A few weeks ago we began charging sales tax on our pledge manager for all Kickstarter sales. (This did not extend backwards to already paid orders). We received lots of comments about this, so I asked our accountant for a concise explanation (a few paragraphs down). Let me jump right in to the issue.
Kickstarter only has a very brief paragraph for project creators regarding sales tax, which reads in full: “Sales tax may also be applicable in certain cases depending on the local rules. In general, sales tax applies only if the creator has sufficient connection to the location of the backer.” This has always been the case – it is not new.
But that’s merely a message from Kickstarter to project creators. Kickstarter is merely acknowledging that sales tax may be applicable, and as with any business, it’s really up to us to figure out what we actually have to do with regards to the law, regulations, and taxes.
Petersen Games has been paying sales tax to several states for several years. It is something we have always had to factor into our Kickstarter pledge level and add-on prices. But it’s generally been a low amount overall. Because of the small amounts and the relatively low number of states involved, it never made sense for us to set up a way to explicitly pass those costs on to each backer, even though that is the prescribed thing to do for any business.
That changed for us this year when our accountant told us that we effectively will have to be paying sales tax to virtually all of the 50 states.
Here is a message directly from our CPA:
“In light of the recent Supreme Court ruling over South Dakota v. Wayfair, the collection and remittance of sales tax on internet sales, online crowd funding included, becomes applicable when a company has sufficient connection to the location of the buyer. Furthermore, crowd funding creators are required to collect sales tax on donations in the event they provide retail services (such as meals), digital products or tangible personal property (books, videos, copies of games, etc.) as rewards.”
Here is a helpful excerpt from the linked Wikipedia page regarding that recent ruling:
“As of December 2018, 31 different states have standing tax laws requiring taxation of Internet purchases, most following the model of the South Dakota to only collect tax from those vendors with more than 200 shipments into the state or exceeding $100,000 in revenues. Several of these new laws came into effect on January 1, 2019.” [emphasis added]
We cannot speak for other project creators as to how they handle their sales tax obligations. But like Amazon and Walmart.com, as well as any brick and mortar retailer in your town, we have to pay sales tax on what we sell, regardless of whether the customer “sees” this tax or not. And like with any business, including Amazon and Walmart.com, it’s not a cost we can roll into the sale price – it’s an itemized, separated charge that is illegal for us to keep for ourselves. We pay it to the states on a quarterly basis.
Trust me, we don’t like taxes any more than you do! But like death, and the rise of Cthulhu when the stars are right, it is one of the inevitable things in life.