Crowdfunding websites, like Kickstarter and Tilt, are increasingly popular ways for budding entrepreneurs to raise relatively small amounts of capital.
One of the bills I introduced in the Legislature this session is HB 2655, which would reduce the tax burden on these startups.
Because the contributions through these websites are voluntary “donations” more akin to charity than an investment in exchange for shares of stock, the Department of Revenue’s current method for imposing tax is both unfair and unclear. HB 2655 will make it easier, and cheaper, for entrepreneurs to begin their small business online.
My efforts bringing this legislation forward to the House Finance Committee were covered by John Stang, a freelancer for the technology news website GeekWire:
OLYMPIA, Wash. — A bill to exempt crowdfunding efforts from the state sales tax and business-and-occupation tax is working its way through the Washington House. The House Finance Committee held a hearing Friday on the bill by Rep. Drew Stokesbary, R-Auburn.
Right now, Washington does not have any specific laws addressing crowdfunding. The Washington Department of Revenue has interpreted existing business laws to require that fundraisers must report their total income after the fund-raising period is over. And fundraisers must collect sales tax on a service, item or software that is provided as a reward for a donation.
Jennifer Muhm of buddingSTEM — a girls clothing line that began in 2015 through crowdfunding — explained that if someone receives a shirt in return for a $500 donation, for example, sales and B&O taxes would have to be collected on the entire $500. Muhm, who with her business partner Malorie Catchpole was Geekwire’s Geek of the Year in 2015, was the sole person testifying on the bill Friday. She supported it.
Stokesbary’s bill would exempt a crowdfunding effort from having to pay a B&O tax. It also would exempt a crowdfunding effort from paying a sales tax if it gives a gift to the donor — if the value of the gift is less than 80 percent of the donation, and the gift is not something sold in the fundraiser’s normal course of business.
