As I said yesterday, Happy Bishop Games will be organized as a sole proprietorship. That has some very specific consequences for tax purposes, which are explained below. But first, what is going to be taxed, and by whom?
Note: The following is based on living in the USA, specifically the fine state of Illinois. Your nation’s mileage may vary. Also, I am not a tax expert so maybe you shouldn’t listen to me. Just saying.
Since HBG will be selling roleplaying games, the first tax to come up is sales tax. However, this is not an issue–yet. According to tax law, a business must collect a state’s sales tax if it has a physical presence (such as a store or warehouse) in that state and the sale is from that state. For example, one of the greatest games stores in the world is Games Plus in Illinois. I live in Illinois too, so if I purchased something from them over the internet, then the sale is taxable and Games Plus, as the business, needs to collect sales tax and give it to the government.
However, if I lived in Florida and purchased a game over the internet from Games Plus, no sales tax would apply–Games Plus has only one store, and it’s in Illinois.
Happy Bishop Games is unique in that it’s a home-based sole proprietorship. Since we have no physical store or warehouse, there’s no sales tax to worry about. If someone like Indie Press Revolution agrees to distribute our game Triune to brick-and-mortar stores, those stores worry about sales tax, not us. (Me. Whatever.)
Technically, when a retailer doesn’t collect sales tax, the citizens who buy stuff over the internet should pay a sales tax to the state they live in. Those are called “use taxes” for some reason. No one does this, and since many internet sales are small, states don’t worry about it–it’s not worth the hassle. However, this can and will likely change in the future as states struggle to find new revenue streams.
But for now, HBG does not have to worry about sales tax. Coming next–Part II, where we discuss paying taxes on what we’re hoping will turn out to be profits of some sort.