In her last post, Carla King advised writers how to avoid paying sales tax twice on their own books. The key is to obtain a resale certificate, sometimes called a reseller’s permit. Once you provide proof of your resale certificate to CreateSpace, IngramSpark, or another POD provider, you won’t have to pay sales tax on books you buy with the intent to resell.
There is a flip side to saving taxes—when you resell the books you are required to pay sales taxes on the books sold, although you may collect it from buyers.
Calculating sales tax is ridiculously complex considering we are talking nickels and dimes here. Even I hate it, and I am used to nit-picky forms. While I can’t make the sales tax headache disappear, maybe I can make it easier for writers. I’ve hit the highlights below.
What Sales Are Subject to Sales Tax?
If you sell print books in person such as at a reading or book fair, or over the internet to buyers in your own state, then those sales are subject to sales tax in most states. The only states that don’t currently charge sales tax are Alaska, Delaware, Montana, New Hampshire and Oregon.
Twenty-five states also charge sales tax on digital downloads, so sales tax may apply if you are selling eBooks or other content via downloads if both you and the buyer are in a state that imposes sales tax on digital downloads.
If you are shipping orders to a buyer in another state, you are not required to pay sales tax to the buyer’s state unless you have a business presence (sometimes called a nexus) in that state. You will be considered to have a presence in the state if you have a home there or are selling books at venues in that state, such as a conference or book fair.
If you buy books without paying sales tax on your purchase, and instead give the books away to reviewers and friends or submit them to contests, then you are required to report those giveaways as if they were sales at the wholesale price to you. Some states call this a use tax. Use tax is equivalent to sales tax but applies to items you bought for resale but then used yourself.
You will report your sales (including sales to yourself) on sales-tax returns filed quarterly or annually depending on the state. In most states, you fill out the forms and pay the tax online.
How Much Is the Sales Tax?
If you are selling books from your home state to a buyer in your home state, then you pay sales tax at the rate applicable to the location of the sale, or if you are mailing the book, the location of the buyer. For example, if I were to sell a book at a fair in San Francisco, I would collect sales tax equal to 8.75% of the selling price. But if I ship the book to the buyer in Los Angeles, the sales tax would be 9%. If I ship the book out of state, there would be no sales tax unless I had a nexus in the buyer’s state.
How much do you charge? It depends on the state, county, and city. I find the easiest way to do an internet search or ask my smartphone “What’s the sales tax in San Francisco?”
Sales tax is based on the selling price of the item, not on the net profit from the sale. If you sell a book at $12, but you bought it from your POD provider for $5, you pay sales tax on the entire $12, not on your profit of $7. You have to pay sales taxes even if your business operates at a loss.
Some Shorthand Tips
Yes, all this is ridiculously confusing, so I tried to summarize some important guidelines below:
—If you are selling through Amazon and online sites other than your own, they will collect and pay the sales tax. You do not have to do anything.
—If a bookstore where you do a reading handles sales to customers, then it is up to the bookstore to collect and pay the sales tax. You don’t have to do anything.
—If you are using PayPal, Square, or a similar service to process your direct sales, add sales tax to the purchase price. You are responsible for reporting and paying the sales tax collected.
—If you sell your book for a flat amount, let’s say $15, it will be up to you to figure out what portion of the $15 is sales tax. For example, if the applicable sales tax is 8%, then the breakdown for a book sold for $15.00 would be $13.89 for the book and $1.11 for sales tax.
—Shipping and handling charges are not subject to sales tax if they do not exceed your actual costs.
There are substantial penalties for failing to file returns (even if you have no sales) and failing to account accurately for sales. You are expected to maintain records of all taxable transactions for four years after your annual filing. I recommend that writers buy a receipt book that makes a carbon copy for each sale. Make a receipt out for customers and make a receipt for yourself when you give away a book. Keep those receipts.
What About Just Paying the Sales Tax Upfront
Would it be easier to pay the POD provider sales tax on books you buy so you don’t have to worry about calculating, collecting, and paying sales tax when you resell the books? No. If you pay the POD provider sales tax that’s based on a price of $4 a copy, but then you resell your books for $12 a copy, you are supposed to collect sales tax on the $8 markup and pay it to the state. I have no idea how many people actually comply with any of these requirements.
Ready to throw your hands up in the air? I don’t blame you. But as they say, death and taxes are unavoidable.
(Disclaimer: Helen Sedwick is an attorney licensed to practice in California only. This information is general in nature and should not be used as a substitute for the advice of an attorney authorized to practice in your jurisdiction.)
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