Shutterstock and Tax
Posted by Lee Torrens
Shutterstock have announced that they’ll be withholding 30% tax for non-US contributors in order to comply with US tax laws. Contributors from countries with US tax treaties can submit appropriate forms to the US Internal Revenue Service (IRS) to have the withholding tax reduced or eliminated, depending on their countries specific tax treaty.
But Why?
The change is initiated by advice from Shutterstock’s legal counsel. As it’s US law, other US-based microstock agencies may eventually do the same thing.
Compliance with these laws must be important as Shutterstock will incur great expense to update their systems and processes to withhold taxes with no benefit other than the compliance itself. They’re also absorbing these costs rather than passing them on to buyers in the form of higher prices, or to contributors in the form of lower commissions.
When first making the announcement, Shutterstock detailed the reasons for the change and what affected contributors needed to do, complete with links to the IRS forms and a list of countries with tax treaties. They also agreed to hold off implementing the changes until the end of June to give contributors time to complete and submit the necessary applications. As it’s a complex matter, there were questions which Shutterstock collected and answered in a subsequent FAQ forum thread.
Contributor Reaction
Affected contributors are understandably upset. Until now, tax has been left completely up to them. Now they need to submit applications to the IRS and provide forms to Shutterstock, and/or have tax withheld which they may or may not be able to claim back from their own government’s tax department.
Most microstock contributors are in business so they’re used to doing things like filling out forms and paying taxes. However, a not-so-small number of contributors, it seems, are not so comfortable with this change.
Some complaints have been expressed in the Shutterstock forums and at Microstock Group. The more common ones are:
- taxes haven’t been withheld before, so why are Shutterstock starting now?
- other agencies don’t do this, so why is Shutterstock doing it?
That’s about where the rational and logical complaints – each of which Shutterstock has addressed – end. Contributors went on with complaints that are difficult to understand:
- why do I have to pay tax to the US government when I have nothing do to with them?
- why do I have to give personal information to the US government?
- can’t Shutterstock pay for this themselves and not penalize foreign contributors?
The demonstrated gaps in understanding of international business in these complaints extended to misdirecting blame and anger toward Shutterstock.
In addition to complaints and threats to remove their portfolios in the Shutterstock and external forums, contributors also revived the new crowd tactic of the protest avatar (shown to the right), a tactic first used at StockXpert during the photos.com controversy and again in the recent uprising at iStockphoto. They also created a petition where contributors could sign to have Shutterstock “take full ownership of the IRS withholding tax issue, in whatever way they see fit so that the contributors are not penalised either financially or by being obliged to divulge personal information”.
Shutterstock Responds
Despite all the information, answering questions and holding off the implementation, some contributors remained convinced Shutterstock wasn’t on their side. Shutterstock temporarily closed their entire forum to stop the flood of negative posts, after which CEO Jon Oringer reacted with a strong announcement. He requested contributors calm down, addressed some key issues and threatening to remove the portfolios of the contributors who had threatened to do so themselves or who used the protest avatar. It was later replaced by a slightly less strong version containing the same basic message.
Jon’s first response was widely labeled by complaining contributors as “rude”. I didn’t think so, but I could see how it wasn’t a stretch for anyone already angry with the company.
What’s All That About?
There’s a clear climate of aggression in the microstock market. Contributors are quick to unite and attack a microstock agency which makes a change that’s not in their favor. It’s becoming routine and the crowd tactics are evolving with each instance.
A relatively small number of contributors participated in this particular uprising. Partly because US contributors were unaffected, and partly because the more serious contributors know it isn’t a big deal. Regardless of the size, it was disruptive enough to have the Shutterstock forums closed.
All my microstock income goes through my registered company in Australia. I will need to submit the IRS forms to obtain an EIN, but it won’t be too much of an inconvenience for me to submit just another tax form for my business. According to the Australian-US tax treaty, Shutterstock will withhold 5% of my earnings. I’ll need to claim that back through the Australian Tax Office (ATO) when I submit my corporate tax return each year. However, my company won’t register a different profit or loss as a result of paying tax to the IRS rather than the ATO.
This issue highlights some aspects of the power struggle between contributors and agencies in the microstock market. It’s an interesting dynamic, very different to that in the traditional end of the market, and it’ll be the subject of some exploratory blog posts in the near future.
The best source of information on the Shutterstock situation is their FAQ thread here, plus Matt has collected some helpful links to more information and exploration of the details over at Niltomil.
Update: Shutterstock have just announced the tax will be calculated based on US source income only. This means sales from buyers outside the US won’t be included in the withholding calculation.
Posted May 29th, 2009 by Lee Torrens
Excellent balanced post as usual Lee
As soon as I can find a notary public in the UK that won’t charge me an arm and a leg (and can arrange with the FCO to have it approved) I’ll be submitting the paperwork. It’s a pain, but it is what it is 
I understand how it’s been such a big issue though, there were some serious issues neglected at the start. Mainly sales of work to non-US buyers being exempt from the treaties concerned, and the apparent disconnect between what SS were saying needs to be done, and the extra information the IRS and other organisations seemed to require.
A lot of this seems to have now been settled by a global email advising that “Shutterstock will withhold taxes on U.S. Source Income only”. Which is a relief to many, and that they are researching whether a written (and signed) letter (and/or contract) will be required by the IRS to successfully process requests.
On the upside, I can also see how it’ll help clear the SS portfolio of the work of the ‘less-serious’ submitters, creating a (possibly unintentional) rise in the general quality of work available.
Cheers
Bob
Hey Bob, I read about the US source income only update about 30 seconds after hitting the publish button. I’ll add an update to the bottom. Thanks for providing the details.
Also, interesting perspective on cleaning up the overall portfolio by removing some of the less serious contributors. I agree, though there’s always some brilliant and rare gems among the portfolios of the less serious contributors, and I think that’s a great part of microstock. Thanks for raising that point.
-Lee
“Jon’s first response was widely labeled by complaining contributors as “rude”. I didn’t think so…”
Hi Lee so far I was following your blog regularly and appreciate your way of filtering and rapport facts in the MS industry. Now to be honest with I think you are a “little” bit tinted i the way you talk about Jon initial response on SS forum. It was not the most adequate way to address your contributors and showed a lack of “calm down” message itself, in other may be oil-on-fire type of letter…
Please keep on blogging about MS trends, news etc the way there are…Maybe in the position of neutral reporter you should not give your personal meaning is “politic” sensitive issues?
But I will keep on following and reading your blog,
Cheers
RedBaron
Hey RedBaron, that’s why I mentioned that Jon’s original message was replaced. I think that comes across, but perhaps I could have made it more obvious.
Thanks for your thoughts on how I need to run my blog if I am to keep you as a reader. A familiar strategy, if you see what I’m saying. I, like Shutterstock, am on your side. But it doesn’t mean I’m going to run my business the way you say.
Thanks for your reply Lee. Maybe be this event shows us all that actually the all Microstock industry still needs a lots to improve in term of standards and regulations…merging from community to real serious business (to quote you thoughts).
Still count me as one of your readers, appreciate your open response.
Cheers
RB
RB, thanks for your understanding.
I’m a fan of natural and organic processes myself, so rather than regulations and standards, I’m hoping the commercial forces will produce the consistency and continuity you’re talking about. From what I see, this is already happening. In regard to this issue, I think it is too. If what Shutterstock are doing is so terrible for their contributors, they’ll lose the business of contributors and their portfolio will drop rapidly. That would force them to move to a more tax friendly location despite the massive disruption of doing so. However, I’m positive that will not happen. The majority of contributors will not be more than mildly inconvenienced by this change. Tax is a part of business for businesspeople, so Shutterstock doesn’t stand to lose much over this issue.
I appreciate your continued readership as I do all my readers. Jon appreciates your business too, despite what you may think. His response was angry (not the same as rude) which is understandable given he was being abused for doing something he had no choice about and striving to make it as painless for contributors as he could. I think some contributors over-estimate their market power, but that’s a future post topic.
Thanks to you too, for the open dialogue. It’s important.
-Lee
RedBaron,
The only thing I can think of to say is that us bloggers, we’re not really “neutral reporters.” We are microstock photographers. We are submitters and sometimes we agree/disagree with what people post. Now, normally Lee has taken the “high road” while I get my hands dirty and yell at people if necessary. However, that *is* the same context I read above. Lee looks at this from a bit of a politically correct tone, that’s his choice. If you want the stomping, anger & vitriol you’d normally have to see my blog.
Thanks for the linklove Lee. I just wanted people to be updated asap. So you will go through your registered AU company – and you’re in Argentina? How does that work though? Are you Aussie? I don’t think I knew that!
I’m curious which Jons answer did You read but obviously not that first one which has just disappeared an is replaced by the light version. I have the original, “i was there” at the time. And i say You’re deeply wrong in this post altough i like and read You posts. My opinion at my blog and at Shutterstock forums, greetings.
I read both of Jon’s announcements too. If you read my post you’ll see I actually reference both.
It’s fine that you think I’m wrong. It’s great that we can all have and share our own opinions.
Yes but it’s a difference between [replaced] and just one [shown] i think it’s not to honest to REPLACE the message with the same date and url on the net in such environment (if we talk about some serious statements).
Some people reactions at the forums still exists and now those have no base article as the source thus it looks like people overreacting and they didn’t.
SS first has broke the rules cause the FAQ still has no single TAX word in it, still is $.25 and not -30% as i just looked there. People join and then what, and what with that earnings before the news, will those be taxed now? If the terms still point differently.
That was just unorganized so blaming the contributors for their reaction is completely unfair.
Sure each opinion is valuable.
You know what, that’s a great and valid point about replacing the initial comment and making the responses look out of proportion. I agree with you on that.
Regarding the FAQ and agreement, Shutterstock haven’t started withholding the tax yet having just made the announcement. I imagine the normal order of things is to make the announcement before updating the agreement and FAQ. It will still be more than a month before taxes are withheld. Also keep in mind that this is not a case of Shutterstock keeping 30% – it’s a tax, and most people will claim the appropriate deductions for their specific circumstances.
I keep that in mind, i DIDN’T WROTE anywhere that i WON’T pay or QUIT. I ALL THE TIME write about what You put also before my eyes – the business with the Shuterstock core – SUBMITTERS.
Asking people what to do and searching for solutions BASED on SUBMITTERS big cry – like those about just getting TAX from US customers plus the mess with the anouncement, doesn’t looks like not embarassing:)
110% with you plrang…One thing strike me in the first 9 points answer of Jon about learning doing business internationally…well maybe one basic rule of this is first thing first : treat your customers with regards and UNDERSTAND them. so yes i do fully understand the reaction of the “crowd” but also have no problem to respect nd apply to IRS given rules as long as it’s feasible to do so
)
Cheers to all
RB
Sure, i’m waiting also with the decision, raised my PayOut but who knows what they do with earnigs from before the change:/
It’s fun, i have small portfolio, my earnings didn’t reach jet the payout level but submitters do have the right to their opinion, also i’m not a child and own a small company which has to pay taxes in Poland.
Hi Lee,
I appreciate the change of tone operated by Shutterstock but, just to have a complete information, your readers can find the original CEO’s post “Witholding Tax Issue – Calm down” on my blog. I wrote the post before they change it and I think is correct to leave the original one too:
http://www.mystockphoto.org/shutterstock-irs/
Thanks as usual for your site,
roberto
I think people get angry with microstock announcements like this because, almost without exception, they work against the contributor. It seems with each new bit of news, there’s a little less in it for the people who make microstock possible. I’ll be watching carefully to see if other microstock companies follow suit.
Just to get controversial for a minute, Lee, I think that you’re in danger of losing a sense of objectivity with regard to microstock. Your website has subtly changed over time from being one about a contributor trying to get on in microstock and writing about his experiences to someone who now mainly seems to want to promote – and, dare I say, defend – microstock companies.
Bruce, the negative changes get a lot more attention than the positive ones, and many of the positive ones are turned negative (i.e. “the last commission raise wasn’t enough!”). I expect things will continue getting negative as having access to buyers is a much greater power than supplying images. More on that later.
I will ‘defend’ a microstock agency if I agree with their view, just as I criticize them when I feel they’ve made a mistake. I make up my own mind on each issue rather than automatically siding with agencies, as you’re saying. If I can understand your point of view I’ll say so, but you can’t assume I’ll be on your side just because we’re both microstock contributors.
The change in focus of my blog is conscious and intentional. Microstock is no longer the easy opportunity for hobbyists that it was when I first started blogging, so I now write for existing contributors rather than encouraging hobbyists to join. I’ve also added industry commentary as I’ve come to know and understand the industry.
And thanks for noticing and for caring enough to tell me. That reaffirms my commitment to helping us do more with microstock.
I wonder what the ratio of ‘professionals’ to ‘hobbyists’ actually is. Obviously the changes will affect one group significantly more than the other – but if it will prove a deterrent? only time will tell.
Anyway, it appears to be a juncture in the industry.
In all fairness to the contributers, the protest was at its height at a time when there was a scarcity of information or feedback. Possibly this is also another consequence of international business – a petition already up and running before one even has ones comfy goodmorning slippers on. However, in fairness the point needs to be made that it was also at its height prior to the subsequent policy and legal changes.
Another reason for the intensity of emotion was obviously the ethical and political dimension, which is sometimes underestimated by corporate entities – who quite understandable have a simple model where such values are not even recognised.
Unfortunately, the whole basis of the problem was that there were human beings involved. Washing it one way or another to bias one side or the other is ultimately not helpful. Both sides acted recklessly and thoughtlessly (myself included). The point is what we all do now. Each of us know what our own personal values are, and most will follow those.
It will however be interesting to see how much this IRS stuffwill impact the industry, and also if this issue will go beyond the stock industry into other areas of international business.
Lucy x
Lucy, I’m not sure of the proportion of hobbyists versus professionals, but I’d be willing to bet the proportion of professionals is growing rapidly. It’s a little like the fun and playing is over, and now it’s returning to business. Many traditional stock photographers predicted this.
I don’t think ethics or politics need to come into it at all. It’s just business. If you want to do business with Shutterstock, you need to comply with the laws of the country in which they’re based. For me, it’s a bit of a stretch to pull morality and politics into this debate.
If the small-scale submitters leave the field, do you think the gaps will be filled by macro photographers? I have very little experience of the industry, but I’ve definitely read about a lot of resistance to the microstock concept by many in the traditional industries.
Will the absence of the hobbyists (which microstock is founded on) then ultimately undermine the earnings potential of macrostock photographers? With the decline of the print media, will the megapixel advantage also be eroded?
i really don’t know, I’m so new to this that I’m still shiny, but I’m really curious. Potentially a whole new niche is about to open up in microstock, and who fills that could possibly decide the fate of the whole industry.
Of course ethics and politics need never come into anything, and most corporate models don’t include them. But behavioural economists know that people never follow the ‘proper’ values. I think they are still learning how to detach the very real thinking feeling person from the ‘business person’. I understand it can’t be done without a great deal of surgery.
This is interesting and particularly relevent in any discussion where ‘emotion’ or ‘values’ are given neither attention nor credibility. Clearly the values of one section of our industry are different from the values of another. This does not automatically render one set of values illegitimate.
It’s fairly obvious to all i really don’t know much about anything in this industry – but these things just struck me as interesting speculations.
Lucy x
Actually the first time the protest avatar happened was on Stockxpert, it read ‘no deal, no photos.com’, some people still have theirs, just an inaccuracy I noticed!
http://www.draiochtwebdesign.com/blog/stockxpert-contributors-begin-to-pull-out
Thanks Hillary! I didn’t know that. I’ll update the post.
Hey Lee,
Nice post, I enjoyed reading it. It’s certainly understandable why so many are upset with the situation, although with that said, many seem to be pointing the finger at SS – which I dont understand.
Over here in the US, nobody (and I mean nobody) messes with the IRS. The IRS has no problems seizing your house, bank accounts, personal property and so on (including jail time for tax evaders) at the flip of a finger- just the word ‘Audit’ strikes fear in the heart of most Americans. I know some contributors want SS to ‘strike a deal’ with the IRS – that is about as productive as talking to a brick wall here. I know others want Jon to incorporate in a different country – but to be quite frank – I think it is a bit of a ridiculous request, as he is an American and has built his business in America. I find it hard to fault someone for starting and running a business in their own country (as screwed up as the tax laws may be there). I have not seen Jon asking all the foreign contributors to ‘just move to America’.
The whole deal is really awful for both sides – and a lot of work for both sides. There is going to be a great expense for SS to keep track of all of this and if they are having to pay the back taxes for the time they were not collecting tax for foriegn contributors – I dont even want to know the penalties and interest that are attached to that bill – Holy Hannah almost passed out just thinking of how many digits are attached to that number.
What I am most sad about with the whole deal is how people are turning on each other and shutterstock for something that is beyond anyones control.
Calculating taxes only US source income is the best news in a few days. There’s also a nice side-effect: we will eventually know where our buyers are from; full country details would be great but they’ll have to split at least US vs non-US countries, and statistics are always good for photographers
PS: Lee, great work as usual: you summarised thousands of posts in a few lines, in a plain and balanced article.
hi Lee and others! i think this month i will join SS, because of my mistake but lets see what happen in a few days..! about this new taxes rules i think it is always bad but like other things in our countries we just need to follow in order to take one step forward, could be politics or other but that’s just the only way to go, just like you talked about the traditional photographer adapting to microstock business.. I am from Portugal, and it will be 10%, but i am thinking about how much will it take to get the papers in order, do you know or someone know how much will it cost??
cheers
Luis, it will depend on your specific circumstances, so nobody can give you a certain answer.
Ok.. I will first enter SS, then earn some money (hope) and then i will take care of that… cheers and thanks
Luis, if you visit the ss forum, you will find all the information about how to apply for ITIN and how much it costs. Most people have also organised the information into country-specific threads.
x
thanks luceluceluce..
I think that problem is not with withholding taxes itself (I worked in international consultancy company so i understand this issue) – it is regulation by state and there is no possibility to escape (except transfer of SS to another country where no withholding tax is applied).
I only want to emphisize two issues which were not treated in good manner by SS according to my opinion:
1. International taxes (what includes withholding taxes and double taxation treaties) are very complicated also big companies have specialised people or external consultants which are used to deal with. On beginnig, SS disclosed only some basic information and burden was put on submitters (among who is only few really big submitters which have some staff or advisor). I think some more information, and detailed tutorials should be prepared regarding all process for submiters from countries from the “list”.
2. Some information presented initially was not correct. I mean especially that whitholding tax should be applied on whole income. But some submitters correctly posted in the forum that it is not logical that also income where the source is outside US should be taxed and consequently there was update on this issue from SS. (and there were also some other information not clearly presented – If I rember good about providing of personal information).
cheers
This was very badly (and thats still verypolitely said) planned step from SS. You frogot to mention couple important things Lee. I like your posts but this is abit too much favoring SS and it might seem that the “crowd tactics” and “angry contributors” are just common complaints. In short:
SS did announce this with very limited and sometimes obviously wrong info.
Jons reaction after some ppl got really angry was something which is not acceptable in fair business – deleting ppls portfolios just because I dont like their opinion is not rude, thats dictature. Whats really sad – many of those folks were right and SS later sent another mail claiming tax on US sales only, when they first announced charging 30% on ALL sales!
Its very complicated to obtain ITIN and deal with IRS. For many of contributors it of course means double taxation, especially for those who have no treaty with US. However SS claims there will be no double taxation…eh. IRS requires eg. original passport with biometrics, which is at first not acceptable for many ppl and second illegal in most countries! The paperwork on this issue is very time consuming, complicated and extremely frustrating for lot of non-native english speakers. Even more, all those stamps, legal notices, postal fees etc. will cost very significant amount of money. It will take at least few moths and Jon gave us 14 days – is he joking or what?! Whats most important – I dont like IRS to have my personal info – Im not US citizen, not working in US and not employed by US company. If they would like charge something like VAT from each sale, then ok. But filling tons of papers to give them money and later even more paperwork to claim my money back, OMG…
Summed up – SS requires something unacceptable by many ppl, charges them even more money from their hard earned small commision and SS admins were extremely totalitarian and very rude when ppl got angry after their unprepared steps about charging tax. We need to calm down alot including SS and make some agreement. This way the hammer landed only on contributors and they are of course angry.
Hello! IMVHO Mr. Oringer first reaction was a bit too strong, but I can understand them – no one likes to be offended (not directly of course). My first reaction reading that original version was “he has balls saying that”
cheers!
I am one of those amateur ‘emtpy your hard drive’ who made up a
vast majority of shutterstock’s contributer universe. I was doing
this for a few extra bucks and as a hobby.
With this taxation situation, the extra forms and ammendments to
my personal income tax is not worth it. Since i only made $500 a
year, i never thought to claim the amounts to my government. I
don’t want the IRS sharing their data now with my government, so
i recently closed my account.
I can understand the sentiment of many Europeans here as the USA has not been a favourite country in the last 8 years.
I was never happy getting .33 cents for an image which showed up in
a double page spread in a picture book.