Quick blog post to get information out to fellow Kickstarter funded projects, the states are starting to formalize rules for Kickstarter physical rewards. The following information only applies to the State of Washington, but I assume other states will follow suite.
We just got this letter from the state department of revenue (I edited out some company-specific information). Luckily, our accountant and tax attorney were on the ball with this last year, and we paid the taxes on the items, but we still have to amend our taxes with the proper tax classification (we classed them as Other).
Something to keep in mind when you are working on your budgeting out your Kickstarter funds.
It was noted that your company Serellan LLC had a project funded on Kick Starter April 1, 2012. This is not an audit but are binding reporting instructions due to an observation by our Department of your 2012 Combined Excise Tax Return. Following are reporting instructions regarding “crowdfunding” and other business activities you may be engaged in.
Kickstarter and other like funding websites
The classification of the tax will depend on the “reward” given. For example, if the reward is classified as a retail sale (tangible personal property) it will be subject to retail sales tax if delivered to a customer in Washington State. You can look up the rate using our Tax Rate Lookup Tool.
When rewards are delivered to a buyer that is located outside of Washington, the sale is considered an interstate or foreign sale and is not subject to Washington sales tax. The sale is also deductible from the retailing B&O tax. Therefore an “interstate and foreign sale deduction” can be taken on both the retail sales tax line and retailing B&O line.
Excise Tax Examiner | Audit Division
Washington State Department of Revenue