What is Tax Compliance?
Definition
The requirement for subscription services to correctly calculate, collect, and remit sales tax or VAT based on subscriber location.
Understanding Tax Compliance
Tax compliance for subscription services is increasingly complex. In the US, the 2018 Wayfair ruling requires sales tax collection in states where economic nexus exists. Internationally, VAT/GST rules vary by country and product type — digital services are often taxed differently than physical goods.
Many jurisdictions require that the displayed price includes tax (EU) while others add tax at checkout (US). Subscription billing platforms handle much of this complexity, but it affects pricing. For consumers, the tax on subscriptions varies by location and can significantly impact the actual cost paid versus the advertised price.
Related Terms
Subscription Compliance
Adherence to legal and regulatory requirements governing subscription billing, cancellation, and consumer communication.
Invoice
A detailed billing document generated each billing cycle that itemizes the charges for a subscription service.
Recurring Billing
An automatic payment system that charges a customer at predetermined intervals for ongoing access to a product or service.
Pricing Model
The strategy a subscription service uses to structure its pricing, including flat-rate, tiered, usage-based, or hybrid approaches.