By Michael Evans on June 12, 2023.
First, I am not a CPA and this is not financial advice. I encourage all authors to chat with tax professionals about issues related to Sales Tax.
However, I did want to share something that may be useful to everyone.
9 states as of July 1, 2023, have removed the transaction threshold for economic nexus in their states.
This is a very good thing as it simplifies the tax code for remote sellers like us (authors with subscriptions selling direct to our readers). This also applies to anyone selling directly on their own website using tools like Shopify and Woocommerce.
As far as subscriptions and Sales Tax go, depending on the platform you use, you may or may not be liable for Sales Tax.
Every platform has a different setup for how they handle this. The key is that if you are the Merchant of Record as an author, you are liable for sales tax and must remit and file these fees.
If the platform is the Merchant of Record (this is how it always is when selling on retailers) they are liable for Sales Tax and remit and file these fees.
At Ream, we worked really hard to be the only platform that gives our authors the option to set up as Direct (you are the Merchant of Record and have lower payout fees and no payout minimums as a result) or Managed (Ream is the Merchant of Record).
You can learn more about these options here (regardless of the option you chose you have full control over refunds and access to all the emails of your paid subscribers).
The rest of this post won’t be relevant to authors who are Ream Managed or on platforms that work in a similar manner (the only other common subscription platform that has a managed option is Patreon, all of the rest are by default Direct).
For authors who are direct or still deciding… the rest of this post will be very useful.
First, let me just cover what Sales Tax is (especially for non-US authors).
Sales Tax are fees levied by states on sales of goods, services, etc that take place within their state.
In the internet age, what determines if a transaction is within a state or not has to do with Nexus laws.
There are many kinds of nexus and ways that nexus can be triggered (such as attending a book signing in a state could trigger nexus for you in that state).
For the sake of simplicity, I’ll only be focusing on sales tax as it applies to subscriptions, since that’s what we are all about here.
Physical nexus is based on the state you live in as an author and the sales you make to readers who also live in that state.
Economic nexus is based on the state that your readers live in (thus the states you are generating sales in).
You will owe sales tax (if applicable to your class of goods by your specific states laws) on all transactions made by readers in the state you reside in (this is not applicable to non-US authors).
For other states, it’s all based on the concept of economic nexus thresholds.
Essentially, you don’t owe sales tax on sales made in states you don’t live in until you hit a certain threshold of sales volume or transactions. And certain states, don’t tax certain classes of goods and services at all (such as digital goods… while others do).
If you are a direct author on Ream, you can use a tool like Stripe Tax (it takes a few seconds to turn on) that automates tracking if you have nexus in certain jurisdictions and then automatically collects that tax in excess (or on top of) your tier price from your readers.
This takes out a lot of the headaches of the collection side of sales tax (you will still have to file and remit yourself… for more on that and Sales Tax for subscriptions read this article).
Okay so NOW we are to the Big Kahuna.
The point of this entire essay.
Economic nexus for sales tax is getting easier and more friendly for authors… yay!
For subscription authors, the issue of nexus came to hold with the transaction limit.
You see, some states say you have to make $100k per year in a single state to start owing sales tax.
Although many authors make a wonderful living in subscriptions, you’d have to be making around millions plus per year in the U.S. just through direct sales to start to risk hitting $500k in a state like California or $100k in other smaller states (yes transaction thresholds tend to be population adjusted, which is a good thing).
However, the 200 transaction threshold is different.
The map attached shows the different states and their thresholds.
The states that are troubling for authors are the ones with $100k threshold OR 200 transactions.
For micro transactions like many subscription payments that could take place as much as 12 times per year for one reader, generating as much as $1k in revenue in a year in a state with the 200 transaction limit as a nexus threshold could result in you having to owe sales tax… and then having to remit and file those fees (which that is time consuming and a hassle for many).
Like everything with taxes in the US… each state has its own rules on what nexus is… but there is an exciting trend.
Many states are moving to eliminate the 200 transaction limit.
California, Massachusetts, Colorado, North Dakota, Iowa, Washington, Maine, Wisconsin, and now South Dakota as of July 1, 2023 have all removed the 200 transaction limit (that means this map needs some updating).
I’m hopeful that if this trend continues sales tax will be infinitely easier for authors and all creatives selling direct to their fans. Other states are also looking to remove this transaction threshold as we speak.
Here’s a summary of the current state of things (source: https://www.avalara.com/blog/en/north-america/2023/02/could-2023-bring-the-end-of-economic-nexus-transaction-thresholds.html)
- $100,000 (17 states)
- $100,000 or 200 transactions (23 states, Puerto Rico, and the District of Columbia). These are the problem states for us authors as the OR 200 transactions is tricky… but these states are decreasing number by the day.
- $100,000 and 100 transactions (one state)
- $250,000 (two states)
- $500,000 (two states)
- $500,000 and 100 transactions (one state)
And here’s another good article to read on Sales Tax: https://www.avalara.com/us/en/learn/guides/state-by-state-guide-economic-nexus-laws.html
You all are welcome to ask us questions about this, and I’ll try to be helpful when and where I can.
However, me and the SFA Team are not CPAs. With that said, we want to provide insights and resources where we can to help navigate these waters because we know it’s a big, sometimes scary topic that is often avoided by platforms and other people we work with as authors.
Let’s change that!
Storytellers Rule the World!