How Sales Tax Works for Authors
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In this episode, I talk about dealing with sales tax. This info only applies to the US, and is not tax advice. It is for educational purposes only, so you have a better knowledge of what to talk to with your financial accountant.
Helpful Links resource has a link to articles talking about nexus and a link to the various states requirements.
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Transcript – Episode 10
Hey, fellow indie authors, welcome to this week’s episode of the Indie Author Biz Guide Podcast. In this episode, I talk about dealing with sales tax. This info is only for the US. I don’t know anything about VAT taxes. Sorry. And it is not tax advice. This is for educational purposes only so that you have a better knowledge of what you need to talk about with your financial accountant.
Listen to the end for a free resource you can download to help you in your indie author business.
Welcome to the indie Author Biz Guide podcast. I’m Tora Moon, genre bending fantasy and sci fi author, indie business author, and entrepreneur. Here we talk about the business of self-publishing, or as I prefer to call it, indie publishing.
As an indie author, you have entered the wonderful world of entrepreneurship. On this show, I guide you through the rocky waters of the indie publishing industry. I share business basics and principles you can apply to your author business, really, any business. Other indie authors share their experiences and expertise to give you insight in your career and build your business.
You can download your free indie author business checklist, find additional resources, and the show notes at Indie Author Biz Guide dot com. And now, here’s today’s episode.
This discussion is for the US Only
If you sell your books directly to your readers, whether that’s with an online store or at in-person events, then one of the things that you’ll have to deal with is sales tax.
This conversation is for the U.S. only because I don’t know anything about VAT taxes. In places outside of the U.S., what you will deal with is VAT taxes versus sales tax. If you’re outside the U.S., talk to your financial accountant about what you need to know about VAT taxes in your area. If you’re outside the U.S., you can listen to this as interesting information or we’ll see you in the next episode.
This is a general conversation about sales tax because each state runs their sales tax differently. They set their own rules, their own sales tax rates. But there are things that are in common for all states, and that’s what we’ll talk about.
When Does Sales Tax Apply?
What does sells tax apply to? And in most states, remember, this is a generalization, sales tax will apply to any tangible products, and that means things that you can touch like print book or merchandise, if you sell merchandise on your store like mugs or T-shirts or tote bags or whatever. Any sales of those would be subject to sales tax.
Many states, but not all, also include some intangible products, and those are things that you can’t really touch. They exist, and those are your electronic products, like your e-books or your audiobooks. I ran into this when I was working for a software development company. Software is considered an intangible product. Not all states tax intangible electronic products, most are now. Whatever state you live in, you’ll need to check and see if they tax electronic intangible products such as your e-books or your audiobooks.
Sales tax is collected from the end user. That’s why you will only need to worry about sales tax if you are selling directly to your reader.
If you’re only selling on Amazon or any of the other platforms, then you don’t have to worry about sales tax because you are not selling to the end user. You’re not selling to the readers. You are selling your books to Amazon or Apple or Kobo or wherever you’re selling whatever platform you’re selling your books on. Those platforms are selling to the end customer, and it’s their responsibility to collect and remit the sales tax from their customers.
If you don’t sell anything directly to a reader, then you don’t need to worry about sales tax. Even if you sell your books via consignment at a local shop, they are selling to the end consumer and they are responsible for collecting that sales tax.
When Do You Need to Worry About Sales Tax?
When you do need to worry about sales tax is when you’re selling it direct, whether that’s on your website or in person sales, which are the two most common places. Now, you won’t have to collect sales tax on all of your sales if you’re selling online.
That’s because there is a term called nexus, and that means where you have locality for that state to legally require you to collect sales tax. Before July 2018, nexus was only physical nexus.
Whether you had a physical presence in that state such as you lived in that state, obviously you’re going to collect sales tax for that state. If you have a sales force in another state that gives that state nexus, physical nexus, and you would be required to collect sales tax for any sales in that state. If you had an employee, so remote companies, and they have an remote employee in Utah and their main activities were in California, Utah would now have physical nexus because of that employee. So any sales that that company in California made in Utah, they would have to collect and pay sales tax on.
However, in July of 2018, the Supreme Court made a ruling that states can now impose economic nexus. This is a big deal for the online selling companies like Amazon. They are selling all over the United States. And because of the physical nexus, there were states like Montana, which is the one that brought this case to the Supreme Court, that they weren’t getting that sales tax collected on products that were being sold in Montana. Because the online company, Amazon and Wayfair, Wayfair and Amazon were the two big companies that they brought the suit about, those companies didn’t have physical nexus in Montana, so they weren’t paying any sales tax. And the court came back and said, if they have economic nexus, then it’s right that they collect sales tax and paid that to those states.
And each state is now sets what economic nexus means for that state. In general, you don’t have to worry about it unless you’re selling X number of products to that state at X amount. Most states that’s a fairly high threshold because they know for small businesses that’s going to be really burdensome to do.
And they’re really after those big sellers that are selling 100,000 or more, which in most states, not all, is what that economic nexus threshold is. That you need to be selling $100,000 or more in that state for economic nexus to trigger.
There are some states that you have to sell a certain amount of product and reach this dollar amount. Some states it’s sale this number of product or this amount of sales, so you have to check with each state.
If you sell through your online shop to Montana, and you only sell a few books, you won’t fall into that category.
When you’re selling online, you want to be able to track how much that you’re selling to each state. That way you can tell if you’re creeping up on those thresholds. And this is when you will start talking to your financial accountant about whether or not you need to apply for a retail certificate and license in those states where you’re reaching those thresholds. And if you are, then you’ll have to start collecting and remitting sales tax to those states.
You will always have nexus in the state that you live in because you have physical nexus, because you live it. You will always collect sales tax for any sales of your books or products in the state that you live in and remit those sales taxes. You may have physical nexus in another state if you set up a business in another state and you’ve moved, you still have some nexus in that other state, so you may be required to remit sales tax to those two states. This is where you need to talk to your financial accountant, if you have some of those situations, about whether you qualify or your nexus has been triggered for those states.
This is why keeping good account records is crucial because you don’t want to not be collecting sales tax when you should, and you want to make sure that you’re remitting that sales tax in a timely basis because all states impose high penalties on late payments and late filings of your sales tax.
Your accountant, your financial accountant—and there’s a difference between a financial accountant and a tax accountant. A tax accountant works with your income taxes and usually that’s what they specialize in.
Your financial accountant works with your accounting and works with your payroll taxes, your sales taxes. They know how to set up, or they know how to research and set up, your sales tax accounts in other states if you need it and how to get that remitted.
If you are doing a lot of direct sales and selling to a lot of different states, then you might want to look into companies like Tax Jar or Avalara, which have plugins and programs that you can plug in to whatever online commerce platform that you’re working with that are plugged in, and it will calculate the taxes and remit them for you.
Now I use WooCommerce on my direct sales site. It does have a tax plugin for it that will calculate the sales tax for whatever ones that I tell it that I have nexus for it. All it does is calculate and charge tax sales tax on those that it’s applicable to. I personally would have to remit those sales taxes to those taxing authorities. Whereas, Avalarar and Tax Jar do that for you. And you have to look at your cost benefits on that if whether you want someone else to do that or not.
If you have a financial accountant that’s doing your accounting every month, then that can be part of the service that they offer and do for you is filling out your sales tax returns and remitting those payments for you.
When I was an accountant, I did that for my clients, so I know financial accountants do offer that service just like they offer the service of processing your payroll and filing all your payroll tax returns. When you get to a certain level in your sales, it pays for you to have a financial accountant to help you with that, because you don’t have to deal with all of that stuff. And you can deal with what’s important with your business, which is writing books and getting them sold.
I do not do financial accounting any more. I am a full time author and I am a full time book coach. I’m just sharing with you the knowledge that I have gained over the years.
When you sell in person, like I went to the FanX Con in Salt Lake this past year in September, (Great fun!) and sold books there. Not only do I live in Utah, so I owed sales tax there, but because I was selling books at an event in Salt Lake, Utah wanted their sales tax.
There were several authors who shared the booth with us that were from out of state. They owed sales tax for any sales that they made at that event. What the FanX event did is they had people from the Sales Tax Commission right there where you could get the forms right there at the event that you needed to fill out and remit your sales tax. And this applied to every vendor that was at that event, not just booksellers.
If I went to like the L.A. Book Fair that’s coming up, if I went there and sold books, I would owe sales tax to California for any books that I sold at that event. Most events will have something, like Fanx did, that will help you in getting those forms, especially if they’re a big event. If it’s a smaller event, you are still responsible for paying and remitting those sales tax and doing the research on what that state requires.
Almost all states will have a temporary sales tax permit for a certain event that you can get and remit your taxes. Don’t think that because it’s just a small event that you don’t owe taxes. Because you are at that event physically, that state now has physical nexus over those sales.
It doesn’t mean that if you sold books at an event in a state that they now have nexus on all of your sales forevermore. No, just those sales at that event. The authors that attended FanX that were out of state only had to pay Utah sales tax for those sales. If they generated sales from people who bought a book there and went onto their store and bought other books, they wouldn’t owe sales tax on those other sales that they sold online. Even though that person found out about them in Utah and is living in Utah because now that sale is taking place online, basically at their shop, their physical shop, and then they don’t owe sales tax for those sales unless, of course, they’ve reached that economic nexus.
What to Pay Attention to
When you first look at sales tax, it may appear daunting and scary. Really, it isn’t. If you consider where you live and you make sure to collect sales tax for those sales in your state and then pay attention to how much you are selling in each state.
Once you start making like $5k – $10,000 in sales in a certain state, that’s when I would look at what the economic nexus is for that state. Because you might, some states do have a lower threshold. You want to know what that threshold is so that you don’t go over it.
In most states and in most cases, they use what’s called a lookback period that way you aren’t triggering and needing to remit sales tax immediately. There’s a lookback period that says, okay, if you hit the economic nexus threshold in this period, usually the last year maybe the last quarter, then you need to start paying sales tax in the next year or in the next quarter. So there is some time leeway, but you still need to pay attention to your accounting to make sure that you aren’t bumping up against those thresholds.
If you aren’t anywhere close to those thresholds, you don’t have to worry about it. Just pay attention.
And I do have a resource, a free resource that can help you with figuring out what all of the state’s economic nexus is. In my Helpful Links resource, I have a link to an article by Avalara, which is one of those sales tax companies I talked about earlier, that talks about nexus and it has a link to the various states requirements. Now, the link that I have was valid as of 2019, it might have changed since then. All you need to do is Google sales tax economic nexus in X state and you’ll get that information.
I hope this has been helpful for your author business and taken away some of that stress and worry about sales tax. If you have more questions, and you don’t have a financial accountant right now, you can book a mini coaching session with me and I can try and answer some of your questions and direct you to a resource to find your answer. And I offer that 10 minutes of coaching for $10 and it’s asynchronous coaching. I use Volley, which is like Voxer. You send me a question whether that’s via a text, audio, or video, and then I respond with usually it’ll be a video, sometimes a text. And you can ask as many questions within that 10 minutes as you want to, whether it’s start out with sales tax and you think about something else that you have a question about you can ask me that within that 10 minutes. If you need more, you can always buy more.
Sales tax really isn’t that big of a deal if you’re paying attention to your accounting data. I hope this information was helpful and we’ll see you on the next episode. And the next episode we’ll start a series on financial basics for authors, and we’ll talk about why you need to track your money.
Thanks for listening to this episode of the Indie Author Biz Guide Podcast. I hope you found value in it.
You can get your free business checklist, find more information, and any downloads mentioned at Indie Author Biz Guide dot com forward slash podcast.
Please like and subscribe and tell your indie author friends about the show. If you’d like to support the show, you can donate to Buy me a coffee at Buy me a coffee dot com forward slash I A B G. These donations help support the cost of hosting, editing, and production of the podcast.
Thank you, and I hope you have an amazing day!