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Patreon & Sales Tax
🕑 Added 2020-05-21 18:24:27 +0000 UTCIf you're a citizen of the EU/UK disregard this as you've likely already been paying VAT so this is nothing new for you.
If you live in a Canadian province other than QC, or one of the following US states: AK, DE, FL, GA, KS, LA, MA, MI, MO, MT, NH, OR, or TN, you can ignore this since either you don't have state sales tax or your state hasn't gone after online commerce yet.
If you live in another country check this list to see if you'll be effected.
https://support.patreon.com/hc/en-us/articles/360043054911-New-Sales-Tax-Requirements-effective-July-1st-2020#h_ea3105cc-d58a-4039-a7f0-ce4c7a4fb851
As you may be aware Patreon will soon be forced to start charging sales tax for pledges made to creators. States have become slowly more vigilant about enforcing sales made online and they finally caught up to Patreon. As a result you may be charged slightly more for your pledges starting July 1st 2020.
In almost every country/state only a portion of your pledge is taxable. I've done what I can to make sure that the services provided are categorized in a way that will reduce your taxes to their proper legal amount. This means you will (probably) not be charged sales tax on your entire pledge, only the amount of your pledge that goes towards a taxable reward.
How much you'll be charged isn't an easy question to answer as it depends entirely on your local tax laws. The easiest way for you to find out what the amount will be is to wait and see. For most US citizens it will probably be less than a dollar, possibly nothing, at most it would be 0.55/1.10/1.65 depending on your tier. For citizens of other countries at most (Living in a 25% tax country with no exempt rewards) you could be charged 1.25/2.50/3.75 extra depending on you tier.
If you're looking to get a closer estimate read below, although I suggest just waiting for the final verdict from Patreon in July. If you take my advice to wait and find that the tax ends up being too high let me know and I can cancel your access and refund your pledge.
To determine the taxable amount I estimated that all of the rewards (Development logs, discord access, beta builds, cheats, credits, voting, and general support to make the game happen) were of equal value at their cheapest available tier. Then, for the subsequent tiers that offered that same reward without extra benefits (i.e. beta builds in leather/metal, cheats in metal) I kept its dollar amount from the previous tier. The amount that doesn't fall in an exempt category in your state is the taxable amount.
According to Patreon the likelihood of a reward being exempt is as follows:
Credits are exempt in the "vast majority" of states.
Dev logs, discord titles, development time, and voting are exempt in most states.
Beta builds and cheat codes are exempt in about half of the states.
For example, Cloth tier offers 5 rewards (voting, discord title, dev logs, beta builds, and development time) so that each is worth 20% of the total. In the "majority of states" 80% will be exempt. In half of the states the remaining 20% for the beta build portion will be exempt. In the states that fit into both categories the entirety of the pledge is exempt and you won't pay any taxes.
Moving up to Leather tier there are 6 rewards (everything before plus cheats), however the reward of beta builds is identical to the previous tier with no added benefit and so it retains its value of $1 or 10% of this tier. The remaining 90% is split up between the remaining 5 rewards. Again in the majority of states all but 28% will be exempt. In half of the states the 28% will be exempt. Finally, states the fit into both categories will be completely exempt.
To find out exactly what you're exempt from you'll have to refer to your state/countries sales tax law and try to figure out where each reward would fall. This would be the hardest part since tax laws can be extremely vague as to what is and isn't exempt. Credits could possibly fall under "recognition", or might be considered a donation depending on how your state/country defines a donation. Development time/general support might fall under services or donation. Dev logs, voting, and discord titles might be under "community access" you might try to see if dating sites or other subscription based community access sites collect sales tax in your area. Beta builds and cheat codes would fall under digital goods.
Once you have an idea of what is exempt, subtract the value of those rewards from your total pledge and multiply it by the sales tax in your state (i.e. $X.XX * 0.10 for a 10% tax rate), that should be the amount you'll have to pay in taxes for future pledges.
US residents might be charged 4-11% of the taxable amount depending on your state, other countries can vary from 5-25%.
I know this is overly complicated for the sake of (in most cases) less than half a dollar which is why I suggest waiting to see what the amount is. Again, if you do wait and the tax ends up pushing your total amount over what you feel is a fair price I can offer a refund and cancel your pledge.
