Sales Tax Basics for Writers

If you will be selling books either in person or through your website, then the law says you are to collect and pay sales tax, unless you’re lucky enough to live in a state without sales tax.

And 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.

First Step – Register with your state.

In most states, you will need to obtain a Resale Certificate, sometimes called a Seller’s Permit or Vendor’s Certificate of Authority. A resale certificate is different from your EIN, ISBNs, business license number, or any other number. Welcome to the number-filled world of small business!

In California, register online with the State Board of Equalization. https://efile.boe.ca.gov/ereg/index.boe  Each state has an equivalent agency. Many states issue seller’s permits online.

Before you apply, have the following information handy:

• Your SSN
• Your Driver License(s) or State Identification number(s)
• Email address (contact and business)
• Your business name
• Federal EIN for the business
• State Employer Identification Number (SEIN), if any
• Your North American Industry Classification System (NAICS) code (Use 511130, Book Publishing, or if you are publishing online only, use 519130)
• Standard Industrial Classification (SIC) (2731, Book Publishing)
• Bank Information (name and address)
• Name and account number of your merchant credit card processor, if you will be accepting credit cardsName, address, and phone number of the person(s) who maintains the books and records, if it’s not you.
• Your guesstimate of monthly sales of print book that will be handled by you directly (and not sales through Amazon, bookstores, etc.). Be humble here and keep it low. Otherwise you might have to put down a large deposit and file returns quarterly.

Some states require the certificate to be posted at the place of business, although no one is going to come into your home office to inspect your bulletin board. If you don’t post the certificate, then keep the original certificate in a safe place.

Nest Step — Buying and Selling Books

The good news: Once you provide a copy of your resale certificate or your certificate number to CreateSpace or other POD provider, you won’t have to pay sales tax on books you buy with the intent to resell. (For IngramSpark, the process is more complicated. They make you fill out a number of state forms.)

Only items purchased for resale are exempt from sales tax, namely copies of your book. Office supplies (paper, ink, etc.), computers, bookmarks, and business cards are subject to sales tax because you are using them, not reselling them.

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 to you at the wholesale price and pay use tax on each book. Use tax is the equivalent to sales tax but applies to items you use. To simplify your life, I suggest you pay sales tax to CreateSpace or another POD provider on copies to be given away.

The bad news: When you resell your books to your customers at book fairs and through your website, you may be obligated to pay sales tax to the state in which the transaction takes place, although you may charge the tax to your buyers. And you are required to fill out state sales tax forms and pay sales tax to your state.

How much is the sales tax? It depends on the location of the buyer. In many states, the tax rate varies by city and county.

Sales tax is based on the selling price of the item, not on 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.

What sales are subject to sales tax? It depends. 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 by law you are required to pay sales taxes on the print books sold, although you may collect it from buyers.

Twenty-five states are now charging sales tax on digital downloads as well, so sales tax may apply if you are delivering your e-book or other content directly to buyers via downloads if you and the buyers are in a state that imposes a sales tax on digital downloads.

If you are filling Internet or telephone orders from a customer in another state, you may also be required to pay sales tax to the buyer’s state but only if you have a business presence (sometimes called a nexus) in that state.

What is a business presence? This is controversial. Some states have enacted legislation that requires large online sellers to collect sales tax even if the seller has no physical presence in the state. These laws are referred to as Amazon laws for obvious reasons. The rules are full of technicalities and always changing.

For most writers, 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.

NOLO Press has a site that purports to summarize the laws regarding Internet sales tax applicable to interstate transactions. Search NOLO Press 50-State Guide to Internet Sales-Tax Laws. I have not researched their links to each state’s laws, but it is a good place to start.

Also check with your state’s website. In California, the State Board of Equalization has dozens of publications regarding sales tax, and many are in Spanish, Korean, Farsi, Thai, and other languages. You can call the state agency and ask questions as well.

Yes, all this is ridiculously confusing.

Some common sense guidelines

• If you are selling books yourself 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. 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 and pay it to the State of California with my annual sales tax return. If instead I shipped the book to the buyer in Los Angeles, the sales tax rate would be 9%.
• If you are selling books yourself at a conference or book fair out of state, then you pay sales tax on books that you physically hand over in that state. If you go home and ship books, then the interstate rules apply.
• 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 the bookstore where you do a reading handles the sales to customers, then it is up to the store to collect and pay the sales tax. You don’t have to do anything.
• 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 you sell your book for a flat amount, let’s say $15, write SALES TAX INCLUDED on the receipt. 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.
• Many states are applying sales taxes to e-books and other downloads. Expect this trend to continue. Research the rules for your state.
• Shipping and handling charges are not subject to sales tax if they do not exceed your actual costs.
• Go to your local office-supply store and 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.

You will report your sales (including sales to yourself on books given away) on sales-tax returns filed quarterly or annually depending on the state. 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 books and records of all taxable transactions for four years after your annual filing.

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 keeping track of sales taxes is not as bad as it sounds . . .  if you keep decent records. Hmmm, perhaps that will be the topic of my next post — Basic Business Record Keeping.