Today we emailed creators to let you know that Patreon is being required by law to start adding sales tax to certain patron pledges from July 1st, 2020. This will affect patrons in some parts of the US and 17 other countries, you can see the full list here. The main thing to remember is that these taxes depend on the patron’s location, and what their laws are, not you as the creator’s location. This does make it especially challenging to be able to talk about what this will look like for each individual creators community as it’s totally dependent on where your patrons are.
Taxes can always be stressful and right now this extra tough timing. We pushed the start date out as far as we could to give you plenty of time to feel informed, and to notify your patrons directly if you wish. This forum thread is to provide you with some foundational information, resources for further reading, and answer any questions you might have.
We made this video to walk you through the the details about sales tax, or you can read the info below!
Background
Patreon has been charging and paying VAT for patrons in the EU since 2015, when the laws changed there. Over the past couple of years, many other countries and states in the US have passed similar laws that require “online marketplaces” to apply sales tax to transactions. Although aimed at large online stores, the Amazons, Ebays, Netflixes, and Etsys of the world, the way these laws were written and the way they’re being interpreted means that they’re impacting many different types of companies, including Patreon. Due to this, Patreon is legally required to start adding sales tax on applicable patron pledges from July 1st 2020.
About Sales Tax
Sales tax is charged based on the location of the patron, not you the creator. Since you may have patrons all over the world, this sales tax change is likely to be relevant to you and your patrons. The rates and laws about what is taxable differ for every country, and in the U.S. those things vary from state to state and sometimes even down to the zip code. Patreon is responsible to charge sales tax accurately, and only on those specific things which are taxable, which means we need to know where the patron is located and what benefits creators are offering.
How will this affect my patrons?
Whether or not a patron will pay sales tax depends entirely on where they are located, what their local sales tax laws are, and what you offer in your tiers. The laws and tax rates for that patron’s location will be applied whenever a patron pays money through Patreon, whether that’s monthly or per thing, if the benefits offered are taxable in the patron’s location. Within the US, we estimate that less than half of all patrons will have sales tax added to their pledge. Outside the US, it very much depends on the country where a patron is located. For most patrons the impact will be minimal, and many patrons won’t see any sales tax added to their pledge at all.
How much more will they be charged?
Some patrons will see an additional line item on their receipt for sales tax starting July 1st. Since tax laws and the rates themselves vary from country to country and state to state, the amount will be different for different patrons. The money that Patreon collects as a result of these laws will be paid directly to local governments. As an example, tax rates in the US range from 4% to 11%. On a $5 pledge, that’s between 20 cents and 55 cents, if tax is applied to the entire pledge.
Which benefits on Patreon will be considered taxable?
Outside of the US it is common for all electronically supplied services and physical goods to be subject to tax in most places. Within the US, what’s taxable varies greatly by location. As a rough guide, we’ve broadly sorted benefits into 5 categories that are each taxed differently.
| Typical Benefit | Examples | US Taxation Status |
|---|---|---|
| Donations/Support | Support only. Language such as “pledge whatever you like” | Currently exempt from Sales Tax in the majority of states |
| Recognition | Shout outs, names in credits | Exempt in vast majority of states |
| Exclusive Community Access | Patron only posts, Discord server access, polls | Exempt in majority of states |
| Streaming Content | Extra podcast episode per month, videos, bonus content | Taxable in roughly half the states |
| Downloadable Digital Goods | PDFs, computer game builds, downloaded coloring pages | Taxable in roughly half the states |
| Physical Goods | Candles, Tshirts, mugs, mailed coloring pages | Taxable in all states in which Patreon is collecting, unless the item is a one-time thank you gift |
Do I need to take any action?
There is no change that you’re required to make; you don’t need to fill out additional paperwork or anything like that. Patreon can automatically detect what’s in your tiers based on keywords and apply the right tax rate for each patron’s location. That means if you don’t need to make any changes and sales tax will be handled. However, for creators who want to dig into the details and optimize, we are launching some advanced tax settings later this month that will allow you to do so. This may save your patrons a small amount of sales tax in some cases. The settings are not live yet, but will be by the end of May 2020. We’ll post a lot more info about those once they are live later this month.
How will patrons know about this?
If you want to let your patrons know, we’ve provided some example copy you can use. Patreon will also notify all impacted Patrons on June 1st.
What’s next?
- @Jack_Conte, Patreon’s CEO and co-founder, will be doing an AMA on this topic tomorrow, Thursday May 7th, from 10am PT; leave any questions that you might have
- Here’s our full help article, which has a lot of FAQ included
- We’re providing workshops to guide you through the advanced tax settings once they’re live to help save your patrons some extra money, sign up here
- Post any other question in our new #sales-tax category and we’ll make sure you get the help you need
