United States

Washington: State Issues Guidance on Sales and B/O Tax Issues Related to Crowdfunding

Jan 12, 2015
From KPMG TaxWatch

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The Washington Department of Revenue recently issued guidance addressing the sales and use tax and Business and Occupation (B&O) tax issues associated with crowdfunding. Crowdfunding is an increasingly popular method of raising money for certain projects, generally through online websites where individuals or groups can initiate fundraising efforts. The project creators do not receive any funds until the project has met its fundraising goal. Depending on the project creator’s specific arrangements, backers may receive tangible personal property or services in exchange for donating funds.

Under the Washington State directive, sales tax is due if retail services, digital services, or tangible personal property are exchanged as rewards for donating funds. Tax is due where the backer receives the goods or retail services. Project creators are encouraged to state that all pledged amounts include sales tax, otherwise the state will assume that sales tax was not included. Further, any taxes due become due in the period during which the project becomes fully funded. Fees that the crowdfunding website host charges project creators are considered costs of doing business and should not be deducted from gross receipts in determining the tax base. Individuals receiving more than $12,000 in gross annual income from crowdfunding—or project creators required to collected sales tax on rewards—are required to register with the Department of Revenue.

For B&O tax purposes, a creator’s tax classification is based on the rewards that backers receive as a result of their donations. The value of the item is the minimum donation amount for each level; amounts above minimums are considered to be donations not subject to tax. The guidance includes examples for B&O tax classification purposes. For questions regarding the Washington Department of Revenue’s tax topic on crowdfunding (released December 17, 2014), please contact Reid Okimoto at (206) 913-4682.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.