Taxes for Writers
BY GUEST DANICA FAVORITE
Danica Favorite works as an online moderator for a major publisher where she connects readers and writers with new fiction releases. Having spent time in the corporate world teaching tax law and preparing taxes, she much prefers fiction to numbers. Her first book with Love Inspired Historical will be available in late 2014.
As some of you know, I spent about five years preparing taxes and I
teach on the topic of taxes for writers. I took a class with the
Colorado Department of Revenue about a year ago on the very topic of
sales tax. I had heard a number of things about sales tax and was
concerned that at some point, I would need to know this information for
my business, plus, I was working on something I wanted to do that might
have tax implications.
Here are a few VITAL things to know:
1. Sales tax is an extremely complex topic. Not only does it vary by
state, but it varies by locality. You must make absolutely sure that you
are following both the laws of your state as well as any laws of the
states in which you are selling to- this includes when you sell a book
online!! Everything I am telling you is based on COLORADO law. If you
are not in Colorado, please be sure to check your state’s guidelines.
That said, it may not be enough to look it up on your state’s website.
Colorado law is so complex that I, as someone tax-trained, could not
figure out what I needed to know based on the website, so I took a
day-long class. Yup – an entire day. And it barely scratched the surface.
Please, please, please get advice on sales tax from someone who is
very familiar with sales tax law in the area in which you are selling
2. Here is the gist of Colorado sales tax law: Sales tax is based on the
location where your product is delivered, not where you live. So, if I
live in Denver, but sell a book in Colorado Springs, I am responsible
for paying sales tax based on Colorado Springs tax rates. If I live in
Denver, and someone from Colorado Springs comes to Denver and buys a
book from me, the sales tax rate is based on Denver tax rates. If I live
in Denver and go to Texas to sell books, I am responsible for finding
out the sales tax rules for the locality in which I am selling the books
and take care of the sales tax there. Depending on where in Colorado you
are, there may be sales tax for the city, special taxing areas, as well
as the state. It varies from locality to locality. Depending on the
locality, you may need a special tax license to collect sales tax.
Depending on the locality, you may need to remit tax to the locality,
the state, or some other entity. It is UP TO YOU to find out the
locality’s taxing rules. If you do not follow the rules, you are subject
to the tax plus penalties and interest. AND, if you are not a Colorado
resident, you may be subject to Colorado income tax (you’d have to sell
a lot, though).
3. Saying, “I just won’t mess with it by not charging people tax” is not
legal. Even if you don’t charge sales tax, you are still responsible for
remitting the sales tax to the taxing authority, which means it will
come out of your own pocket. If you do not remit the sales tax and the
taxing authority finds out, you will be responsible for penalties and
interest. Granted, they will probably not find out about a $10 book or
two. But I’m telling you what the law is, and many localities want their
share of that $10.
4. Some venues, like large conferences, will get a special sales tax
permit, which collects and remits the tax for you. If you are at a group
event, always be sure to find out how sales tax is being handled. Again,
this is YOUR responsibility. Don’t assume that the venue is taking care
of it for you.
I hope that helps you. Like I said, sales tax is extremely
complex, especially if you are going from state to state, or, in
Colorado’s case, locality to locality. The person teaching the tax class
was from the Colorado Department of Revenue, and part of why they
offered this class is that Colorado is cracking down on people not doing
sales tax correctly. Some of you may remember the big to-do between the
State of Colorado and Amazon — it was a fight over sales tax and taxing
jurisdiction. Obviously Colorado has a lot more to gain by going after
Amazon as opposed to individuals, but it doesn’t mean they won’t. And
they do. So be prepared by finding out the sales tax laws in your own state.
You can connect with Danica Favorite at www.danicafavorite.com