Crowdfunding Tax

States are now hip to collecting sales tax on rewards-based crowdfunding.

Washington State has issued a release that says that “the project creator is required to collect sales tax on donations if you provide retail services (such as meals), digital products or tangible personal property (books, videos, copies of games, etc.) as rewards. You don’t have to collect sales tax on items exempt from sales tax (such as prepackaged food items).”

The tax is based on the gross amount of the “donation” so you cannot deduct the portal or money processing fees.

The State’s easy to understand chart:

Donated amount B&O tax classification Why?
Tier 1: $1 Not taxable Insignificant value. More than $1 is considered a donation.
Tier 2: $5 Not taxable Insignificant value. More than $5 is considered a donation.
Tier 3: $25 $25 Retailing Sale of tangible personal property. More than $25 is considered a donation.
Tier 4: $100 $100 Service and Other Private screening of a movie is not a retail transaction. More than $100 is considered a donation.
Tier 5: $250 $250 Retailing This transaction is a mix of retail (the dinner is retail if it’s held in Wash.) and service transactions; the rewards don’t have specific prices. The amount is subject to Retailing B&O tax unless the dinner value is less than 10 percent of the whole award’s value. More than $250 is considered a donation.
Tier 6: $500 $500 Retailing This transaction is a mix of retail (the dinner is retail if it’s held in Wash.) and service transactions; the rewards don’t have specific prices. The amount is subject to Retailing B&O tax unless the dinner value is less than 10 percent of the whole award’s value. More than $500 is considered a donation.
Tier 7: $1000 $1,000 Service and Other Plane ticket and movie opening tickets are not retail transactions. More than $,1000 is considered a donation.

http://dor.wa.gov/Content/GetAFormOrPublication/PublicationBySubject/TaxTopics/Crowdfunding.aspx

About JeffKoeppel

I am a corporate/securities attorney in the Washington, DC area. Prior to joining the firm, I was a Senior Attorney Advisor in the Division of Corporation Finance at the U.S. Securities and Exchange Commission. I am a member of the Bars of the States of Maryland, New York and the District of Columbia. You can also follow this blog on LinkedIn at: http://www.linkedin.com/pub/jeffrey-a-koeppel/0/63/5a9
This entry was posted in Charity, Congress, Crowd Fund Act, Crowd Fund Act of 2012, Crowd Funding At the Margins, Crowd Funding Platforms, Film, Funding Portals, Investments, Jobs, Legislative Intent, SEC, Small Business, Tax, Venture Capital and tagged , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

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