $25.15 or $26.48 or whatever the price is after tax. Now that we've "got you committed", the price just went up.

This approach is probably a good revenue maximizer for companies, but it's not a great customer experience. Is it worth it? That's for you to decide.

It probably doesn't apply to the difference between Loom and Slack since they are both fairly big, but states have economic nexus laws.

Basically if you are doing under $100k ( varies by state ) in sales in a state you don't have to collect sales tax. Once you do over that amount in a state you then have to collect sales tax.

So for an indiehacker who isn't doing over $100k in a single state they won't have to collect sales tax for a state. That would be another reason one site will charge a sales tax while another won't.

https://www.salestaxinstitute.com/resources/economic-nexus-state-guide

I think it really depends on the location of the business. In Canada and the United States, prices are quoted without taxes included, so businesses from these two countries will often quote prices exclusive of applicable taxes. For businesss located in Europe and Asia where this isn't necessarily the case, you might see some discrepencies.

This can often be because of tax obligations as well. For example, a SaaS business in Canada is required to remit taxes for customers located in Canada, but not for businesses located in the United States. Separating the taxes from the pricing makes the pricing make a bit more sense in this case.

I just went through some invoices to see what services do that I pay for or have paid for in the past:

• Microsoft Office - price includes tax (but website says it excludes it)
• Mailchimp - price currently includes tax (but website says it excludes it). But I recall I had another account in the past where they excluded tax. I'm not sure if they changed policy or are just applying the policy inconsistently
• Adobe Creative Cloud - price included tax when I used it years ago, now excludes tax currently.
• Affinity Designer - price includes tax
• Google Workspace - price includes tax
• Pantheon Hosting - price includes tax

To clarify, when I say "price includes tax" it means no tax is charged above listed price. "price excludes tax" means that taxes are charged on top of listed price.

I think it's really up to you whether you want your price to include or exclude tax. Most companies it seems include tax in price, for a few reasons:

• better customer experience on checkout
• consistent pricing across regions
• it's probably easier to implement one price on checkout and have finance/accounting figure out taxes later rather than trying to dynamically calculate it at checkout

I think I would personally include taxes in the price for these reasons above. Obviously the only con is losing out on additional revenue.

Stripe Tax has a feature that lets you choose your approach: https://stripe.com/tax (see step 3)

We don't include tax in the final price. That's because there are so many different tax rules across the world that it's very difficult to charge a single set rate. If we were to charge $20 inc Tax to everyone, we'd make only $15.75 from a Hungarian customer (where VAT is 27%) yet $17.09 from a customer in Luxembourg.

The end result is that you end up building your margins for the highest tax rate and your customers in countries with no tax (perhaps where you don't meet the VAT threshold), or lower VAT, end up overpaying.

Also as a B2B SaaS, most businesses end up claiming the VAT back so the price they see is generally the price they pay anyway.

Well, there's a reason why Stripe, Paddle and other payment processors decided to start handling that side of things. It's a hassle, and time consuming to figure it out.

I've read so much on taxes that maybe I should have just finished my accounting degree after all. 😅

As many here, they probably have thought a lot a bout this when starting and building something.
So, this is my take, if you are not making a ton of money where you can afford to hire someone to take care of taxes and such, then it might be a better move to use a processor and let them automatically handle it, (That added 1% (I think that's for stripe) is worth the time that you would save from having to handle all that yourself)

Specially if you have digital goods, then eu VAT can be a pain in the ass, so, it's better to let them handle that and you focus on other more important aspects, like getting more sales.

Now, the Cons of using a third party to handle this, is that, well,
first, that extra % of revenue.
second, CASHFLOW, using platforms like this sometimes causes a bottleneck in your cashflow, because they don't usually pay on the same day. Like for example, Paddle, I think pays out only once a month.

At the end of the day it is all about weighting the pros and cons.

This is actually a question that I had w/r to my company and sat down with a tax consultant about. It turns out that all countries require you to add sales tax or VAT to your price when distributed in that country IF you have an entity in that country. Fact of the matter is that if you don't have an entity in, say, Finland. How are you going to pay the Finnish sales tax you've charged.

However, in the examples you gave, since they're both US entities they may just handle how they charge sales tax differently. Slack may be adding sales tax on the base price, whereas Loom may be absorbing the sales tax into the price.

eg: In South Africa VAT is always inclusive. Whereas in the US sales tax is generally added on.

Certain states offer discounts on sales tax for software and SaaS products. Find out which states offer them, and make sure you take advantage of the discount when filing your tax: https://bit.ly/3EgpiBs

For more information on how to manage sales taxes, book a free consultation with PayPro Global here: https://payproglobal.com/

Hi John, interesting question.

I've spent way too much time in the past months thinking about tax & VAT.

For context: I sell digital goods and use stripe payment links + stripe tax (beta) for my checkout experience.

Legally I'm incorporated in Estonia and they give you the option to do either VAT (incl.) [= where it's included in price] or VAT (excl) [= where you add it on top].

I decided to go VAT (excl.) for now. I'm experimenting so will see if it's a deal-breaker for any of my VAT-liable customers.

Hope this helps and happy to point you to more reading material.