Apple Announces App Store Small Business Program

Wow. That's amazing. That's a 20% increase in revenue for those eligible. I'm guessing they decided the increased value of their products from more smaller developers creating apps for the platform is greater than the lost revenue.

If I understand correctly though, since it's a hard cutoff it creates this gap between 1m and ~1.2m where you're actually worse off by making more money pre-tax.

   999k --[-15%]--> 849k
  1000k --[-30%]--> 700k
  1213k --[-30%]--> 849k

It's progressive. You pay 15% on first million you make. 30% on amount thereafter.

EDIT: It looks like I am wrong, ignore me.

Even better: .85/.7 = 21.4%

Except then the next year you get kicked out of the program and back to 30% on every dollar?

No, you start by 15% default until you reach the $1m threshold. After that you pay 30% for the remainder of that year. Please correct me if I'm wrong.

Yep. Apple should have handled this like tax brackets: The first million gets taxed 15% and anything beyond that gets taxed 30%.

I wonder why they're not doing that and creating all kinds of weird edge cases that will encourage hacky workarounds.

I guess they didn't want to lose out on the first million from those who are above the first bracket.

From the annoncement: "If a participating developer surpasses the $1 million threshold, the standard commission rate will apply for the remainder of the year."

But next year the commission rate will be 30% and if the earnings that year are below $1m the business will be only eligible for the reduced commission year after that.

I suspect it may be to do with the Epic legal issues, and they're trying to appear less money grabbing

You are almost correct - it goes by the prior years income, but based on the 30% cut. Meaning if you sold 1m in products you would still be in the 15% bracket next year. You would need ~1.43m in sales to be "Moved up" the next year (It gets more complicated with subscription revenue already having a 30/15 cut depending on the user's subscription length.) It works out to this (Using 1m in sales as the cutoff to simplify the numbers):

Year 1: 999k --[-15%]--> 849k (This year doesn't trip the "limit"

Year 2: 1000k --[-15%]-->850k (Limit is tripped, next year is 30%)

Year 3: 999k --[-30%]-->699k (Fell below the limit, next year is 15% again)

Basically if you are close to the limit at the end of the year, you should immediately stop all advertising/marketing spend to ensure you don't go over the peak :)

I'm not really sure why they did it this way as it really screws over people that are just at the 1m/yr mark, vs a progressive system that would "just work."

Right, but will they be eligible the year after? If not, then this still means that not surpassing the threshold could increase their revenue in the long run.

That is correct, but then the next year you start at 30%. So if you make slightly less next year you will end up earning less money that year since it is all at the 30% cut (And then the following year will fall back down to 15%)

That's only if you're in the program.

If you get kicked out, you're stuck paying 30% for at least a year.

Giving Apple the benefit of the doubt here (which is a significant caveat), I'd like to think that they modelled out various scenarios and looked at growth rates to know that the year 3 scenario you envisage rarely occurs.

Or, they could've just picked $1 million because it's a nice round number and looks good in a press release.

The latter explanation is the winner. They needed an arbitrary threshold and went for an easy-sounding one.

it's exactly like the freelancer tax brackets in Italy. Everybody jumping through hoops (and or not declaring stuff) to remain under the threshold of 60k/year (was 30k/year). Otherwise tax rate doubles.

Same in Argentina, sadly :-(

I would like if there is any solution to this other than to apply the same percentage to all income.

As some of these platforms/markets mature, and the policies managing them... running a platform gets similar to running a country. Progressive taxation. Loopholes or anti-loopholes in this case. MSFT basically has an IRS.

This is fixed in most countries by creating brackets that stack. See: https://en.wikipedia.org/wiki/Progressive_tax

You'd pay let's say 15% over the first 30k, and then 30% over the remainder.

Really? It's not progressive [1]? This page suggests it is: https://taxsummaries.pwc.com/italy/individual/taxes-on-perso... (Yes, this is a foreign third party so may be wrong; I can't read Italian.)

[1] https://en.wikipedia.org/wiki/Progressive_tax (See the Computation section for how the higher rates only apply to the higher portions of a person's income, with their lower portions taxed less.)

Are you sure you're wrong?

The relevant sentence seems to be "If a participating developer surpasses the $1 million threshold, the standard commission rate will apply for the remainder of the year." (emphasis mine)

Apple takes the comission as you go, so it sounds like they take 15% of each sale until you hit $1M, and then 30% for every sale after that.

The next year they'd take 30% right from the start though, so a good year followed by a bad one would be unfortunate.

In Germany we have "cold progression", so stacking tax brackets. If you earn 35.000€ it's something like (random numbers):

0-9000€ [0%] -> 0€

9000-20.000€ [10%] -> 1100€

20.000-40.000€ [15%] -> 3000€

Total = 4400€

So if you're in the 15% bracket you pay 4400€ which is actually 12.5% in total, and not 5250€ (15%) as some people seem to believe.

He's talking about freelance people. This link is for employees.

Same in the US I believe.

Thank You for the explanation. This is increasingly reading more like a dick move for PR than anything else.

Why cant it just be simple where your First $1M will be 15% bracket regardless of total sales.

Oh. I'm surprised that makes a difference.

Or maybe this is just PR with a clear but maybe oversimplified statement...

Yet they have 2 full year to see how it goes and work around all the edge case. I bet nobody except professional haters will complain if they soften the rules in 18 months.

At least in the first year you exceed 1mil, it’s more like:

  999k  --[-15%]                  --> 849k
  1000k --[-15%x1000k] [-30%x0]   --> 850k
  1213k --[-15%x1000k] [-30%x213k]--> 999k

Indeed. They are effectively running a country - just it's a digital one.

Cyberpunk always wins, in the long run.

> I'm guessing they decided the increased value of their products from more smaller developers creating apps for the platform is greater than the lost revenue.

My guess is that creating apps for the App store is actually far less profitable than Apple wants us to believe. That is, unless you are a large publisher.

I'd really like to see the distribution here, I wouldn't be surprised if there is a huge income gap.

Everyone I personally know who _made bank_ from iPhone and Android apps over the past 11 years did so by being paid to make the apps for other people who thought they had a great idea for an app...

"In a gold rush, you don't get rich by digging for gold - you get rich by selling shovels"

I like how tax brackets are in India.

250k-500k - 5% 500k-1000k - 20% 1000k- ∞ - 30% (figures in INR)

the brackets varies every FY, but are same more or less.

It doesn't discriminate with border cases.

No.if I understand correctly, Apples own article says that you pay 15% if eligible, and when you cross 1million, you pay 30% for the remainder of the year, ie no back payments.

That would be dangerous, because imagine being under 1million all year, and in December you make 1 dollar too much - suddenly you would have to pay Apple a lot of money you may have already spent. You never pay Apple though, they just keep their cut.

Well, there is still the point of crossing the million and having a more expensive next year as a consequence, my bad!

While it is quite nice, maybe they did it to look better in the antitrust investigation. They are still forcing devs to use their in-app purchases within iOS apps, forbidding 3rd-party payment processors. And iPhone 12 is no longer repairable by swapping parts between devices [1], Safari is still the only web engine on iOS. Finally after many years they are slowly starting to support royalty-free VP9 codec across the OSs but on the other hand are starting to use proprietary M1 chips to further lock in their users.

[1] https://www.youtube.com/watch?v=FY7DtKMBxBw