AR: Contributions Made in Exchange for Tangible Personal Property are Subject to Sales and Use Tax

In a recent Revenue Legal Opinion, an Arkansas Revenue Legal Counsel addressed the sales tax issues associated with certain crowdfunding activities. The taxpayer at issue ran a crowdfunding campaign to raise money to produce copies of a card game. The majority of backers of the campaign contributed money with the expectation of receiving a copy of the card game within a few months. In other words, the backers of the effort considered their contribution to be a pre-order of the card game. Backers contributed money to the taxpayer through the crowdfunding platform, which charged the taxpayer a five percent service fee. The platform managed the payment process, but did not provide billing addresses of backers and did not collect any applicable sales tax. If and when enough contributions were received to produce the card game, the taxpayer planned to email backers to obtain shipping addresses.  

The Arkansas Department of Finance and Administration concluded that the taxpayer was in the business of selling tangible personal property for profit in Arkansas because there was an expectation that most of the backers were contributing money in exchange for a card game. Accordingly, the taxpayer was responsible for charging and collecting sales tax at the time of contribution (i.e., at the time of purchase), and was required to remit sales tax on the entire consideration paid by Arkansas backers, including the five percent service fee charged by the platform. Please contact Michael Andruchek at 214-840-2467 with questions on Opinion No. 20180923.