April 2010 will not be fondly remembered by eBook aficionados. First, most eBook retailers have had to withhold several thousands of books from the top five NYC publishers due to the decision of the now infamous Agency Five or “Gang of 5″, as some have referred to them. Now, another green-eyed monster has reared its ugly head just over the horizon – State Sales Tax. This means that Diesel will be required to collect sales tax on all of the A5 books it sells, once those books are reinstated. So basically, whenever someone purchases an A5 book, we will be collecting sales tax and then forwarding it to the publisher, from now on. There’s a slight problem with that, however. Digital transactions aren’t as clean cut as a candy run to your local convenience store. For example, if a Boise resident is vacationing in Acapulco and decides he or she is in the mood for a Diesel download, who’s going to be doing the taxing exactly? The billing address says Boise, but Idaho is far from sight and mind in this case.
We’ve also learned a new word – “nexus”. Most publishers have some sort of geographic business presence in each state, which means they have a “nexus” in that area, and are thus required to pay sales tax. It’s the reason you pay sales tax if you buy from Sears online, for instance. Chances are there’s a Sear’s bricks ‘n mortar near your neighborhood, in other words. With Agency, the publisher – not the retailer – now becomes the seller of record. Since we are an agent in the transaction, that means we have to do the collection. (Interestingly, one of the A5 publishers we talked to today said that they think they are required to pay sales tax because they have a very large sales team, and therefore “sell” everywhere.) At this moment, we have not received confirmation from all of the A5 publishers as to whether they will be charging sales tax in each US locality.
But the plot thickens. Sales tax rates vary by county, municipality and, in some cases, subsections within a given municipality. So, if a customer from Plano, TX, let’s say, buys an eBook, he or she will be charged the Texas rate of 6.25% plus the Plano county rate of 2%… we think. Our bean counters are working out the details, as we write.
Once again, however, the biggest losers in all of this are the customers who will be forced to hand over more $$$$$ for their eBooks. That’s what truly concerns us.