Important for US Authors: A new tool for managing State Sales Tax.

Envato Announcements
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UPDATE: This tool is now Live! If you have any questions, please feel free to ask them below and we’ll endeavour to answer them :slight_smile:

Hey US authors,

One of the challenges our finance team has been tackling over the past few months, is the question of how our US authors might be able to manage their US State Sales Tax through our platform. As US authors, you may may be aware, Sales Tax is a tax on the sale of goods and services in the US, but the rates vary between the various states, just as how and when US State Sales tax should be calculated and collected can vary widely from state to state (and even regions within an individual state) so this presented something of a curly challenge for our finance teams to wrap their heads around.

As a marketplace platform, we want to help US authors to meet their obligations, and we think we can do a better job of that by offering a tool to enable authors to collect sales taxes on top of their relevant transactions. We’re going to roll out that tool in September of this year. Note though, whether or not authors use this tool is entirely their decision.

Below is an overview of the tool we will be launching, and how our US authors can use it, as well as an overview of what US State Sales Tax is.

The key features of this tool are:

  1. Authors can configure the tax rate for each state where they plan to collect sales tax.

  2. The tool will then calculate the sales tax for purchases made by Customers who are located in the states that have been configured for sales tax by the author. This calculation will be added as sales tax to the existing item charges.

  3. Envato Market will clearly present the amount of sales tax collected on behalf of the author on the statement and earnings account summary as well as each affected invoice and credit note.

  4. If the tool is turned on by an author, sales tax will be applied where relevant (when both author and customer are located in the same US region) to all items.

What this tool won’t do:

  1. Envato will not be remitting the tax collected to any state tax bodies. This is the responsibility of the author.

  2. Envato will not register any authors for sales tax purposes this is also the responsibility of each individual author.

  3. We won’t keep or store the additional funds collected through the tool in a separate account.

What is US Sales Tax and should I be collecting it?

Note: The below is an overview, if you would like a more in depth illustration of US Sales Tax and its place at Envato, check out our help centre article here.

Sales Tax is a tax that is applied to the ‘retail’ sale of property and certain services and is typically, collected by a seller (in our case, the author) at the time of a sale to someone (the customer) who is also in the same region that the tax applies. When a connection between a customer and a seller occurs, tax folk call it a “taxable nexus”, which is really just a fancy way of saying “a connection that results in tax being applied.”.

If you’re anything like me, seeing a diagram might make it easier…

image
SALT-2-1.png1030×891 149 KB

If both the seller and buyers are in different regions, like in the top image, sales tax typically doesn’t apply. However if they share a region, like the lower image, and a transaction is made sales tax (or SALT) could apply.

So does it apply to the sale of Envato Market items?

What a “retail sale” is actually defined as, and by extension, exactly what goods and services have sales tax applied to them has a fair bit of variance between each US state, and even some regions within the state.

In other words, in some regions in the US the sale of Envato Market items might be taxable, in others they might not. The best way to know for sure is to contact your local tax authority or tax advisor.

How will this look for customers?

Customers for whom the US state sales tax applies will be able to see the addition of sales tax when they arrive at the checkout of the item, and beyond. We’ll be adding the words “exclusive of sales tax” on an item page, to ensure customers know what’s coming.

What’s next?

We will have more detailed information with the launch. In the meantime, we recommend taking a look into your current US Sales tax processes and understand what your obligations are.

Feel free to discuss the changes below! However, If you have any specific questions surrounding this, please contact taxinfo@envato.com.

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Hello, thanks for working on this issue! I have a question. Is this “added sales tax to existing item charges” factoring into the lump sum that you then take your 55% cut from?

Basically, are Authors responsible for the entire tax burden on every sale? We produce the content, you sell the content on our behalf and take your fair cut. But both parties engaged in the sale, so both parties should be responsible for that sales tax whenever tax is required. If you take your 55% cut of the entire sale, including tax, then the author is responsible for paying 100% of the item’s tax burden at the end of the year.

I think in the interest of being fair, Envato’s 55% cut should come from the base price of the item, passing the added tax revenue on to the author to handle on their respective tax returns.

I’m interested in how you will be handling this issue. Thanks for providing new options for taxes and thanks for your time!

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I agree.

Also if authors are required to find the tax for each state for customers, do you think its an easy task for authors? I believe taxation in the US is very complicated and nobody knows the exact numbers when its withholding tax except IRS itself. And we get to know that either end of the year or if we get a refund.

Another question. When you said Envato won’t be submitting the tax to the tax bodies if we charge tax separately, will you still deduct tax based on the existing tax deduction set up, if the author chooses not to charge tax on top of the item price?

Looking forward to know about it.

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All authors fees are calculated on the item price, not the list price/total sale price. So an author will get the same commission* for an item without sales tax, as they would for an item with sales tax.

*(not including taxes)

As for authors being responsible for the entire tax burden… I’m no expert on tax, but it’s my understanding that you can’t split sales tax. So you can’t pay half and envato pays half etc… you either sold the item or somebody else did. It could be said that Envato sold the item, but I’m sure they’ve looked into that.

Either way, what they’re essentially saying is that authors need to investigate whether they should be charging sales tax or not, and if they should be, then Envato are providing them the tools to do so.

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@SpaceStockFootage

I’m not saying we “split” the tax payment. Authors should be responsible for that. But if Envato takes their cut of the sale after taxes are added to the total, they essentially take 55% of the tax as profit and Authors are responsible for coming up with that lost payment during tax season. An ideal situation is for Envato to disregard any taxes when calculating Author Fees and pass that payment on to the author.

Regardless, it’s great to have a tool to manage this now!

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Also local state sales tax and personal income tax is different. Local state sales tax is paid to the state (region) personal income tax is paid to the IRS at end of year. I think local state sales tax is paid every quarter or monthly- depends on the state and also depends on the amount you are earning each month.

From what I understand, when this regional state tax tool is activated - authors will have a choice whether or not to activate it. You would only activate it if your state collects tax for selling digital goods to persons in your region.

If activated, envato would only be collecting tax from sales between you and regional buyers - that money collected would go into your account and you would have the responsibility of paying that regional tax (state tax) to the state. Also it’s important to check what percentage of tax is collected in your region (tax percentage is different in a state based on where you live in a state - so if yours state is divided into counties, some counties may collected a higher or lower percentage of sales tax than the other. eg 6.0% in one and 6.5% in another. It’s our responsibility to check into all this details if we will be activating the tool.

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Absolutely. Envato add the tax on, but they give it to the author so they can then pay sales tax… and they don’t take any commission from the sales taxes, whether it’s the US version or VAT. A non sales tax person will get paid the same commission as a sales tax person.

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Why isn’t this tech built in? Why are you passing the tax to us? Envato wants to have their cake and eat it too. If you are selling my product, and I can’t set the price, you are selling it - not me. Something is fishy here and I am going to contact my congressmen in the US. Take Etsy for example, there you are an independent store: 1) You set the price, unlike Envato where they do. 2) You get 99% of the money, unlike Envato (they take 50%+). 3) Sales tax is built in and passed along to the consumer, not the seller. Something is fishy…

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Hey folks. This tool is now live!

If anyone has any questions, feel free to ask them below. :slight_smile:

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Can you clarify on what you mean by ‘passed along to’. If you mean the sales tax is paid by the consumer, then yes, that’s what it should be… and how it will work here as well. Using the new tool, the sales tax will be added to the list price of the item and it will be paid by the buyer.