Sales Tax AMA with Jack Conte

[Jack_Conte]

@HentaiWriter

• The tiers all have stuff digitally emailed to backers except for one, which they have to stay pledged to and lose access when they unpledge (demo tier), so how would that be counted if they lose access when they unpledge?

All you have to worry about is pledging, not unpledging. In other words, if they GET access when they pledge, then it makes the most sense to classify it as access or digital content (or whatever it is they’re getting). But the VALUE of that access is up to you. In other words, if a patron pledges to your middle tier (the $5 demo tier), but you think that the content they’re getting is actually only worth $1 (which is entirely up to you to specify), then you could use our tool to essentially say that your patrons will only have to be taxed on $1 of their $5 pledge (which will apply in many regions like Australia, Quebec, and the US).

[Jack_Conte]

@HentaiWriter

• Finally, my Discord is public, so you don’t have to pledge to access it, but you do get a special role in the server and access to certain special channels, so would that count for getting special Discord access?

Totally makes sense. If all they get is a special role within the discord, then that’s worth LESS than say access & a role. And again, it’s up to you to say what the value of that role is — if it’s for your $10 tier (the soundtrack tier) for example, but the role is only worth maybe $3, then you could specify that using the tool we’re building. At the end of the day, we wanted to give creators control over how to value their benefits, and also how much of the reason for pledging is the benefit versus general support versus access.

[Carlos_PatreonStaff]

@asmodrawscomics

Is there a list of keywords we can look at to pre-emptively figure out if we have tiers that will be affected?

This resource provides a rough overview of the tax categories that we will use for the upcoming launch: https://support.patreon.com/hc/en-us/articles/360043054911#h_ea3105cc-d58a-4039-a7f0-ce4c7a4fb851

Note: Tax laws continually change in each of the jurisdictions we serve (which is nearly every country in the world), so we might periodically update our tax categories in order to fulfill our tax obligations and accurately reflect the evolving nature of the benefits that creators offer to their subscribers.

@asmodrawscomics

There is mention of “ downloadable goods ” mentioned as being taxable in roughly half the states, but what does that mean? A link to a dropbox? An attached file on a patrons-only post? Does one post with a downloadable good mean the entire tier is to be taxed for the month it was posted in, or is it taxed for all time?

A link to dropbox could qualify, as could software builds, attached files, etc. The settings will allow creators to indicate what is being provided in a tier, and the corresponding value of the benefit.

For example, let’s suppose a creator establishes a tier that is largely meant to represent general support for the creator (i.e., a donation). If the creator occasionally offers a downloadable drawing for their patrons at that tier that represents more of a thank-you or a giveaway, then it’s fine to consider it a gift with no standalone value (sort of like when you subscribe to a public radio station and they occasionally send you a tote bag). In that case, the creator could simply specify that the entire tier is donative.

As another example, if a creator establishes a tier where digital downloads constitute the primary reason that a patron would subscribe, then it’s appropriate to estimate the value of those digital downloads and specify the value in the advanced tax settings. If those digital goods are provided infrequently (e.g., less than once per month), then we recommend estimating the portion of each monthly payment that corresponds to the value of the digital goods.

There are lots of gray areas when determining the value and taxability of goods, but as long as folks make a good faith effort to appropriately capture the taxability of the goods involved, then we’ll generally satisfy the legal obligations.

[Carlos_PatreonStaff]

@Watsup

On our Patreon campaign we offer a $100 tier that “includes all previous items” that has rewards that are mostly non-taxable. The issue is that the $3 tier is the taxable game build. By including the $3 tier into the $100 tier, do we have to tax all $100 to our patrons at the same type because of the $3 build inclusion?

You can use the advanced settings to specify that the game build represents only $3 of the tier price. In a $100 tier the value would be 3%, but at the $3 the value might be 100%.

@Watsup

Is there a way for inclusive tiers to be broken down in a way that only part of the payment is taxed at certain rates? If not, is there a way Patreon could let people buy into multiple tiers or bracket tier inclusion into payment steps for campaigns as an option? So we could have a $3 tier and a $97 tier separate from each-other that add up to the same price but are more accurately taxed?

The settings will allow you specify that only a portion of the pledge is taxable, which will make the rest of the pledge non taxable in certain jurisdictions, and we are fighting to get this exemption in as many jurisdictions as possible. Note that there are certain jurisdictions (like the European Union) where if a consumer purchases a bundle of goods, then the entire bundle must be taxed at the highest possible rate.

@Watsup

Or even simpler, could we just be allowed to put the amount of each tier that is taxed at which type of item tax? (Multiple tax types per tier.)

The new settings will allow you to do that. When the settings launch later this month, we’ll offer instructions on how to do it.

[asmodrawscomics]

@Carlos_PatreonStaff

There are lots of gray areas when determining the value and taxability of goods, but as long as folks make a good faith effort to appropriately capture the taxability of the goods involved, then we’ll generally satisfy the legal obligations.

That makes sense, but I admit I’m concerned about the consequences that might affect a creator who incorrectly assigns the wrong tax percentage to their tiers. Do we know what the penalties are for choosing the wrong tax amount with this upcoming tool? Is it something that Patreon will review on a regular basis for users?

Thanks!

[Carlos_PatreonStaff]

@The_Shootin_Guy

Big question will be how could we position our Patreon account to avoid our patrons from paying a “sales tax” all together. I suppose that we could be sure our pages indicates that it’s a support only with no physical or electronic “goods” being provided as a result of support. I find it crazy that even a shout out or recognition may be exempt in a “vast majority of states” which would leads me to believe that recognition may have a tax liability in some states. Is that right? Now are we going to have to “lawyer up” to be sure we use the right language as to not incur a taxable position.

Most states have a system where they specifically identify a list of services that are taxable, with all other services considered nontaxable. A small minority of states (e.g., Hawaii and New Mexico) use a system where all services are taxable, except for a specific list of exclusions.

For creators on Patreon, as long as you either a) accept the defaults that we provide for your tiers, or b) make a reasonably good-faith effort to follow the guidance we provide when adjusting the settings, then we’ll bear the liability of any issues with the various tax authorities.

If you offer a tier where occasional shout-outs or recognition can reasonably be considered giveaways or thank-you gifts, then it’s fine to set the value of that item at 0%.

[Carlos_PatreonStaff]

@asmodrawscomics

That makes sense, but I admit I’m concerned about the consequences that might affect a creator who incorrectly assigns the wrong tax percentage to their tiers. Do we know what the penalties are for choosing the wrong tax amount with this upcoming tool? Is it something that Patreon will review on a regular basis for users?

For creators on Patreon, as long as you either a) accept the defaults that we provide for your tiers, or b) make a reasonably good-faith effort to follow the guidance we provide when adjusting the settings, then we’ll bear the liability of any issues with the various tax authorities. If there were ever any cases where we got into some gray area (although I highly doubt this will happen), we’ll totally work with each creator on a case-by-case basis to resolve it reasonably and fairly.

[Silent_Sinner_In_Scarlet]

What if I get patrons from any of the five U.S. territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, U.S. Virgin Islands)? None of them is mentioned on the Patreon Community link listing states & countries where the sales-tax rule is being applied:

New Sales Tax Requirements, effective July 1st, 2020

[The_Shootin_Guy]

Right on. I do appreciate the input. Most helpful

[asmodrawscomics]

Thanks for taking the time to answer questions!

[M_Sotherden]

Hi Jack! I apologize if this has been asked, I did try to look through the questions, using the “control F” function to try and search effectively to see if this had been discussed. Is there any way to get a rough idea of how many of our Patrons will be affected by the sales tax implementation? Cause if it’s only a few people based on location, I would opt to contact those people directly rather than potentially ruffle all the feathers of all of my patrons by announcing this thing that may not be a thing at all… Thanks for all that you are doing! In a world of frustrating opacity in terms of how things work right now, Patreon is and has been a serious breath of fresh air in how you folks choose to run things.

[Cliff_Ravenscraft]

I only have one question. I understand that you are COLLECTING the sales tax for all these states that require it. ARE YOU THEN PAYING THOSE STATES that sales tax? Or are you charging that sales tax to our supporters and then expecting us to send those collected taxes, ourselves, to the various states?

[mindy]

@Silent_Sinner_In_Scarlet

What if I get patrons from any of the five U.S. territories ( American Samoa , Guam , Northern Mariana Islands , Puerto Rico , U.S. Virgin Islands )? None of them is mentioned on the Patreon Community link listing states & countries where the sales-tax rule is being applied:

Those territories are currently not impacted; but our website will remain up to date. Thanks for flagging this! We’ll get them added to the list to keep it accurate.

@M_Sotherden

Is there any way to get a rough idea of how many of our Patrons will be affected by the sales tax implementation? Cause if it’s only a few people based on location, I would opt to contact those people directly rather than potentially ruffle all the feathers of all of my patrons by announcing this thing that may not be a thing at all…

Thanks for the kind words Our goal was to make this as painless as possible for creators and patrons. I’ve sent you a DM to see if we can help give you a rough idea.

@Cliff_Ravenscraft

I only have one question. I understand that you are COLLECTING the sales tax for all these states that require it. ARE YOU THEN PAYING THOSE STATES that sales tax? Or are you charging that sales tax to our supporters and then expecting us to send those collected taxes, ourselves, to the various states?

Don’t worry, we’re paying and filing all the necessary returns

[michaelprescott]

I have a per-thing campaign, where I get donations every time I put a new PDF on my blog. These PDFs are freely available to everyone, patron or not, and so they are not a benefit of pledging.

Will the advanced sales tax settings tool let me make this clear? I wouldn’t want someone to assume that just because my campaign relates to digital downloads that my pledges are in exchange for the digital downloads.

[mindy]

Hey @michaelprescott! The advance settings will allow you to both customize the benefit categories for your tax calculations, as well as separately allow you to customize the language that appears on your tiers page. They will also allow for valuation of the benefits. So yes, you can create a custom benefit that displays anything you would like, while also informing Patreon how we should treat it on the backend. Hope this helps

[TheCraftyDice]

Might be answered, but I can’t find it. Tier based user-access to a website where I host tools I’ve programmed and made available for various tiers. Will that be affected?

[mindy]

Hello @TheCraftyDice! If the tools are downloadable software, that is taxable in roughly half of US states. If the tools just exist on the website, that is likely “Exclusive Community Access”, which is exempt in the vast majority of states.

[Fiddleback]

How will No Tier / Custom Reward Patrons be handled?

Since they take none of the offered rewards (or at least mine don’t) will they be subject to Sales Tax?

[thejuicemedia]

EDIT: Can’t attend the AMA session due to the time difference here in Australia, so an answer to my question below would be greatly appreciated

Hi Jack and Patreon, thanks for answering our questions. Here’s mine:

Will Patrons who only receive a once-off physical reward, only be charged tax once-off? Or will they have to pay tax on every pledge they make, even though they only received a once-off reward?

For example: if someone signs up for our top tier ($100/month), they’ll receive stickers + tshirt + a producer credit, once Patreon processes their first pledge. I understand why they would be charged tax on that first pledge. But once they’ve made their first pledge, they won’t be receiving any more physical/taxable rewards (ie no more stickers and tshirts - only the producer credit).

So my question is: will that person only pay tax on their first pledge; or on every $100 pledge they make thereafter?

Am I missing something here? Surely, tax should only be levied on the pledge/s which are needed to obtain the taxable reward/s. After that, they should no longer be taxed. Otherwise, in the long run Patrons would end up paying far more tax for a simple tshirt and stickers than if they had just purchased stickers and tshirts from our store.

Does the tool you’re developing allow us to only charge Patrons tax once-off?

[bkeller]

Hi Juice Media -

We are iterating on our tax platform, and hope to eventually factor in cadence to our cost logic. However, until we do, be conscious that patrons are billed monthly, and the weight you assign the benefits will be charged monthly.

For items that are surprises or non-guaranteed or one-time only, it is reasonable to assign the value as zero or minimal, since it may never materialize.

We know average patron retention is measured in months, and thus assigning a value to an item a patron only receives at signup risks overtaxing on that item. Your favorite publicly supported radio station does not tax you on the bumper sticker you get by becoming a member.