Merchant of record: what it is and when a small seller needs one
A merchant of record is the legal seller of your product: sales tax, VAT, refunds and chargebacks are theirs. How it differs from a processor, and who needs it.
If you sell software or downloads internationally, the payments question is not only about fees. It is about who is legally the seller, because the seller owes the sales tax and VAT, handles the refunds and absorbs the chargebacks. A merchant of record is a company that takes that role for you.
Processor or merchant of record
| Payment processor | Merchant of record | |
|---|---|---|
| Who the buyer bought from | You | The merchant of record |
| Sales tax and VAT | Yours to register, collect and file | Theirs |
| Invoices | Yours | Theirs |
| Chargebacks and fraud | Yours | Theirs |
| Typical fee | Lower | Higher, because it covers more |
Why digital goods make this pressing
Many countries tax digital products based on where the buyer is. In the EU, consumer sales of digital services are taxed in the buyer's country, and for sellers outside the EU there is no threshold below which the first sale is exempt. For a one-person shop, registering and filing in every market that applies is a job in itself.
What we chose
This store sells through Dodo Payments as merchant of record. Dodo is the legal seller, calculates and remits tax, issues invoices and handles chargebacks. The fee is higher than a plain processor's; the tax registrations it saves were the deciding fact, not the fee. Other merchants of record exist, such as Paddle and Lemon Squeezy; compare their fees, payout countries and product support against what you sell.
What changes for your site
- Checkout happens on the merchant of record's page, often from a plain link. See payment links without a backend.
- Prices may be shown with or without tax depending on the buyer's country. Say which on your page.
- Refunds are issued through them, and the legal terms name them as seller.
- Delivery can be handled by them too, which is how selling digital downloads without a backend works.
The store you are reading is built on this setup, and its look is Warm Storefront UI: the buy box, the price with its currency, the refund line and one amber button, as a skill Claude can build from.
Questions
What is a merchant of record?
The company that is legally the seller in a transaction. It collects the money, is responsible for sales tax and VAT, issues invoices, and handles refunds and chargebacks, then pays you your share.
How is it different from Stripe or PayPal?
A payment processor moves money for you, and you remain the seller with the tax obligations. A merchant of record takes the seller role, and its fee covers that extra work.
Do I need one to sell digital products?
Not always, but many digital sellers benefit. Sales of digital goods to consumers in places like the EU and UK can be taxable from the first sale, and registering and filing in many countries is a lot of work for one person.