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Publishers, Authors and Taxes

A word about taxes.

When working on your business, make sure that you are prepared to conduct a lot of administrative tasks to include paying taxes. For federal taxes, this means filing quarterly estimated taxes. This quarterly estimated tax depends on your total income all your sources of income including full time jobs and businesses. This tax is also figuring FICA, Medicare and any profits your business earns (total sales minus expenses).

Managing taxes is sometimes and easier endeavor when filing as a sole proprietary entity, especially where state jurisdictions are concerned. In these cases, tasks will pull you from your primary business roles to handle mundane but important administration. So, before you decide to form an LLC or other incorporated entity, do your research up front. For example, I just recently converted my business into an LLC. Red Bike Publishing, LLC has a new structure and is expected to maintain that structure according to the Alabama's State Department. Tax and business entity rules vary according to where the business is formed as each state has its own requirements. In Alabama, a business must pay $100 per year, regardless of whether or not the business makes any money. This is called the business privilege tax (BPT). Yes, it's a tax as Alabama assessed for allowing my company to perform business here.

Red Bike Publishing, LLC only has to pay $100 per year because it does not exceed the multimillion dollar sales threshold. If we did make that kind of money, we would have to pay $200 per year, at least that's how the tax office justified it.  Also in Alabama, LLC and incorporated business entities must file sales taxes monthly or face a penalty, regardless of whether or not the business actually makes sales in Alabama. File a day late and a $50 penalty is incurred. It is the business' responsibility to track sales and collect local and state taxes. For internet businesses like Red Bike Publishing, INC, our sales are out of state, but we still have to file $0.00 or face penalties and fines.

While maintaining a sole proprietor business, Red Bike Publishing did not have to worry about the BPT. But as soon as the corporation was formed, Red Bike Publishing, LLC not only owed the tax, but also owed two months of late fees since it took two months to get records back from the state and set up an online tax account. By the time we filed our first $0 sales tax return, we owed almost $200 in fines. Fortunately the state was understanding and agreeable to waive the late fees. Another comparison is that LLCs are also responsible for filing property tax on all office equipment and supplies on hand; not a requirement for sole proprietorships.

What does this mean for an internet business?

As a publisher, you might be set up to do business in state and pay the privilege of doing business tax. Even though you might not have physical store, your responsibility is to collect state and local taxes from local customers and those located in state. To do this, simply select the sales tax options on your shopping carts or other payment collection options. Some software will allow you to charge varying rates based on selected zip codes. For example, for anyone in my area of zip codes who buys my books online, I must charge county tax, city and state tax. Anyone from outside of the local area, but within the state, is only required to pay state tax. Anyone purchasing from outside of the do not pay these taxes.

When not to pay sales tax

If you plan to order books and provide to book stores within your state or locality, do not charge sales taxes. These taxes should be charged by the resellers to their customers. The same logic applies if providing books to authors for resale. Uniform Sales and Use Tax Certificate

Red Bike Publishing, LLC sells primarily through internet book stores. These stores are responsible for collecting taxes. We do allow customers the option to buy from us directly. When we fulfill the orders, we submit them through our printers and distributors (Lightningsource and CreateSpace) for print and delivery. The printers charge for the service, print and deliver to the customer. Recently CreateSpace has charged state sales taxes on orders shipping to certain states. This is because CreateSpace has distribution and printing services in states that charge them sales tax. This sales tax will be charged to the publisher as the customer unless the publisher files for exemption with CreateSpace. If the books are going for resale, the cost should be tax exempt. If going to a final customer, you should be aware of the sales tax and program it into your price for future sales. Again, this can be done through the shopping cart.





Jeffrey W. Bennett, ISP is the owner of Red Bike Publishing. Jeff is an accomplished writer of non-fiction books, novels and periodicals. He also owns Red bike Publishing. Published books include: "Get Rich in a Niche-Insider's Guide to Self Publishing in a Specialized Industry" and "Commitment-A Novel". Jeff is an expert in security and has written many security books including: "Insider's Guide to Security Clearances" and "DoD Security Clearances and Contracts Guidebook". See Red Bike Publishing for print copies of: Army Leadership The Ranger Handbook The Army Physical Readiness Manual Drill and Ceremonies The ITAR The NISPOM
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