E-books and your annual taxes

E-books and your annual taxes

April 15th* is traditionally the day when our annual income taxes are due to the federal government in the USA.

Many of us also pay state income taxes by that day.

One of my readers and regular commenters, Lady Galaxy, suggested that I do a post about how e-books play into that…so here it is. :)

I had helped Lady Galaxy with a question regarding them, which sparked this.

Let me start out by saying clearly: I am not a tax attorney or adviser or an accountant. If you have any questions about this, consult with a tax professional and/or your appropriate tax authority.

For those of you outside the USA, you may still find this interesting. :) We don’t do VAT (Value Added Tax), for example.

Oh, and each state does things differently as well. :) Even smaller jurisdictions (such as counties and cities) may be involved.

One other thing: I’m talking in this post about how your purchases of e-books may impact your annual taxes, not money you might have earned from them.

Okay, all of that said, let me start out by telling you a bit about what we did in my family.

We live in California.

California, like many states, has provisions for residents to pay “use tax” on items that they bought outside of California, but used in California.

The use tax rate is the same as the sales tax rate.

My process?

I go back through our internet purchases for the year. I have to look at each one, to see if we already paid sales tax (if we did, we don’t have to pay it again).

The tricky part is knowing whether an item is taxable or not.

Not everything you buy in California is subject to sales tax.

Honestly, I don’t always know…when in doubt, I pay it. I remember hearing once that more people overpay their taxes that underpay them, and that makes sense to me.

Now, you might be wondering at this point…how would California know I bought, oh, floss from Amazon?

They don’t.

If I don’t report it to them, it’s not like there’s a W-2 on it.

If I got audited, though (knock virtual wood), and they found I had purchases where I should have paid and didn’t, I could be in trouble.

Here’s a key thing, and this is what helped Lady Galaxy (even though I think she’s in a different state).

E-books delivered electronically are not subject to sales or use tax in California.

I don’t have to pay use tax on my Kindle book purchases.

The Board of Equalization says:

”¬†Sales and use tax applies to the sale or use of tangible personal property in California. Section 6016 of the Revenue and Taxation Code defines tangible personal property as “personal property which may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses.”

http://www.boe.ca.gov/sutax/faqusetax.htm#6

Just to make sure, I specifically asked them about use tax on e-books…again, they confirmed that delivered electronically, they aren’t subject to use tax. If I bought e-books on a CD, those would be subject.

Stressing again, check with your state and/or a tax professional.

My guess is that you’ll find that many states don’t charge use tax for e-books delivered electronically.

By the way, we ended up paying over $200 in a lump sum.

I’ve written pretty extensively before about “Amazon laws”, which are trying to compel internet retailers to collect sales tax at the point of sale, just like brick-and-mortar stores do.

Amazon supports a national policy on that…and so do I.

It would certainly make me doing our taxes easier. :)

I wouldn’t be paying any more taxes than I do…I just wouldn’t be responsible for figuring out how much they are, and I would pay them as the year went along, rather than all at once.

I don’t know that anything can get through the US Congress right now…but maybe after the Presidential election.

It would be a tough sell, though…it would end up in many people paying more taxes, even though people wouldn’t owe more taxes.

Well, if you are already paying use tax, what I hope you get out of this post is that you check to see if owe it on e-books before paying it.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

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4 Responses to “E-books and your annual taxes”

  1. Lady Galaxy Says:

    Learning that I didn’t have to pay the fair use tax on Kindle book downloads or MP3 files saved me $44 on my state taxes. I definitely got more than my 99 cents worth out of that bit of knowledge. Thanks;)

    • Bufo Calvin Says:

      Thanks for writing, Lady!

      That’s great to hear the specifics, and I thank you for the idea for the post. :)

      For others who read this, Lady Galaxy checked with the local tax authority, confirming that e-books and MP3s delivered electronically weren’t subject to use tax…which Lady would otherwise have paid.

  2. tuxgirl Says:

    And that is why I’m glad amazon collects taxes for Washington state. :)

    • Bufo Calvin Says:

      Thanks for writing, tuxgirl!

      There are a lot of things I like about Washington state…Seattle is one of our favorite places. We actually like the weather: I’m not a big sunshine fan. :)

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