"Donate" has a very specific meaning, at least in the US, and comes with numerous accounting connotations, including the ability to write off the expense. As many people don't realize that "charitable donations" do /not/ include "donations" to purchase toys for children, it is misleading to use the term "donation" in this circumstance.
Meanwhile, often the person /accepting/ the donations doesn't understand this either. You cannot, for example, accept a $5 "donation" and then send someone a $5 product back to them: that is a "sale", not a "donation". You do not "donate" to Ikea in exchange for a chair: you "pay" them $5 for it.
In this case, this person obviously doesn't get it. "Why? These are my customers!" <- Right, which is why they are not "donating". These "customers" are buying toys, which are then being sent to other people on their behalf. These are /purchases/, like any other. This seller even goes so far as to state they are operating "just like any other retailer would".
At which point we ask the killer question: are they collecting sales tax? This is where the theoretical issues suddenly run right into the brick wall of reality, as sites that believe they are accepting "donations" on behalf of charitable work, such as handing out toys to children, put everyone in a position where they fail to realize that they are operating an online retail store where the receipts need to be reported (to the IRS), sales tax needs to be collected (for sales made to people in the same state), and the people buying the gifts can /not/ write off the expense.
PayPal is therefore very right to be wary of these situations, and often contacts people making the claim "only a nonprofit can use the Donate button", as the PayPal representative stated in this e-mail. I know this, as they contacted me once: I had a button "Donate to saurik.com" on the top of my website, which I ended up changing to "Contribute money to saurik.com".
That said, I am actually not 100% certain that that is their official "for everyone" rule. This author was correct when they said that "worthy causes" is mentioned in the PayPal PDF [1] on this feature: a more full quote being "for your nonprofit or worthy cause"; that said, the PDF also claims that when you sign up for your PayPal account you should do so "selecting “nonprofit” as the type".
(edit: Reading some more context of the story from Regretsy, including more responses from PayPal, I think that what PayPal means by "worthy cause" may actually be those "on behalf of verified non-profit organizations", not that that is made clear at all in that PDF.)
Their website [2], meanwhile, only ever seems to talk about nonprofits, but goes into detail regarding confirming non-profit status only for obtaining a discount on processing fees. I can certainly see that this is confusing, and I also believe I see a lot of websites around that /do/ use "Donate" in weird ways; certainly, if they really cared to limit it to nonprofits, they could actually enforce your account type /was/ nonprofit before letting you use it.
So, I personally believe that they simply contact vendors who seem to be running a for-profit sales business (even one that is losing money or breaking even "for the children") using "donate", rather than people who are simply using "donate" "without being a non-profit". How do they figure that out, you ask? My guess is that users are flagging the transactions as fraudulent, or complaining to PayPal using the dispute transaction feature (which some PayPal users treat pretty flippantly), using wording that indicates that they were buying something.
(For the record: I'm pretty certain that's what happened to me. I /also/ run a retail product called Cydia, which accepts payments through a separate PayPal account for SaurikIT (my company). People can contribute money to the cause I represent (open access to devices), or purchase things from Cydia. However, some users would just send my personal account (which I use for contributions to my work) $1.00, either by sendmoney or /my "Donate" button/, and then go on to say that they paid me $1 for some product in Cydia and that I didn't send it to them.)
In the end? While I think PayPal needs to be clearer on some things, I do not actually blame them for their reaction here. This setup seems "sketchy", was probably not handling the taxes on the sales correctly, was almost certainly handling the "extra money sent to the family" part incorrectly, and in the end went over the top with this emotional appeal (seriously? I have to have crying children surrounding this text?) rather than looking at this as an intellectual debate about PayPal's policies here (which might be interesting, and might cause everyone, including them, to learn something).
What world do you live in, where "donate" necessarily implies some kind of accounting whargarbl? Unless there is some more complicated scheme afoot here that I have failed to comprehend, it appears the Regretsy folks were collecting money, 100% of which would be used for the benefit of needy people, without claiming to be a 501(c)(3) or anything of the like. Still sounds like a donation to a worthy cause.
Only when PP blocked their use of the "Donate" button--which would have been acceptable for helping a sick cat??--did Regretsy resort to "reselling" already-purchased toys to recoup costs and continue the program. But again I cannot conceive of any reason that use tax would be due here...
In the US you cannot run that company: if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales, must declare any residual as income, and the people giving you the money cannot claim it as a write off.
Regretsy is in the EU, not the US, but I don't believe that changes the point. In the EU, everything that is traded, whether it be a good or a service, is subject to a "value added tax". (Note: this applies to you even if you are not yourself living in the EU; if you sell products to EU customers online, you must collect and remit VAT if you are above their threshold.)
These taxes can be quite high: up to 25% of the receipt. You are only responsible for the "value added" (so you subtract your costs), but the way you subtract your costs is very similar to expense structure in the US: the cost you declare has to be to another VAT-registered organization, and you need to keep whatever receipts and documentation is required to defend the costs later.
I am simply having a very difficult time seeing how this specific setup was, in the eyes of the law, any different from Ikea selling chairs: they were selling products, and selling products is a highly regulated business with a large number of taxes that have to be considered. You cannot just throw up a website and willy-nilly throw money around.
I believe most people understand the difference between donating money to a "good cause" and making a tax-deductible donation to a registered charity. Making it difficult for an honest person to collect donations and forward the proceeds to the needy (where the donors have no expectation of any tangible good in return), or forcing Boy Scouts to obtain a peddler's license to collect canned foods for a food bank, is socially harmful.
As far as I know, Paypal has no legal or even formally self-elected responsibility to enforce that "donate" buttons are used only in the context of a registered charitable organization, or to play cop for the calculation, collection, and remittance of federal, state, local, or international taxes and tariffs, etc., etc. Paypal does not even have any way of determining what is taxable and at what rate--it is so thoroughly beyond their purview that I don't know why we're discussing it.
"Paypal has no legal or even formally self-elected responsibility ... "
Paypal may or may not have any legal responsibility there, it makes no difference.
I think a lot of people overlook the underlying business model of Paypal. They're betting they can do a better job of fraud prevention than the entrenched credit card processing industry, and by doing so they can offer credit card facilities to more (read "higher risk") people.
What that means is that if you do _anything_ that might be even tangentially related to things that look like credit card fraud, you're opening yourself up to all the well documented risks of having them stop you withdrawing money from your account for 180 days.
If you're doing anything other than delivering physical goods to credit card billing addresses via 3rd party trackable shipping, you need to make sure you're fully aware of the risks you're choosing to expose yourself to using Paypal. If you're using Paypal for donations, preorders, digital goods, downloads, conferences, consulting - anything where you can't give them a FedEx tracking number (or equivalent), you're opening yourself up to a world of hurt in the dispute resolution process.
Surely I'm not the only one who looks at almost all of these Paypal "horror stories" and thinks "Yep, I could have told them they had that coming."?
One interesting question will be what impact the re-organization of financial services regulation enforcement has long-term over Paypal. I know I have heard anytime your account is frozen write a letter to the Office of the Comptroller of Currency at the US Treasury Department and CC the CEO of Paypal to get traction........
forcing Girl Scouts to obtain a peddler's license to collect canned foods for a food bank
As an aside, most of those laws were put in to use against the lower class people who were begging. They have recently (thankful) started to be applied in a non-discriminatory fashion (i.e. to rich kids aswell as drug addicted adults), and this is the consequence.
In the US you cannot run that company: if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales, must declare any residual as income, and the people giving you the money cannot claim it as a write off.
The sales tax issue is a red herring. Regretsy was (presumably) buying the toys at a rate that included sales tax, and if the operation was not-for-profit then there was no financial value added, and no need to charge the "donors" any additional sales tax.
I believe this is only true if the sales tax as purchased is less greater than or equal to the sales tax as sold, and even in that case I believe still requires a business registration and declaration of the non-taxed receipts. I am not yet, however, an expert at this stuff, and would love to be given more information to learn more about how sales tax works in these situations (I am unfortunately starting to sell physical products, but luckily am not currently reselling anything I purchased at retail, so this specific detail isn't the kind of thing that would burn me ;P).
There are plenty of cases where the sales tax may not apply. For example, if I replace a warranty part, I do so without collecting or remitting sales tax because the transaction had no monetary value. Assuming shipping and handling is not taxable in the jurisdiction, and assuming that the company uses all the money gained for either shipping or purchasing the toys, then even assuming it's taxable it's already covered.
The sales tax is a red herring. The issue is probably one of a computerized algorithm being tripped somewhere.
Just because they don't make a profit doesn't mean they don't have to collect sales tax. When Walmart sells AA batteries as a loss leader, they don't get to not collect sales tax for it just because they used "all the money gained [(and then some, out of their own pockets!)] for either shipping or purchasing the batteries".
It gets really complex, in fact: the warranty replacement is only tax free if the warranty was a taxed line item during the original sale. If you make repairs to something, and you pass through the costs of the object to the person hiring you, you are generally considered to be a "retailer" and are responsible for collecting sales tax (which explains why you see wholesale discounts being given to large classes of professionals, from plumbers and carpenters to interior decorators).
That said, I am not claiming that the sales tax is the issue here: I'm claiming that this is a complex situation with a lot of intermingled laws and service terms, and that it is not at all clear that these people are running something that was entirely kosher and should de facto be supported.
People seem to have a thirst for PayPal's blood, and are totally ignoring (or, more favorably, simply not realizing due to lack of knowledge) that this was a somewhat sketchy, certainly risky (from a credit fraud perspective), and probably even illegal operation; and it makes no matter whether it involved feeding children or sick cats, or whether this is a computerized algorithm that flagged it or a person: the reason for the flagging, and for the blocks, actually makes a lot more sense when you examine the whole issue.
If they are paying tax at the outset and only spending that money on product purchase and shipping, then they would have paid all the tax that they are required to.
Walmart doesn't pay sales tax to their suppliers.
As for wanting Paypal's blood. No. I was a victim of similar freezes and for really convoluted reasons according to Paypal. I don't want their blood. I just don't want there to be any more victims.
In the EU, everything that is traded, whether it be a good or a service, is subject to a "value added tax".
Incorrect. I own an Estonian (an EU member) company that can sell stuff and offer services without VAT. VAT is actually optional until a certain revenue threshold.
...and sales tax is different for different classes of product in the US, with some things getting better treatment, such as groceries, and some things worse, such as car tires. I did not expect it to be relevant to this specific case, but yes: I guess children's clothing is an interesting one for this Regretsy charity drive; that said, they stated "toys", not "clothing", and I don't remember toys being on that exemption list (which I actually have read, as I needed to see if any of the things I was selling had different rates).
(PS: the coolest one I've seen is that bound physical books often have much better tax rates than other goods, leading to hilarious situations where shipping someone a physical pamphlet that includes base64 might be much cheaper than selling them an expensive piece of software on CD. ;P)
This varies by tax jurisdiction. For a while in Washington State, snickers bars were taxed as candy but Twix were tax-free because they were "groceries"....
Not the same. Business that sell VAT 0% items (zero-rated items) can still deduct VAT on supplies, whilst providers of VAT exempt goods can't claim back VAT on supplies.
For example, admission to a charitable event is VAT exempt in the UK, while goods sold at a charity shop are zero-rated.
I think the difference is sales tax was paid when the toys were purchased. I don't think Regretsy was claimin to add value. They were just organizing a donation of toys. It's just like a bunch of friends getting together, all giving two dollars to one person who goes to target, buys a bunch of toys and then gives them to needy kids. I don't see how the law is broken in that situation. All taxes were paid.
The most damning evidence against PP in my opinion is that they specifically stated (accordion to the author) that the same scheme was acceptable when raising money for a sick cat but not for needy kids. Unless the Regretsy folks were purchasing toys with a business account and skipping sales tax I don't understand the logic. The PP reps subsequent attitude seals the deal: eff PayPal. If he isn't authorized I dole out financial or legal advice regarding the use of the donation button or wrt raising money for needy kids he should just say that instead of being an obstinate jerk.
tldr: tax presumably was paid, PayPal rep is a scumbag, screw PayPal.
if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales
Only if you have a point of presence in the same state as the person you're transacting with. The US does not have a national sales tax; all sales taxes are collected by the states. Currently, transacting with a person in another state is considered interstate commerce and is therefore exempt from state sales taxes. There are efforts in Congress to change this, but, for now, you don't have to pay sales tax on a sale you make across state lines.
>In this case, this person obviously doesn't get it. "Why? These are my customers!" <- Right, which is why they are not "donating".
You seem to be confusing different things. After being unable to use donations, they tried to use sales. And paypal said no. That's the context of what you're quoting, after donations had been given up on.
This all seems to have happened during the course of the same conversation, and reading more of their blog history I don't see them saying that they then actually used a Buy Now button for any period of time.
Regardless, once the conversation started going farther in that direction, the issue did change (and I did not touch on that part of the problem); specifically, it became entirely surrounding "purchasing products sent to a different shipping address than the one the buyer specified during checkout", which is apparently against PayPal's terms of service.
(Note: I have not personally verified that it is against PayPal's terms of service, but I have no reason not to believe the employee of Etsy, a company that relies quite strongly on PayPal and certainly has gone down this road numerous times with them while determining what features they can offer to customers, who posted elsewhere in this thread [1].)
Because I think the sarik is talking about the whole idea itself, which according to what I understand from this complaint is
- 'Donate' money for the 'Give kids a random present'
- Blog author invests time to handle the flow of money, orders toys and selects/distributes to kids
What saurik is saying is that the first step, 'Donate amount of $currency to send a random toy of roughly the same value to a 3rd party' is pretty much a sale. The author itself is comparing his idea at one point with Amazon, purchasing gifts for someone else.
I'm sympathetic here and don't like the outcome, but I think your comment is incorrect: Saurik didn't confuse different things here. We might argue about whether these 'donations' should be considered sales, but - you misunderstood the argument, I think.
Not my blog, and I apologize for the embedded rant in there, but the case is thoroughly presented and debunks this whole "donate must be a charity" misconception, using Paypal's own documents.
Edit: direct link to paypal policy containing the following sentence:
"Donations that are not associated with a charity or nonprofit organization are not subject to these requirements, but all donation transactions are subject to review and must comply with all of PayPal’s Acceptable Use Policies"
"If you are not a 501(c)(3), you can still accept donations with our standard pricing."
I also disagree with your position that "donate" implies that it can be written off (or that it implies anything tax-related, for that matter). I don't think many people assume that. Anyone who has written off a donation knows that they can only do so with an associated donation receipt. This is why many charities often specifically note when a donation is tax deductible - saying, for example, donations in excess of $20 will be given a donation receipt.
If a layperson is not familiar with the difference, they aren't writing this off. Additionally, there are several types of organizations for which donations cannot be written off.
The money donated is used by the non-profit to purchase products that are then given away to needy kids. This is donation whichever way you look at it.
Amazon will let you do this but people generally specify who they want the product to go to which makes it a gift purchased for friends/family. So it qualifies as a purchase there.
PayPal does not let you ship items to addresses that are not the billing address. General policy, in their TOS, no surprises. OP is also not a registered non profit, though the real issue doesn't really have anything to do with the charitable nature of it.
Right, but you as the BUYER would have to do that. The seller cannot. So in this case OP would have to send you some random person's address - also extremely sketchy and worth freezing the account.
"used by the non-profit" <- I'm sorry, maybe I'm confused, but as far as I know there are no "non-profits" involved here; which entity are you speaking of here?
By non-profit, I meant an organisation/website/person looking to arrange a charitable donation and not a registered non-profit as per relevant local laws.
PayPal is not in a position to be running money for someone else's "dirty books" (which is a rather strongly negative term, but you have to realize that that is how PayPal is going to be seeing this specific pseudo-charity, and is the mental framework from which they are going to be dealing with this likely hostile person on the phone), and to the extent to which it "shouldn't concern them" (and it starts to, such as with 1099-K) it is a fair assumption that companies that are operating with "dirty books" are a "high-risk transaction" (one fraught with disputes, chargebacks, and investigations), something which PayPal simply refuses to traffic in (likely, as their entire concept of letting random people keep money and move it around is already "high-risk" enough ;P).
I don't know about you but I would never do business with a financial service provider that would essentially decide if I was running "dirty books" by your loose definition and cut off services. The problem is here you have a major problem:
1) You can't prove bad bookkeeping practices without an audit and
2) I am not consenting to an audit if that removes me from 4th Amendment search protections (meaning the auditor can be compelled by the government to turn over info without a warrant, when they'd normally be required to get a warrant to search my business).
No bank I do business with is going to just decide "oh you might not be collecting sales tax, so we are suspending your account and keeping your money for six months." There's no ethical justification for that. I am sorry.
I realize that you like to look only at my statements regarding sales tax, but these people were literally selling the promise of shipping an undisclosed good and a sweaty wad of cash to a random third party for an arbitrarily large sum of "donated" money as an unlicensed charity.
Remember: this money they were using for these purposes is actually /not/ their money, nor is it PayPal's: you don't really own money transferred over credit or ACH for six months, which is the window of time during which the money can be nearly unilaterally taken back.
This is a high risk transaction class, and if they had a normal merchant account they would have been required to do all kinds of paperwork verification, accept super-high fees, and pay massive retainers, and in the end likely have a hold enforced on their money anyway until they were considered a good credit risk (and we really are talking "credit risk" here: PayPal is loaning people money until such point as it clears).
Claiming that PayPal should not be looking into these things is about as silly as claiming that you shouldn't be denied a post-pay phone contract just because you don't ever pay your electric bill: this company is exactly as much of a risk (in dollars) to PayPal as PayPal is to this company.
Then don't use PayPal. Pay to process credit cards. As stated elsewhere, PayPal's business model is to provide point-to-point transactions between people, betting that they can prevent enough fraud to remain profitable. If what you're doing is unusual enough that you trigger their warning bells, then you're not worth the risk to them.
Paypal's fraud detection routines have been extremely, extremely overinclusive. They are worth using for some unimportant stuff but you don't have to be doing anything unusual to trigger a warning (I was just selling IT services), so they aren't worth betting your business on.
> they are not "donating". These "customers" are buying toys, which are then being sent to other people on their behalf.
It was a mistake for Regretsy to phrase it that way and it devolved into a mess from there. It started as a real donation to pay for the "cause" of giving toys to kids. Paypal's first complaint was that the recipient of the donations (the Paypal account holder, not the kids) was not a non-profit, yet their policies don't state this requirement.
I know there's an up arrow for this, but I feel like your contribution to this thread has been excellent and wanted to thank you. I'll be throwing a couple bucks Cydia's way for sure.
Meanwhile, often the person /accepting/ the donations doesn't understand this either. You cannot, for example, accept a $5 "donation" and then send someone a $5 product back to them: that is a "sale", not a "donation". You do not "donate" to Ikea in exchange for a chair: you "pay" them $5 for it.
In this case, this person obviously doesn't get it. "Why? These are my customers!" <- Right, which is why they are not "donating". These "customers" are buying toys, which are then being sent to other people on their behalf. These are /purchases/, like any other. This seller even goes so far as to state they are operating "just like any other retailer would".
At which point we ask the killer question: are they collecting sales tax? This is where the theoretical issues suddenly run right into the brick wall of reality, as sites that believe they are accepting "donations" on behalf of charitable work, such as handing out toys to children, put everyone in a position where they fail to realize that they are operating an online retail store where the receipts need to be reported (to the IRS), sales tax needs to be collected (for sales made to people in the same state), and the people buying the gifts can /not/ write off the expense.
PayPal is therefore very right to be wary of these situations, and often contacts people making the claim "only a nonprofit can use the Donate button", as the PayPal representative stated in this e-mail. I know this, as they contacted me once: I had a button "Donate to saurik.com" on the top of my website, which I ended up changing to "Contribute money to saurik.com".
That said, I am actually not 100% certain that that is their official "for everyone" rule. This author was correct when they said that "worthy causes" is mentioned in the PayPal PDF [1] on this feature: a more full quote being "for your nonprofit or worthy cause"; that said, the PDF also claims that when you sign up for your PayPal account you should do so "selecting “nonprofit” as the type".
(edit: Reading some more context of the story from Regretsy, including more responses from PayPal, I think that what PayPal means by "worthy cause" may actually be those "on behalf of verified non-profit organizations", not that that is made clear at all in that PDF.)
Their website [2], meanwhile, only ever seems to talk about nonprofits, but goes into detail regarding confirming non-profit status only for obtaining a discount on processing fees. I can certainly see that this is confusing, and I also believe I see a lot of websites around that /do/ use "Donate" in weird ways; certainly, if they really cared to limit it to nonprofits, they could actually enforce your account type /was/ nonprofit before letting you use it.
So, I personally believe that they simply contact vendors who seem to be running a for-profit sales business (even one that is losing money or breaking even "for the children") using "donate", rather than people who are simply using "donate" "without being a non-profit". How do they figure that out, you ask? My guess is that users are flagging the transactions as fraudulent, or complaining to PayPal using the dispute transaction feature (which some PayPal users treat pretty flippantly), using wording that indicates that they were buying something.
(For the record: I'm pretty certain that's what happened to me. I /also/ run a retail product called Cydia, which accepts payments through a separate PayPal account for SaurikIT (my company). People can contribute money to the cause I represent (open access to devices), or purchase things from Cydia. However, some users would just send my personal account (which I use for contributions to my work) $1.00, either by sendmoney or /my "Donate" button/, and then go on to say that they paid me $1 for some product in Cydia and that I didn't send it to them.)
In the end? While I think PayPal needs to be clearer on some things, I do not actually blame them for their reaction here. This setup seems "sketchy", was probably not handling the taxes on the sales correctly, was almost certainly handling the "extra money sent to the family" part incorrectly, and in the end went over the top with this emotional appeal (seriously? I have to have crying children surrounding this text?) rather than looking at this as an intellectual debate about PayPal's policies here (which might be interesting, and might cause everyone, including them, to learn something).
[1] https://www.paypalobjects.com/en_US/pdf/PP_Online_Donations....
[2] https://merchant.paypal.com/us/cgi-bin/?cmd=_render-content&...