**DISCLAIMER** The following is based on my own experience, yours may vary. I am not claiming to provide professional financial advice, legal advice, or tax advice. Find out for yourself what the laws are where you live, and consult a professional before making important decisions.
Sales tax can be a sticky subject in the world of online bookselling. If you sell on Amazon, you’ve agreed to Amazon’s Participation Agreement (whether you know it or not). One of the terms of that agreement reads as follows:
Sales, Use, or Similar Taxes. You agree that it is the Seller’s responsibility to determine whether sales, use, or similar taxes apply to the transactions and to collect, report, and remit the correct tax to the appropriate tax authority. You also agree that Amazon is not obligated to determine whether sales, use, or similar taxes apply and is not responsible to collect, report, or remit any sales, use, or similar taxes arising from any transaction.
Basically this means that Amazon will not collect taxes for you. There is also no mechanism for you to collect taxes through Amazon. This means that whatever taxes you owe, you have to take directly out of your profit. In my opinion, since Amazon is the one collecting payment, they should really should be the one to collect the taxes. But the fact of the matter is that they don’t.
The good news is that for now, sales tax generally only applies to sales made within your state. I have heard rumblings that in the future internet sales tax could apply to all states, collected either by the state or even federal government.
If you look around on sellers’ forums you’ll find people doing all kinds of armchair lawyering, talking about this loophole or that loophole. For example, I’ve seen people claiming that you don’t have to pay taxes on Amazon sales in a certain state because Amazon is considered a “virtual consignment shop”. Be smart. Don’t take legal advice from anonymous people on the internet. They won’t be there to turn to when the taxman comes knocking. Find out for yourself what the laws are in your state. If you think you don’t have to pay taxes for any reason, you’d better get it directly from the government and you’d better get it in writing.
I also hear about sellers who just try to “fly under the radar”, not paying sales tax, not reporting their income when they know full well that they are legally obligated to do so. Don’t do it. It’s a huge risk, and it’s just not worth it.
Personally, I pay my sales tax, and in when it comes to Amazon, I pay it out of my profit. I may not like it, but not paying is just not worth the risk. My business is a corporation, which provides certain benefits, especially since I have employees, etc. It’s works out better than being a sole proprietor, LLC, or partnership for me. I’ve made all these decisions with the assistance of professional advisers. I always consult my accountant, my attorney and my banker. They are experts. I’m not, and you probably aren’t either.