Starting July 1st, Patreon will begin charging sales tax / VAT in states and countries where that wasn’t already happening.
Here is what we know:
Q. Who is affected?
A. It depends on where you live and what type of posts I make (more on this later). Patreon estimates that inside the US, less than half of patrons will be affected. Outside the US, it’s unclear.
Q. Specifically, what will change?
A. If your particular state or country requires tax or VAT be charged, there will be an additional line item for this. The sales tax will be sent directly to local governments; I have no involvement whatsoever with it.
Q. Is the tax based on where creators live, or where patrons live?
Q. They’ve been around for years…why is Patreon doing this NOW?
A. The language Patreon provided essentially says “We figured out that if we didn’t start doing this soon, we were probably going to get a visit from the IRS.”
Q. Can you, Joseph, update your tiers to include the sales tax as part of the charge?
A. I cannot. Patreon claims this is illegal…but even if it wasn’t, everyone will be paying different rates, and some people won’t be charged tax at all.
Q. How much will the tax rate be?
A. It depends. Angela *should* have nothing added, as her current country of residence is not on the list. In Canada, taxes will only be applied in Quebec. In the US, the amount ranges from 4% to 11%, depending on what your state tax rate is.
If you are from these states, Patreon will not collect tax: AK, DE, FL, GA, KS, LA, MA, MI, MS, MO, MT, NH, OR, TN.
Q. If sales tax is charged in my state, will be it charged on everything, or just specific things?
A. Here’s where we’re gonna have a spectacular mess.
How does this impact me? I don’t know. Tiny Extras is literally bonus content, but it’s definitely not streaming. I have two (and soon to be three) video series, but they’re hosted on YouTube, not broadcast live. Do those count? I don’t have PDFs, but every song cover I’ve ever posted has the WAV file sitting right there. Does that meet the criteria for a downloadable digital good? Physical goods, absolutely–but they’re all handmade, paper and postcards and canvas, not something that anyone else had a hand in making.**
**Note that for large creators, Patreon offers to produce and ship physical merch like mugs, shirts, etc, and Patreon is paying the taxes in those cases.
I want to point out that when you open a Patreon Creator account, you can choose whether or not to charge monthly or “per thing.” What I originally wanted to do was charge $1 for microfiction, $1 for poetry, $1 for songs, etc. That way, people who don’t care about my writing (of which there are a few) don’t need to support it, and people who don’t care about my music don’t need to support that, etc.
The problem is that you can’t actually do that – Patreon is designed for creators who do ONE thing, not people like myself who do a lot of DIFFERENT things. And I set it up monthly because while it’s not perfect, it’s a lot less expensive than it would be if I’d done it the other way.
But I know creators who DO the “per thing” model. And they’re gonna get killed by this change, because their patrons will be getting that tax applied to EVERY SINGLE POST, not just once at the end of the month. And I can promise you – ask any creator, and they’ll tell you that when patrons leave, they almost never return. I hope I’m wrong, but I suspect tougher times are coming for a lot of us.
Back to how this pertains to you:
The chart I posted above isn’t the worst bit. The worst bit is that Patreon will decide if what I’m making is taxable or not by running an algorithm on my page and searching for keywords. I’m not a programmer and my luck with tech is notoriously bad, but I feel pretty confident in saying this idea is going to cause all kinds of problems.
Q. So what if something you make is taxable, and other things aren’t?
A. They’re not available yet, but Patreon is developing Advanced Tax Settings for creators to use. This will supposedly be up at the end of May.
Let’s say that you’re a $5 Patron in California, and your tax rate is 7.25%. As a $5 Patron, you have access to Microfiction, Poetry, Lens, Longer Fiction, Song Covers, and ColorEvolve.
A $3 Patron should have no tax charged. So that additional $2 covers the music and ColorEvolve, and both of those could be taxed: music because it’s downloadable, and ColorEvolve because it’s going to be a video series and thus might be classified as streaming, even though it isn’t.
Therefore, Patreon is claiming (as of today) that the $5 Patron is only going to be paying tax on the two benefits affected, which would make their $5 pledge total $5.15.
Is it going to be that easy? I doubt it.
I know that this change is going to mean that some of you move to a lower tier, and that some will need to drop entirely. And I don’t want anyone feeling guilty about that – these are extraordinary and very uncertain times, and you’ve got to take care of yourself.
If the Advanced Tax Controls really do become available later this month, I’ll update you as soon as they appear.
If there’s any other questions you have, I probably won’t know…but I’m happy to email Patreon and ask.
Thank you, as always, for navigating these strange and often-stormy seas with me.