Monday, April 12, 2010

The Issue of Sales Tax on Books

Over the years I've seen posts on writing blogs regarding sales tax issues for writers. The issue is how one should pay sales tax if hosting a book signing at a church, community fairs, or places that aren't bookstores where the author must personally handle the transactions themselves. The problem for a writer is we are all from different states, we never know where we might be invited, or when we might get a chance to do a book signing. Each state has different laws. In fact, each county within each state may have different laws, at least that is the case here in North Carolina. 


Then there is the issue of website sales. How does one charge sales tax over the Internet when buyers can be from anywhere? It's a huge dilemma and one that I was recently faced in resolving. I'm getting requests for signed copies, but I needed to know how to handle this situation and stay in the good graces of the IRS and my local state. After all, my first priority in my writing career, is my readers. If they want a signed copy, and I'm not going to be anywhere near their area, or they can't make it if I am, I feel they should have a signed copy if they want one. The best way for me to provide that, is the option to purchase it directly from me through my website.

Therefore, I needed to arm myself with real information, so I made some phone calls to the NC Department of Revenue Service. I discovered some interesting facts that I wanted to share with you, whether you are selling books or some other product. 

Here's the deal for the federal IRS
You do not pay sales tax to the federal Internal Revenue Service. You only pay income tax on your earnings. This can be done once a year when most people file by April 15th for the previous year, or on a quarterly basis April 15th, June 15th, September 15th, and January 15th.

Here's the deal for local sales in your state



Here's what happens when a person makes a purchase at a large store like Barnes & Noble, Borders Books, or Books-A-Million, they are charged sales tax at the time of purchase regardless of where the customer lives. They have no idea where each customer is a resident. Plus, these store chains are operating in multiple states and are covering their expenses from every angle because their sales tax fees can range from hundreds of thousands to millions. Most are registered businesses to operate in multiple states where they have a local store.

Individual authors will not have those kind of sales volumes. If you choose to sell books at an event in your local state where you have to manage the money and sales yourself, you must pay sales tax on the revenues you make. Whether or not you choose to charge your customers sales tax is up to you. Either you pass on the sales tax fee to your customers or you eat the cost and pay the difference yourself. The choice is yours. 


Here's the deal for sales outside of your state
Most consumers are not aware of this, but according to the NC Department of Revenue service, the consumer is responsible for reporting purchases they make outside of their state to their state and paying sales tax to their state for those purchases they are bringing back home to their state. It isn't a problem if you are making small purchases at a store that has already charged you sales tax. 

If you are carrying your books to another state and holding a book signing, you may not have to charge or pay sales tax to that state, especially if your sales are under a certain dollar amount. Traditionally, you are not required to pay sales tax to a state you do not live in. This is why lots of fairs and festivals and Internet purchases may not charge you a sales tax for some purchases. If you are not registered to do business in that state, it will be hard for the state to prove how many books you sold at a fair or a local church. Of course, there is always the moral obligation of knowing how many you sold then getting the proper paperwork filled out and filed to pay the sales tax. Sometimes it is a "use tax" rather than a "sales tax". It varies, as do the laws, from state to state. Some states will require you to fill out a form for a one-time sales event in their state.


Some states have started passing individual laws based on the nexus factor of a physical presence within the state. In that case, you are physically there and may be liable for sales tax in that state--even for a one-time event. Do your homework carefully if you hold a book signing in another state, and you will be responsible for managing the funds yourself.


Here's the deal for Internet sales tax
You must pay local state sales tax for any consumer that buys from you who lives in your state. Also, you must pay a separate county sales tax for the county in which that consumer lives. This is traceable through the address to which you are mailing the product if you are ever audited. 

You do not have to pay a sales tax for out-of-state consumers. Once again, consumers are technically and legally responsible for untaxed purchases they make outside their state to their state. 


Selling products over a website or by catalog and shipping them to a state does not trigger a sales tax collection obligation because such activity does not constitute a physical presence. The U.S. Supreme Court confirmed that such activities do not create nexus in 1992 in Quill Corp. v. North Dakota (504 U.S. 298).

My reflection and personal decision
Most consumers aren't even aware that they are responsible for reporting these out-of-state purchases, and I questioned this as there are lots of unpaid sales tax--especially over the Internet and at local fairs and festivities. I was informed that state governments are aware of this and are working on a solution. In the meantime, this is the way it is. So my advice is to pay attention to new laws as they are passed in regard to sales tax and do your research on book signings outside your state.


I would love to sell hundreds of thousands of copies of my books--even millions, but the reality is that I probably won't. Therefore, for the time being, I will not charge a sales tax  to my consumers at local events or through the Internet. I will simply pay the sales tax fees as they are likely to be minimal for the first few years. Most of my sales will be through chain books stores and online places such as Amazon. I felt it gave an unfair impression to NC residents who might want to purchase a signed book from me if they had to pay a sales tax and anyone outside of NC didn't--especially since most of them wouldn't (know to) report the sales tax to their own state.

If, however, I find that my sales volume is much higher than I anticipated through the Internet, I may change my decision based on affordability.

12 comments:

Hi Jennifer -

Although I don't have a book published yet, this is great information. I'll definitely file it for future reference.

Blessings,
Susan :)

Thank YOU! My book is about to be published and I was looking for information on this very thing! Much success and Many Blessings!

You are both welcome. I'm glad you found this information helpful.

I have been trying to get intelligent information about this very issue and you have made it so much clearer! I have a children's book I just published and another about to be published and this information is not easy to find!!
Thank you so much for taking the time to share, Jennifer!

Thanks, Jennifer. I've been looking for information about this and weighing my options, and you summed it up well!

Hi Jennifer,

Thank you for posting this information. I will be having my book signing in about 15 days and I needed to know this information. It is so clear and concise. If you get a chance go and purchase the book - "The Day She Left - A Domestic Abuse Survivors Story. Thank you for the tax information.

Tamara

Thank you for this important information, and for sharing your personal take on it as well. Blessings--Pam

Thank you for the information. I have published my first book and have been wondering what to do about the sales tax.

Thank you so much for this information. I've done most of my sales through Amazon but continue to have people ask me for signed copies and was setting up my website to sell them right now. I wasn't sure how to handle sales tax but this helped greatly!

Ah! Thank you so much! I just moved to North Carolina so it's especially comforting to hear from someone who lives here. I like your decision - it was what I had been leaning toward myself. Feeling encouraged over here.

Best,

Erica Romkema
www.ericaromkema.wordpress.com

I have to say just like everyone else thank you so much for this, We are working on a book that is not published yet and I am trying to cover all grounds as we are going to have it available on our own site. This is however the only article I have found that is well written and in great detail with all the answers I was seeking. Thank you again!

You have just answered a question that has had me looking all over the web for! My co-author and I have children's Christian books which come out in print now, and we had planned on selling them on our website until they are available through amazon.com and others. We didn't know how to handle the taxes on this, or the book signings. Thank you so much! God bless