Sales tax. Two little words that strike fear into the hearts of most authors venturing into direct selling. Sales tax is not optional, and you can’t ignore it.
I am not a tax professional or an accountant and cannot advise you on how to meet your tax liabilities. This page is for information purposes only from what I’ve learned doing my own research and will cover the basics around sales tax and where to go to find out more. Please consult your accountant or a local tax specialist for advice.
Sales tax can be pretty scary, especially if you’ve never had to think about it before. I hadn’t even considered that there were different rules around sales tax in different countries before I started doing this, and I know it’s something that puts many authors off doing direct sales.
The first thing to say is that if sales tax is the thing from stopping you from selling direct… I shouldn’t say this, but you don’t have to do it. Stick with other ways of selling your books where the sales tax is dealt with before you get your royalties. This applies to the whole business of selling your books direct, not just the taxes. If becoming an e-commerce business as well as an author is too much stress and deep down you know it’s not for you, no one is forcing you. Yes, there is potential to make more money and even have some fun selling from your own Shopify store, but it is a whole other thing to take away time from being creative and writing books.
Having said that, there are huge benefits to having control over your own book sales and your own site, which I’m not going to go into here. Also, sales tax does not need to be frightening. Remember, it’s your site and you control where you sell your books.
Let’s take it step by step.
Firstly, what is sales tax?
Here are some things to be aware of:
- Your sales tax obligations depend on where you live, where your customers live, what you are selling, and whether you are selling to an individual or a business.
- Sales tax is nothing to do with income tax.
- If you are doing this yourself, you will need to know:
- Whether what you are selling is taxable. For example, physical books and e-books are exempt in the UK, but not in some US states.
- What categories of products you are selling. The rate of tax payable differs by product. Print books, ebooks/digital products, audiobooks, and other merchandise, are all subject to different rates of tax in different locations.
- What the sales thresholds are. Many countries/US states have a threshold. Until you reach that threshold, you don’t need to register for tax. In Australia, it’s A$75,000, so you pay no sales tax in Australia until you’ve sold A$75,000 in one year. However, lots of places have no threshold, so all sales are taxable. For e-books in the EU the threshold is one sale, so you have to pay sales tax on all e-books sold in the EU.
- Whether you have a physical nexus. The country you live in (or where you have a warehouse) affects your tax liabilities.
- What counts as “annual sales”. It could be a calendar year, the previous 12 months, or the last four quarters. Whether you pay, or how much you pay, will depend on your sales in the period, so you need to know how to calculate the period correctly.
Has reading the above bullet points left you feeling overwhelmed? Yes, it’s complicated, but that’s because we’re thinking about the whole world here, and you don’t have to do that. Take a breath, it’s all doable.
Step one: Where do you live?
Because Shopify lets you control where you sell your products, you can start with just one or two countries.
The first step is to find out what you need to do where you live, by checking with your accountant or looking at your government’s website.
Your home country or US state is where you have physical nexus. Do you need to register for sales tax here? If yes, get that sorted. If no, you can start selling your books here. For example, I live in the UK, so I don’t need to register for VAT (sales tax) until my total taxable turnover reaches £85,000 in a year. I can start selling my books and other products in the UK without registering for VAT because my business is registered here and my turnover is lower than the threshold.
Where else do you need to sell to?
Next, in which other countries do you want to sell your books initially? If you’re American, you might want to only sell to the US for now. You can restrict your market to the US only.
On that note, if you are selling in the US, Shopify will set you up with Shopify Tax, which will monitor your liabilities state by state and tell you when you are getting close to needing to pay sales tax in a state.
Assuming your books are in English, you can find out the rules for the other major English-speaking markets, and get set up for these. This might mean finding out the rules for the USA, Canada, Australia, New Zealand, and the UK. That’s only 5 places to worry about, and one of these is likely to be your home country anyway. (Sorry for being so Anglo-centric!)
If you have books in other European languages, you’ll want to get set up for selling in Europe. It sounds tricky, as registering for VAT in Europe involves going through a One Stop Shop to cover you for all EU countries. But there is an app who will help you do this (for a monthly fee). Check out EAS Project. They can get you set up for EU and/or UK sales tax and make sure your products are configured correctly within Shopify.
Finding out what you owe
Shopify produces reports which show you where you owe tax and how much. In Analytics > Reports there is a Taxes report which breaks down any sales you have made which are liable for tax. They show the sales channel, country, region, name of the tax, whether it has been filed already, the rate of tax and the amount payable. You can then export this report to help you file your taxes (or get someone else to do it for you).
Who can help
Apart from EAS who I mentioned above, who will help with your EU and UK taxes, there are other apps to help you with your taxes worldwide. You might feel it’s unfair to restrict your books to the countries you find easiest to deal with and want your products to be available everywhere. In this case I would recommend getting an app to do it for you. Quaderno and TaxJar are two I know people use. Alternatively, find yourself an accountant who knows about international e-commerce.
Further reading
My own guide to sales tax will give you more information on the thresholds in the US, UK, Canada, Australia and the EU, and how to set up your store.
Have a look at this guide from Quaderno about Shopify and tax: https://quaderno.io/guides/shopify-sales-tax/.
Definitely have a look at Shopify’s own help pages on taxes: https://help.shopify.com/en/manual/taxes.
Here’s a guide from TaxJar on taxes for booksellers (in the US): https://www.taxjar.com/blog/07-21-sales-tax-guide-for-book-sellers