Taxing authorities may classify funds raised on the Services as taxable income to the Campaign Owner and any beneficiary who will receive funds directly from the applicable Campaign. Indiegogo will ask for the tax identification number (TIN) of Campaign Owners and any beneficiaries so that we may report taxable income to the relevant taxing authorities.
What does all this mean? Your personal contribution to Storm/Ivars Sondors and Jon Hopp will be counted not as cost of goods, but as personal taxable income. When they started this campaign and had a $75,000 goal this was not something that they probably thought about very much.
They might want to start thinking about it now. $3.5 million dollars of taxable income is going to hit them with a very big tax bill come April 15th, 2016. Although you and I might look at it like we are buying a bike and the $499 we donated was mostly going towards the ‘cost of goods’, the US government will not see it that way. Unless Sondors Electric Bike Campaign is a registered 501c3 ‘Not for profit’ (they probably aren’t) then all their campaign contributions are taxable income. Lets say they manage to scrape together a 501c3 filing in the next 11 days and give away a few bikes to charity to LOOK like they are a not for profit. I can’t imagine any IRS Tax Lawyer who is going to look at 7,000 ebikes sold on a crowd-funding campaign and look at it as anything other than personal income no matter how many free bikes they give away to homeless people in the process.
Don’t worry, the good news is that Jon Hopp and Storm/Ivars Sondors will probably only be hit with the AMT since they made so much money in 2015. That means that they will only have to pay a flat rate of ~28% of their income in taxes. The AMT is a ‘flat tax’ so they won’t have to worry about saving any money on deductions or fancy things like that. It’s not clear if the extra $1.5 million they have yet to collect for shipping the bikes will also have to be listed as personal income tax.
So here is the $5 million dollar question. How are Storm/Ivars Sondors and Jon Hopp going to pay 28% of their donations in taxes when they are only making a $50 markup on each Sondors Electric Fatbike?
We also need to look at the question of state sales taxes. Storm/Ivars is talking about having distribution warehouses on the East and West coasts (Long Beach California and NY this video at 1:00), two states with very high tax rates and very aggressive tax collection systems. Lets say that 1/6 of the total bikes were sold to CA and NY (a very conservative estimate). NY is about 8% and Long Beach is closer to 9% so lets average 8.5% sales tax. That’s $3.5 million times 1/6th times 8.5% which comes out to about $50,000 in sales taxes that were not collected when you bought your perk. Maybe NY and CA will just let it slide, since people will be showing up to pick up their bikes from a cargo container it won’t count as buying it locally, right? A distribution warehouse doesn’t really count as having a ‘presence’ in that state, right? Just because they didn’t collect sales tax from the buyers means that it doesn’t have to be paid, right? Wrong, wrong, wrong.
What about the shipping charges. Are they taxable? In CA they are not, but in NY they are. This means that the extra $194 or less in shipping they collect in NY for your bike will also need to have the 8% sales tax on it. Who will pay that tax?
So now we’re looking at least $980,000 (possibly 30% more) in 2015 income taxes due to the US government along with ~$50,000 in taxes due to the States of NY and CA. They collected $3.5 million dollars in donations and have already started to spend that pledge money on online advertising even though the bikes have not even started to be built yet. It’s Chinese New Year, and the whole country is totally shut down.
Assuming the bikes are built and shipped and Storm/Ivars Sondors and Jon Hopp make $50 profit on every bike that means they have around $350,000 in profit to pay over a million dollars in taxes. Storm/Ivars Sondors has successfully avoided another $39,456 personal fraud lawsuit settlement for some time now, but I suspect that Uncle Sam will not let him off quite as easily. From the look of Jon Hopp’s Facebook page he will also have a hard time fleeing US government tax debt as he seems pretty entrenched in his life in Malibu. Speaking of which we missed you at the Demo Days Jon Hopp. We understand how making $3.5 million dollars is probably not that big of a deal for you, and you probably had something much more important to do.
$350,000 in possible profit.
$1,030,000 – $1,442,000 in taxes due April 15th 2016 Depending if the shipping fees they collect are also taxable income as well as the initial donation amounts.
Actually, they will also be hit with additional penalties unless they start paying their quarterlies right now.
Are you worried yet?
I hope they save a little money to hire a very good tax lawyer, they will need one.
You can always buy the optional Indiegogo perk insurance for $120 a bike which will refund your $499 if you don’t get a bike. I’ll write more on how that is one of the most morally crooked things I have yet to ever experience soon.
6 thoughts on “Who Will Be Paying The $1+ Million In Taxes On The Sondors Electric Fatbike $3.5 Million Dollar Campaign?”
No doubt they set up a corporation, so that they could avoid liability if shit hit the fan. As such, they not be taxed on the total amount of revenue, but their profits. Assuming that they even make a profit.
Well, they don’t have sales. No one bought anything. It’s very clear that the money sent to Storm was a ‘contribution’ to a ‘campaign’, and there were ‘perks’ connected to the campaign. So, if you don’t have sales, you don’t fit the normal model. Their obligation is to supply a product on a best efforts basis. Their protection from liability was to ship directly from China. In other words, if Storm never owns the product, and isn’t the importer (each customer is) then he can’t be liable. At best Storm is an agent between the factory and customers.
I think the bottom line is that the IRS can simply say this is NOT a business with sales and costs, leading to a profit statement. It’s a pool of contributions, where they hope to meet some goals, send out some goods. If the IRS says taxes have to be paid off the top of the pool, what is the counter-argument? Why didn’t they organize as a company, and just generate sales (as opposed to contributions)? Why isn’t it just income to the parties in the campaign? The IRS takes an extremely expansive view of what is income. Maybe there is a way for Storm to deduct his expenses, but it isn’t obvious, and it isn’t what Indiegogo seems to be reporting to the IRS.
If the money is spent as a business expense, it “might” be deductable, but…the exact way that the money is managed is vital. A small screw up can definitely open the primaries to a deathblow of unexpected taxes. Do not “pierce the veil” in mixing or separating personal and business expenses and accounts. Your “intentions” don’t count with the IRS.
its a group buy in essence also show me a law saying anyone needs to pay taxes ever on anything? its unconstitutional and irrelevant on the internet
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