Sales Tax on Patreon (Patreon)

Howdy y'all,

By this point, you should all have received an email from Patreon explaining that, starting July 1st, they will be required by law to collect sales tax on some pledges.  And they've given creators like me some latitude for how we define what percentages of each of our rewards applies to what, and thus how much sales tax you, as my Patron, will ultimately pay.

Setting that up has been an involved process because I needed to literally go through every benefit I offer every single tier, categorize each one individually per tier, assign each one a value,, and then determine what percentage of what you pledge should be applied towards each.  (So, maybe have some patience if other creators haven't been able to get to that yet.)

But I got it done. And the short answer is that the vast majority of you will see no sales tax added to your pledge amounts, and those at the higher levels (who receive, for example, physical rewards) will only see a small fraction of your pledge taxed.

How does that break down?

• The vast majority of my Patrons pledging at the $5 level or below will see no sales tax added to their pledges when this change happens.
• The vast majority of my Patrons pledging at the $10 and $25 levels will be taxed on a dollar or less of their pledges.
• Those pledging at the $100 level and above, where they get to request a  physical item from my store each month for free, will be taxed on only 6% of their pledge amount.

So, that's the short answer. Probably all you need to know. 

But what's the long answer?

Let's dig in. :)

First off, I answered all the tax questions honestly

Of course, I don't want any of you to have to pay any sales tax at all. And I could have tried to "game" the system to make that happen. 

But I also don't want any of you to have any tax hassles down the road, certainly not over a few pennies a month. And luckily for me, answering all the tax questions about your rewards with complete honesty and diligence still keeps the amount of sales tax any of you would owe to a very low level.

Why is that? Well, for one thing:

General Support Is Not Taxable In Most of the United States

Outside of the United States it is common for all electronically supplied services and physical goods to be subject to tax. My supporters in Europe are already well aware of that, and have been paying VAT on their pledges since 2015. (Patreon is actively trying to convince the EU to change this.)

Within the United States, what’s taxable varies greatly by location. And in most of the states, "general support" -- essentially money you are pledging to keep me alive and the comic ongoing, instead of in exchange for a tangible benefit -- is not considered taxable.

It's been very clear time after time when I've checked in with you via surveys, etc. that while the benefits I offer are nice, that the primary reason you joined the Woolfpack here, and continue to pledge, is to support my work. You're not here for the goodies, you're here to make sure The Young Protectors and my other work is able to continue. And, you know that without your support, it couldn't.

The "benefit" of supporting my work here is not taxable in the majority of the states. 

Same goes for benefits like "exclusive community access" (for example, on The Young Protectors Community Site) and "recognition" (like the Disqus avatars I make, the anniversary shout outs I give you under the comic pages, and the gratitude you rightfully get from me and your fellow readers.). 

Those benefits are also not taxable in most places.

What is taxable in most places?

• Streaming video content is taxable in about half the states

I'm not a YouTube artist, so this doesn't really apply to us.  Twice since 2015, I've offered a Question and Answer livestream, but it's so rare, it doesn't make sense for you to be taxed on it.

* Downloadable Digital Goods are taxable in about half the states

Yep, with my pin-ups and short stories I do offer "digital goods" to y'all. That's clear. But hold your horses, we'll get to how much of that should be taxable in a second.

* Physical Goods are taxable in all states in which Patreon is collecting

I only offer "physical goods" as a benefit to folks pledging at the $100 level—they get to ask me once a month to send them one of the products from my store for free.  And the reality is that no one at that level has asked me for any products for well over a year. Which again goes to show that folks pledge to my Patreon to support me and my work, and not for whatever goodies I offer. 

So yes, I need to indicate that part of that $100 pledge is taxable because $100+ supporters  could take advantage of it (and, in the past, have, at least once or twice). But looking at my numbers over a year that wouldn't be more than 5% of their monthly pledge—and that's being on the safe side, tax-wise. That benefit is just not used more than once or twice a year, if that.

What percentage of your pledge should apply towards receiving digital goods?

So, for almost all of you, the only real potentially taxable benefit are the digital downloads and access to exclusive comics you get for being a Patron. "Digital goods."

What percentage of your pledge should be assigned to that?

To answer this, I need to decide on the value of those goods. That is, if I were to try to sell them (on Gumroad, for example) what do I think I could reasonably charge and expect people to pay. And, in particular, what could I charge people who are not buying the thing to support my work. (Since that would be "general support" which is a different benefit.)

By my lights, I wouldn't go to the trouble of trying to sell non-high resolution versions of our monthly wallpapers. I've tried doing such a thing in the past, and they just don't sell to people who aren't actively trying to support me.  If it doesn't have commercial value that I can clearly determine, there's no percentage I can apply to the dollar amount of your pledges. So, I don't.

That leaves the monthly high-resolution pin-ups, the itch.io libraries, and access to the 18+ comic, Legendary.  Folks who pledge here at the $5+ level immediately get exclusive access to a 74-page sexy comic. $10+ Patrons get access to an itch.io download library of over 80 high-quality digital pin-ups. And those who pledge at the $25+ level get access to  high-res versions of all those pin-ups, along with high-res images of our monthly panel and other pin-ups.

Do I think I could charge real money for those things? 

You betcha. Other creators like me do it all the time. Especially for the sexy stuff. Some make their whole living doing that, outside of Patreon.

Join my Patreon at those levels, and you immediately get a whole bunch of really valuable stuff as my way of saying "Thank you! Welcome Aboard!"

But one-time "gifts" don't count!

Per Patreon's legal guidance on how to assign the percentages for benefits for sales tax:

If you offer any benefits that patrons only get once after they join, or after a certain number of months, that should be considered a giveaway or thank you gift, like the tote bag you get if you support a public radio station. You can list that benefit, but set it at 0% value so it is not generally considered taxable. 

Access to those big itch.io download libraries? Access to the 18+ comic? You get that access all at once when you first sign up.  It's my "thank you gift" to you. Not taxable.

So what's left?

I still offer monthly high-res pin-ups. In my judgment, those have commercial value, at least the specially-commissioned sexy ones. Thinking about what I could reasonably charge for a monthly subscription for those, I think 99 cents a month sounds fair. So for those of you pledging $10 or more, at least in the U.S., you'd probably be looking at 4 to 11 cents in tax on that each month. And only in half the states.

Hopefully that doesn't sound too painful. And that's us doing things above board and being on the safe side. :)

What about outside of the United States?

Per Patreon, when it comes to "General Support":

We will not apply sales tax [to the percentage assigned to General Support] from patrons who live in the following countries: the US, Australia, Canada, New Zealand, Norway, and Switzerland. We are working hard to expand that list, but we have to obtain permission from taxing authorities in more countries.

So if you live in one of those countries, you'll likely have a similar experience to those Patrons who live here in the States where 90% or more of your pledge will not be considered taxable.

And if you don't live in those countries, Patreon is working on it. Reaching out yourself to your government to lobby them not to tax General Support couldn't hurt either.  You'll find a complete list of countries Patreon is collecting Sales Tax for and how much they are collecting here (in the table about halfway down the page.)

I've got your back

Like I said, it was a pain in a butt to have to figure all this out. I'll be shocked if many of you get to the end of this explanation. But I wanted to include it here to show that the choices I made were reasonable and carefully considered in case you ever need the justification. 

And those choices mean that for the vast majority of you, you'll only pay sales tax on less than 10% of your pledge amount. The rest would be tax-free. And many of you will pay no sales tax at all.

Hopefully this information was helpful. Please let me know if you have any questions.

And thank you, as always, for your amazing and essential support. I couldn't do this without you.

Alex