Place of supply rules decide which country, state, or locality has the right to tax a given sale. In value-added tax and goods and services tax systems, they pin each transaction to a single jurisdiction so that VAT or GST flows to the right treasury. In the United States, the parallel idea is called sales tax sourcing. The rule you apply depends on what you’re selling (goods or services), whether the buyer is a business or a consumer, and whether the transaction has a physical anchor like real estate or a live event.
Goods That Move and Goods That Don’t
For physical goods that are shipped, the place of supply is where the goods are located when transport begins. A German manufacturer sending parts to a French buyer owes VAT in Germany, and it doesn’t matter whether the seller, the buyer, or a third-party carrier arranges the shipping.1European Commission. Place of Taxation
When goods don’t move, the place of supply is wherever the goods physically sit at the moment ownership transfers. Buying equipment already stored in a warehouse where you’ll use it on-site is the classic example. This split between “supplied with movement” and “supplied without movement” keeps two jurisdictions from both claiming the same sale.
Services: The B2B and B2C Defaults
Services have no shipping container to track, so the rules key off who’s buying.
For a business-to-business sale, the default place of supply is where the customer has established their business. A UK marketing firm consulting for a company headquartered in Spain triggers Spanish VAT, because the service is treated as consumed where the buying business operates.1European Commission. Place of Taxation Identifying that location usually means verifying the customer’s registered office or a fixed establishment closely connected to the supply.
For a business-to-consumer sale, the default flips: the place of supply is where the supplier is established, regardless of where the individual buyer lives.2GOV.UK. Place of Supply of Services (VAT Notice 741A) – Section: 6. The Place of Supply Rules for Services A French yoga instructor selling online classes to individuals across Europe owes French VAT. Because the two rules point in opposite directions, checking whether the customer holds a valid VAT number is often the first step in figuring out which one applies.
Services With a Physical Anchor
Several categories override the general rules because the service is tied to a specific place. Taxing them at the supplier’s or customer’s location would separate the tax from where the service is actually consumed.
- Services connected to immovable property (architecture, construction, real estate maintenance, valuation) are taxed where the property sits. A London architect designing a building in Milan owes Italian VAT.
- Restaurant and catering services are taxed where the food is served and consumed, not where the catering company is based.3HM Revenue & Customs. VAT Place of Supply of Services – Restaurant and Catering Services: Law
- Cultural, sporting, and educational events, along with admissions, are taxed where the event physically takes place. A conference in Berlin is taxed in Germany even if the organizer and every attendee come from elsewhere.4HM Revenue & Customs. VAT Place of Supply of Services – Where Performed Services: Supplies of Admission to Relevant Business Customers
- Passenger transport is allocated by distance traveled in each jurisdiction. A bus ticket from Poland to France routed through Germany carries Polish, German, and French VAT in proportion to the kilometers covered in each country.1European Commission. Place of Taxation
Digital and Electronic Services
Downloads, streaming, e-books, and cloud services have no natural physical anchor, so both the OECD International VAT/GST Guidelines and EU law apply the destination principle: the tax follows the consumer’s location, not the seller’s.5OECD. International VAT/GST Guidelines – Section: C.3.1 Determining the Jurisdiction of the Usual Residence of the Customer Otherwise, digital sellers could route sales through low-tax jurisdictions and undercut competitors collecting local VAT.
In the EU, sellers have to confirm the customer’s location with at least two non-contradictory pieces of evidence. Accepted indicators include the device’s IP address, the billing address tied to the payment method, the country code of the customer’s SIM card, and the location of the bank account used.6European Commission. The Basic EU VAT Rules for Electronically Supplied Services The OECD guidelines are less prescriptive and let each country set its own evidentiary standard.
The US has no uniform federal rule for digital products. Each state decides on its own whether to tax downloads, streaming, and cloud software. Some treat digital products like their physical equivalents, others exempt them entirely. States in the Streamlined Sales Tax Agreement use standardized definitions that separate “specified digital products” such as movies, music, and books from “prewritten computer software,” and a state’s statute typically has to name subscription streaming services explicitly before those services are taxable. The federal Internet Tax Freedom Act blocks states from taxing digital products if they exempt the equivalent physical items.
The EU One Stop Shop
Without a shortcut, a business selling digital services to consumers across the EU would have to register for VAT in every member state where it has a single customer. The One Stop Shop system fixes that. A seller registers in one member state and files a single quarterly return covering all its EU sales, and that member state distributes the collected VAT to the others.7European Commission. Register to OSS – VAT e-Commerce – One Stop Shop Businesses based outside the EU can use the Non-Union scheme and pick any member state as their registration point.
US Sales Tax Sourcing: Destination vs. Origin
In the United States, sales tax sourcing is the equivalent question. Most states use destination-based sourcing, meaning the rate that applies is the rate at the buyer’s delivery address. A smaller group uses origin-based sourcing, where the seller’s location controls. States applying origin-based sourcing to at least some transactions include Arizona, California (at the state level), Illinois, Missouri, Ohio, Pennsylvania, Tennessee, Texas (with hybrid rules), Utah, and Virginia.
For sellers registered across multiple states, the Streamlined Sales and Use Tax Agreement gives its 24 member states a uniform destination-based rule.8Streamlined Sales Tax Governing Board. Streamlined Sales Tax The tax location is set in a fixed order of priority: the seller’s business location if the buyer picks the goods up there, then the delivery address, then the buyer’s address in the seller’s records, then the address supplied at checkout, and, as a last resort, the ship-from address.9Streamlined Sales Tax Governing Board. Streamlined Sales and Use Tax Agreement
When a Remote Seller Has to Collect
Before 2018, a state could require sales tax collection only from businesses with a physical presence there. In South Dakota v. Wayfair, Inc., the Supreme Court upheld a South Dakota law requiring out-of-state sellers to collect once they exceeded $100,000 in sales or 200 separate transactions delivered into the state in a year.10Supreme Court of the United States. South Dakota v. Wayfair, Inc. Every state with a sales tax has since adopted some form of economic nexus threshold, and most use the same $100,000 or 200-transaction benchmark.
Once you cross a state’s threshold, you generally have to register with its revenue department, collect sales tax on future sales into that state, and file periodic returns. Registration is usually free or nearly so. The hard part is tracking sales volumes across dozens of states at once, which is why many remote sellers rely on automated tax software.
Why Getting It Wrong Matters
Place of supply is the pivot point for the entire tax obligation. Misidentifying it means remitting tax to a jurisdiction that had no claim to it while still owing tax to the one that did, or failing to collect tax on a sale you were responsible for and having the assessment fall on you as the seller. The same transaction can also be taxed twice if two jurisdictions each apply their own rule and neither cedes. The rules above (movement of goods, B2B versus B2C for services, the physical-anchor overrides, and the destination principle for digital) exist precisely to keep each sale assigned to one place. Applying them in that order for each transaction is the way to keep the answer clean.