Patreon’s co-founder and CEO, @Jack_Conte hosted a sales tax AMA here on Thursday May 7th. Since that first AMA, we’re using this thread as our main source to provide you help and answer any questions you might have about our sales tax announcement.
Watch the video below to hear Jack explain more about this change
To submit a question, login and then hit “reply” in the lower right hand corner
Thanks, Jack and friends. While an unfortunate situation, it seems at first glance that Patreon has put some good thought into how to roll out a complicated process in as least an annoying way as possible.
My one question right now is: When will creators be able to start using the customization options in advance of the change going into effect?
Is it possible that you set up Patreon that way so it all goes automatically, meaning if a pledge is 5$, can that sales tax be included in those 5 automatically? That means less money for the creator but at least Patreons will not be surprised (and think they are scammed) if they see that they paid more than initial 5 ?
Question: I have an unpublished tier that receives physical goods. My next higher tier does not receive physical goods. Will both tiers be taxed the same, under the (false) assumption that higher tiers get all the rewards of lower tiers, or will this be judged on a per-tier basis?
Thanks for running this AMA so we can get clarification.
When it comes to digital downloads, what happens if they aren’t a regular monthly benefit? Will patrons be charged taxes every month, or only the month(s) when they actually receive the download?
For example, right now some of my tiers include a free digital copy of books I publish. In my case, that benefit only applies 1–2 times a year. Will patrons in those tiers be taxed every month? Or will there be a way to let the system know in the month(s) when the benefit applies?
Great email and resources
Will there be a way to see how much sales tax gets charged by tier/benefit? Potentially we could use such data to swap out benefits if most of our patreon gets charged for them or get high charges for them and help reduce costs for them
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.
Is there a list of keywords we can look at to pre-emptively figure out if we have tiers that will be affected?
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?
When people pledge to my game, they get the game at launch if they cumulatively hit $10, so how would that be counted since the game isn’t something they’ll get until it’s done, and because you could pledge say at the $1 tier ten times to get the game even though the $1 tier is normally just access to the activity feed and nothing else?
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?
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?
I did have a question about how this is going to work.
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?
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?
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.)
Most of that $100 tier is basically a donation with no reward at all and we have many patrons at that level who have expressed concerns about suddenly paying way more money when they technically shouldn’t have to.
Hey Bob! (great to see you / be in touch with you again! and by the way, i LOVE that your patrons get a letter from Pogo, how freaking COOL!! Such a great idea for a fiction based comic. DAMN). The tool we’re building will give you the flexibility to do tier based settings – in other words, for your unpublished tier, you can specify that there’s a physical good, but for other tiers, you will be able to specify that there is NO physical good. In other words, we are not falsely assuming that all higher tiers get all benefits of lower tiers – for the very reason you’re raising here.
These 2 questions are similar, and I hope the response covers both of them:
In the US, businesses are legally required to show customers the base price of the purchase, and then separately show the sales tax added on top of that. Some creators might wonder, “can I adjust the price of the tier so that the patron will pay an even $5 after sales tax is added?” The challenge with that approach is that sales taxes vary by state, by ZIP code, and even at more granular levels. In order for patrons to always pay $5 for a tier, we would need to show different prices to patrons based on their estimated locations, and we decided that’s too complicated.
In other parts of the world (including many parts of Europe), it’s customary for the displayed price to include taxes. For now, Patreon will show the base price of the tier and then add taxes on top, but we’re evaluating ways to accommodate tax customs in more regions. Note, however, that patrons in the EU are already paying VAT (and have been for years), so nothing will change for most countries in Europe.
And we’re with you - we don’t want patrons to feel surprised by sales taxes. We’re encouraging creators to give their patrons a heads up in advance, and Patreon will also notify all affected patrons on June 1st, a month before sales tax will be charged.
hey chris! the way we’re building the tool, you will essentially be able to specify that only 25% of the tier price is taxable (kind of like you’re pro rating the price based on the way you’ve structured your benefits and delivery cadences), because they’re only getting the benefit 25% of the time. So in other words, if the tier is $10, but they only get sheet music 25% of the time, you will essentially be able to specify that only $2.50 of the tier price is taxable. So instead of your patrons paying taxes on a $10 pledge, they’ll pay sales tax on a $2.50 pledge. Rightnow, Australia, Quebec, and the US will recognize that “discount,” and we’re fighting hard to get this same treatment in other countries and EU.
Thanks Jack. Looking forward to the AMA in a little while. 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.
For now, Patrons will be charged sales tax every month, but you can use the advanced tax settings to adjust for the actual frequency of the benefit by adjusting the the value of that item in the tier price.
For example, let’s suppose a patron pays $10/month for a tier, and they receive a digital copy of a book twice per year. Let’s also assume that you believe that each digital book has a value of $20 (where the remainder of the payments is effectively a donation to support you and your work). This means that for every $120 you receive each year, the patron will receive $40 worth of digital books, i.e., the goods received represent one-third of the tier price. In that case, you could use the advanced tax settings to specify that $3.33 of the $10 tier corresponds to the digital books.
There are lots of gray areas when determining the value and taxability of goods. 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.
Based on the way we’ve built the system so far (which is tier based), if your patrons don’t get anything once they’ve paid the dollar, then it should just be classified as “general support” meaning patrons won’t have to pay taxes on that pledge in most places (in the EU, they would still be taxed). In the future we might support a more advanced business logic like time based or lifetime value based benefits, but for now, if the $1 tier has no immediate benefit, then it makes the most sense to classify it as general support (and that way, your patrons in the US, Quebec, Australia, and Norway, and a few other places won’t have to pay taxes on it)