🃏 substack-ed against sales tax?
🃏 substack-ed against sales tax?
💸 even disruptors have tax obligations
🤔 Does being the ‘true’ free speech platform exempt you from basic sales tax obligations?
I’m not talking about Twitter (which *does* charge HST on Twitter Blue - when that feature is available - fun fact). I’m talking about Substack.
I write a blog (this one) that is hosted on the Substack platform (“regs to riches”) and it’s free - the platform doesn’t charge me to post, and I don’t currently charge readers to consume my thoughts (*I have earned money with the odd ad placement) because I am such a savvy business woman. My financial acumen aside, it’s in the platform’s interest for me to monetize - as they remind readers with resources, and because that is their profit model. Substack makes money by charging a 10% fee to creators on their monthly earnings through the site.
Substack was established in 2017, a laggard following on the heels of Medium (2013) and Blogger (1999), but preceding Twitter’s newsletter attempt (Revue was acquired in 2021 but founded in 2015, and is now set to be sunsetted).
Substack’s challenge to the traditional journalism model purports to create a new media ecosystem that offers “a better future for news,” but so far, it seems to fail to account for the basics of sales tax. The disruptive platform does not currently offer a mechanism to automatically collect sales tax from subscriber fees on behalf of the writer. While Substack wants us to “stop calling it the newsletter economy,” whatever economy it is a part of, sales tax should be a part of that ecosystem - at the very least, on the fee they derive from authors.
Why? Because Canada put in new rules for digital economy businesses in July of 2021. Previously, foreign-based digital businesses could sell their goods and services to Canadians without charging GST and HST. But a new tax change was announced in the Fall 2020 Economic Statement. The change came into effect following consultations with stakeholders and was estimated to increase federal revenues by $1.2B over five years. My read of the new rule(s) is that they apply to cross-border digital products and services, which include “non-resident distribution platform operator vendors who sell taxable digital products or services.”
At present, the platform does not allow publishers to break out HST when billing through the Stripe integration, which means that authors must have the foresight to include it in their pricing and include a note about it in their receipts as a workaround (if they collect it at all). So it’s possible that the tax is occasionally collected and remitted by authors on the platform, but it’s definitely not being collected by the platform.
This made me somewhat curious about whether Substack had either willingly or accidentally failed to learn from how other platforms treat accountability related to tax. Turns out, the platform makes a half-hearted effort to educate individuals regarding their tax obligations (noting that Stripe provides a tax form in the US), but does not have a communicative partnership with the CRA or any bullet points for Canadians. By not supporting authors with a clear sales tax option, it makes them unintentionally complicit in Substack’s murky digital tax landscape. Blah.
Other digital platforms that support small entrepreneurs take additional steps to facilitate this. Here’s my quick scan:
In July 2022, Etsy started collecting Canadian sales tax including GST, HST, QST and PST on orders placed by shoppers in Canada, and remits these taxes to the Canadian government on the seller’s behalf. They have also started charging GST/HST on seller service fees. While this is a recent change, it streamlines tax obligations for micro-merchants.
Airbnb (*where I worked for two years between 2017-2019) collects and remits sales taxes on behalf of the host (the national law does not impose this obligation, it is voluntary). The platform also charges sales tax on the listing and guest fees.
Netflix and Spotify started including GST/HST in 2021 in compliance with this new law.
Even OnlyFans complies (!).
Amazon’s Twitch requires all providers (including non-US) to provide valid taxpayer identity information in order to comply with U.S. tax reporting regulations.
Shopify helps to simplify the procedures for charging sales taxes, but doesn’t remit or file taxes for merchants.
Uber is required on behalf of the government to collect sales tax on fees charged to drivers, but leaves the collection and remittance of sales taxes up to rideshare drivers.
Meta (Facebook) has said it wanted to start collecting sales tax across Canada by mid-2019. It hasn’t.
Crowdfunding platforms like Kickstarter and GoFundMe also have sales tax obligations but they are a little trickier to figure out. Kickstarter offers tax guidance for US residents only, referring Canadians to the CRA. GoFundMe offers tax guidance on donations to charity fundraisers. Patreon has a support page that discusses the platform’s sales tax requirements which suggests it charges sales tax.
Back to platforms that are more similar to Substack, like Medium, Ghost, and Revue. Medium partners with Tipalti, a payments partner, which seems to help American authors.
Ghost’s integration with Stripe does something similar.
Revue’s Terms of Service suggest that the individual is responsible for any and all applicable taxes.
So there is definitely variability in terms of how sales tax is addressed. But remember, there are two instances where the tax is applicable: for an author, if their independent income is greater than $30k and for platforms, on the service fees that they charge.
What does this come down to? The inconsistent enforcement of existing laws for digital actors diminishes public trust in government, especially as government makes the case for more substantive powers in other realms of the digital economy. Substack’s ignorance of sales tax obligations - at the most basic level, in its service fee, and as a courtesy to authors - is emblematic of the ongoing tension between platform accountability and individual accountability in terms of where the burden of collection lies and what it means to support your community.
Put plainly, I think Substack could do a little more to facilitate authors collecting and remitting appropriate sales taxes. They should also collect and remit HST on their sales/processing fees. The platform has plenty of examples from predecessors to learn from, especially as it seeks to take advantage of Twitter’s tentative implosion with the launch of group chats.
BTW, I looked up their corporate documents, and the company dissolved its Canadian office in February of this year (after incorporating in July 2017). Again, a simplified GST/HST registration, reporting and remittance system is available to non-resident distribution platform operator vendors under Canada’s new-ish rules.
Compliance with basic tax obligations is a cornerstone of responsible innovation. Even if you want to ~disrupt~ the media ecosystem, there are some standard rules to play by if you want to achieve/claim any sort of credibility with governments. Looking the other way while your authors may collect HST, and failing to charge HST on your service fees is a rookie, bro-like mistake that can be fixed. Authors should push Substack to do more to support sales tax obligations, too.
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Preach,. Vass. I was astonished when I learned that Stripe doesn't collect HST and Substack doesn't care. I was told, by a Substack employee, "We tell people to price accordingly and get a good tax lawyer." It's like telling people who buy televisions to get a good electrician. Dude, I'm buying your TV because I figure you've built in some mechanism for changing the channels.
Hmmm... So how are Canadian Substack authors dealing with Sales Tax in the meantime? Does anyone have a link to a guide that shows how to treat it on the Stripe side? Great post.