I had meant to post this much sooner, but for all those last minute-ers and/or for useful reference for next year, Sales & Use Tax Reports are due January 31st. No worries if you live in one of the five no-sales-tax-states: Oregon, Alaska, Delaware, Montana, New Hampshire (luckeeee). I live in California, which has the HIGHEST STATEWIDE MINIMUM SALES TAX in the nation. Ugh. We pay for our beautiful sunshine.[Note: IF you have what is called NEXUS in other states (even if you are in a no-sales-tax state), then you will need to abide by that state’s sales tax rules, too. Sales Tax Nexus is basically achieved through having sufficient physical presence.]
Okay, on to business. Writers are creative beings, but we are also business owners with all sorts of business-y things required of us. My CPA training comes in handy with the “money stuff” and I hope to make it a tad easier for writers struggling with accounting and taxes.
I’m assuming (fingers crossed!) that you’ve kept a solid record of all hard copy (print) books that you purchased wholesale AND a record of the number of copies you distributed from your inventory throughout the year. Your record should include books you distributed to other retailers, books you sold directly to customers, and all books you gave away. Let me repeat, all books you GAVE AWAY also need to be accounted for! This includes copies you gave to yourself for personal use.
For sales tax purposes, these records DO NOT need to include copies customers bought from one of your print-on-demand distributors (Amazon, B&N, etc.). You receive Royalty Payments for the sales they make on your behalf, and these are not included on your Sales Tax Report. Why not? The distributors themselves will collect and report the appropriate sales tax required.[Note: California is still exempt from Ebook sales (restrictions apply), but other states have now added them as taxable items. Check with your particular state for updated rules. And of course, this would not pertain to Ebook sales made by Amazon, B&N, etc., but rather for Ebooks you sold directly to customers on your own].
If you are a fellow Californian, you can complete the online form provided (many other states offer online forms, as well). I will speak to the specifics of the California Form here. Most writers will show amounts in (5) categories/boxes: GROSS SALES, PURCHASES SUBJECT TO USE TAX, SALES TO OTHER RETAILERS FOR THE PURPOSES OF RESALE, SALES IN INTERSTATE OR FOREIGN COMMERCE, DISTRICT TAX.
Head spinning? Don’t let those complicated descriptions fool you. This is really not that difficult to do on your own. Really! Allow me to clarify the terms:
1. GROSS SALES “GS”. GS is determined by adding all monies you collected in exchange for your printed copies. This includes money received from other retailers, such as brick-n-mortar book stores, AND money received from individual customers (NOT including any sales tax that you already added). So, what if you sold books for a flat rate at an event and simply “included” sales tax in the price for ease of exchange? You will need to back out the sales tax portion to arrive at your GS amount using a simple formula.
Example: You sold a book for $10 at an event. The sales tax rate was 7.5%. Take $10 / 1.075 = $9.30 for the GS amount. Easy peasy!
Now, In the case of monies earned from other retailers (bookstores, etc.), use the entire amount they paid you as GS. Why? Because none of the amount they gave you included sales tax (or it shouldn’t have). You acted as a wholesaler to them, and they will be the ones to ultimately collect and report sales tax on their own reports. Don’t worry though, you will take this same amount as a DEDUCTION in #3 below.
Remember, no head spinning allowed!
2. PURCHASES SUBJECT TO USE TAX “PSUT”. This is for all those books you gave away. First, if you haven’t already done so, or if this is the first year you purchased an inventory supply of books, figure out your wholesale cost for each book. For each shipment, take the total cost of the books you purchased divided by the number of books you received to arrive at the per unit cost. This will be used to determine the dollar amount of PSUT. You will be charged Use Tax (same rate as Sales Tax) for these books. Bummer, I know, but since you didn’t pay the tax up front, you have to pay it now.
Example: if you gave away (or gave to yourself) a total of 50 books during the year and your wholesale cost per unit was $4.09 ($818 / 200 books), the dollar amount to put in the PSUT box will be 50 x $4.09 = $204.50. The report forces you to round up, so it will show as $205. This amount will be added to your GS amount to arrive at a total before deductions and adjustments.
3. SALES TO OTHER RETAILERS FOR THE PURPOSES OF RESALE “STOR”. Remember those monies you collected and included in GS in #1 above that pertained to other retailers? Well, now you get to take those monies as a DEDUCTION.
Example: You gave 20 books to a bookstore to sell on your behalf and they sold them all during the year. They pay you a percentage of the sales price–say 60% of $10 for each book–which amounted to $120 total paid to you. This amount, which should match what was included in GS above, is your “STOR” amount.
4. SALES IN INTERSTATE OR FOREIGN COMMERCE “SIFC”. SIFC are all sales made out of state and are exempt from sales tax in your own state. They are another DEDUCTION on the form. To figure this one, simply add up the sales you made to purchasers outside California.
5. DISTRICT TAX “DI”. If you made sales in counties aside from your own within the state and they assess a different sales tax rate, then you must include those amounts on the computation schedule provided to figure DI. On the schedule provided, find the particular counties in which you made sales and include the pre-tax monies received there (if needed, use the same formula in #1 above to back out any sales tax). If, for example, the sales tax in a different county is 8% versus your county’s 7.5% rate, the additional ½ % for DI will be added as an extra assessment on your report.
So, that’s the general gist of it. The most important thing to do is keep accurate records–at the very least a handwritten log of all sales and freebies. The better the records, the easier it will be at year end to complete all necessary reports. This is true whether you do them yourself or farm them out to a professional. A little effort throughout the year will save you tons of time come January (and then again come April 15th!)