Thread by @patio11

Stripe Tax is chugging along. We wrote a brief roadmap of what problems we can solve for users today and which ones we hope to be able to solve soon:

stripe.com/blog/building-…

Some people think that taxes are complex because the people who write or enforce the rules are perverse. I think it’s mostly because a) taxes are used to express society’s preferences and b) society’s preferences are complex.

For example, consider sales/use taxes around food. A key goal of most tax regimes is “progressive taxation”; you generally want to take more as a percentage from “richer” people and less from less well-off people. (Definition of “richer” also complex when you try to encode it.)

It is inherently difficult to do progressive taxation on a consumption tax, because rich people consume far less of their income/wealth than poor people do. But consumption taxes are relatively easy to collect & have relatively high compliance rates, and so governments like them.

And so one patch to a flat consumption tax proposed almost immediately everywhere is “Let’s give a preferential tax treatment to food. It’s a large portion of the basket of relatively poor people and a minuscule portion of the basket of rich people. Plus people need to eat.”

But society has very complex feelings about food! One, for example, is that society very frequently feels there is a moral hierarchy for food. And consumption tax rates often end up tracking this moral hierarchy.

That hierarchy is as complicated as anything medieval theologians every batted about, and somebody has to actually reduce the edge cases to decidability, because a computer needs to ring things up correctly at the end of the day.

Enter the gingerbread man.

The UK’s version of the moral hierarchy puts biscuits with core foodstuffs (like apples) but cakes with decadent luxuries (like… cakes), taxing luxuries but not core foodstuffs.

Enter Shroedinger’s gingerbread man: is he a biscuit or a cake?

Her Majesty’s revenue officers put their pencils together and created a clear ruling on this, which I will except from the above post but which I swear is a thing that you can follow the link to read official sourcing on:

My other favorite example of this is from here in Japan.

Many geeks may be familiar with the Potion from Final Fantasy. You may have missed this, but Square and 7/11 did a promotion where they released a Potion energy drink, in one of two bottles. One looked like a Potion.

In recent years, Japan had a blended consumption tax regime: 8% standard (currently 10%), with a temporary reduction to the previous rate of 5% for favored items including foodstuffs.

Thus the question: is a Potion a beverage?

Having had one myself, I think one needs to have an extremely generous definition of drinkable to call a Potion a beverage, but be that as it may this was the ruling that came down:

A Potion in a plastic energy drink bottle is likely to be drunk, like a Red Bull, and is a drink.

A Potion in a commemorative glass bottle, on the other hand, is a hobby item with the incidental inclusion of a liquid which may possibly be drink, and is taxed at the higher rate.

So, back to online commerce: many software companies also have pain with this, especially with the thousands of different jurisdictions and increasing desire of their polities to capture revenue from The Internet (TM).

My hometown of Chicago instituted a “cloud tax”, for example

Chicago being a large city there are likely a lot of SaaS companies which innocently have customers in Chicago and would happily charge/pay it if that were simple.

It is, unfortunately, not yet simple.

Today, we can do a pretty decent heuristic identification of whether a user is in Chicago and automatically charge the cloud tax for you.

Eventually, we hope to get to the point where we could (on your behalf) automatically register with Chicago and remit/file the taxes for you.

This gets business owners what they want: a simple, predictable, effective way to do the thing society demands of us, without troubling our sleep with dreams of tax avoiding gingerbread men.