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[Bambino2012]

Hey guys,

Hopefully someone can help
This year was the first time I sold software directly to the consumer trough GamersGate, Impulse, BtmMicro, Gamefly , Steam, and soon in indie bundles too.
How was wondering, how is this income taxed ?
Are sale taxes applied to the customer at the time they buy the product ?
How about international sales ? Those customers already pay taxes on their end (Bmt micro for example).
And how is this income declared ? Royalties income ?
Anyone has experience with this ?

Thanks,
Bruno

[mikejkelley]

First off, where is your business located?

[Bambino2012]

California

[mikejkelley]

"North Dakota passed a law in 1987 requiring out-of-state mail-order houses to collect and pay a use tax on goods purchased for use in the state. Quill Corporation refused to comply and the state of North Dakota took them to state court. The trial court ruled in Quill's favor and found that based on Supreme Court precedent in a 1969 case (National Bellas Hess, Inc. v. Department of Revenue of Ill.) the law created an unconstitutional burden on interstate commerce based on the Fourteenth Amendment's due process clause. In addition the Supreme Court found it conflicted with the commerce clause because, “The very purpose of the Commerce Clause was to ensure a national economy free from such unjustifiable local entanglements. Under the Constitution, this is a domain where Congress alone has the power of regulation and control.”

Read more: The Supreme Court: Sales Taxes on Mail Orders — Infoplease.com http://www.infoplease.com/cig/supreme-court/sales-taxes-mail-orders.html#ixzz2B2rrGLe0"

The upshot is that you typically have to charge and declare/pay sales tax if your customer resides in the same state you're doing business in. You don't have to charge out of state customers sales tax.

The law varies from state to state however and NY has tried to find a way around the Constitution by requiring any business w/ a physical presence in NYS to charge sales tax on customers from NYS. Predictably many online retailers have simply chosen to move out of state leaving NYS w/ no tax revenue (and less jobs) from those businesses. Stupid.

Machiavelli, a man so ruthless his name/nickname serves as euphemisms for Satan, advised the Prince not to tax trade routes. Not because he was a nice guy obviously, but because the net effect is that you wind up losing money in the long run. NYS, more ruthless than Machiavelli and not nearly as smart.

Obviously, your revenue will still be taxed at around 40% when all is said and done. Hope this helps somewhat, keep in mind I'm neither a lawyer nor an accountant, ymmv.

[RudyTheDev]

First of all, some resellers pay the tax themselves, like BMTMicro or Plimus. Your profits are basically royalties at this point. Other sellers, you need to pay it yourself, like Google Appstore or Paypal. There you handle taxes yourself.

When a reseller handles taxes, they know who and how much to charge and they know whom and how much they need to pay tax. No hassle for you.

If you sell "direct" though, there is no super-easy answer to this because there are umpfteen countries and states; but basically you pay sales tax as required by your purchaser's location (which means you keep track of all your sales). For example, you have to pay EU Electronic Sales tax if you sell to EU customers. Or in US it depends on state, like Louisiana pays sales tax, California doesn't on electronic goods, and Oregon doesn't charge sales tax at all (if I'm accurate). It's a mess that I don't pretend to understand.

[Mittens]

I don't know exactly how american tax works, but I would think you just add up your net profit from these sales and declare that as personal income, then pay whatever the tax is on that amount of income, easy.

[mikejkelley]

but basically you pay sales tax as required by your purchaser's location

Wrong.

It's a mess that I don't pretend to understand.

Then don't post.

[RudyTheDev]

but basically you pay sales tax as required by your purchaser's location

Wrong.

So you're saying for customer from California, customer from Alaska, customer from Germany, and customer from Australia all will be (or won't be) under the same tax rate?

Because California is where Bruno physically is and applicable sales tax depends on their specific rate. Alaska is inter-state and not taxable. Germany is in EU with EU electronic goods sales tax (thankfully, you can pay just one rate, not on per country basis). And Australia doesn't have sales tax on electronic goods.

May be my wording wasn't the best, but there is a direct relevance between seller's location and buyer's location. So assume some good faith, please.

[Xienen]

In the US, as was previously stated, you only have to pay sales tax on sales that take place within the state your business was set up in.  It is unconstitutional, as was previously stated, for a state to require you to pay taxes on interstate commerce, as that falls directly within the jurisdiction of the federal government, which does not impose sales tax.  Your state should have forms available to help you calculate the amount of sales tax you must pay.  I can also confirm that places like Steam, GamersGate, etc. take care of sales tax for you.  The money that comes in from these entities goes straight in as income on your business' taxes(assuming you have set up a business).  As for how your business taxes are calculated, that is very dependent on state law, so I doubt I'll be able to help you there(unless you move to Georgia).  I am generally the type of person to not want to pay anyone to do anything I can look up, figure out, or just do for myself, but I did opt to use a CPA for my first tax return filed for Greater Good Games, as it's just too complicated(and you could end up in some shit if you get it wrong).  I don't plan on using a CPA for any of it again, as I got most of my questions answered, but if I get into another unknown situation, I might just hit up a CPA again...well worth the few hundred dollars to make sure it's done right the first year.