Is the Marketplace Fairness Act a Game Changer for Publishing?

When I write about taxes, it usually has something to do with the Stamp Act or some such onerous tax as passed by a tyrannical government in the 18th century.

Not today.

You see, I’ve been thinking a lot about the internet sales tax being considered in D.C. It’s the one they optimistically call the Marketplace Fairness Act. (The U.S. government uses more euphemisms that the average romance novelist!)

I just can’t see how, if this tax passes, it isn’t going to be a disrupting influence on the publishing industry.

Here’s a link to the actual law being considered in the Senate. It’s actually fairly short compared to some of the other laws currently being considered so it's worth taking a look for yourself.

In the meantime, here’s a quick primer for those who are too busy with daily life (or watching prime-time TV) to pay attention. Currently, online businesses only collect taxes if they operate in the state. The logic is that sales taxes go for local infrastructure e.g. roads and water. If the business doesn’t have a local presence, they aren’t using local infrastructure, hence, they aren’t required to collect. This law essentially requires online businesses to collect taxes as if they were a local business.

There are some states that technically require their citizens to report online purchases and pay the tax, but my understanding is that most citizens don’t. (Ya think?)

So here’s my take on how it will affect the publishing industry – and the rest of us too.

Effect on small publishers
As of today, there are more than 9000 tax codes with which businesses will have to comply if they sell into all 50 states. Remember, the law includes state taxes as well as local. While some states are simplifying their tax codes, there are still cities and counties that have their own taxes. If county Y decides to charge a tax, any business selling into County Y will have to comply.

I suspect most small businesses, including small publishers, do not have the software to deal with this. (I worked in business software for almost 20 years so this isn’t pure conjecture.) I think this group is going to be the hardest hit, and I bet it will push some of them over the edge.

There is a limitation on the law that states can’t require compliance from small businesses with less than $1M in gross receipts. That sounds like a lot, but keep in mind, that’s revenues, not profits.  A small business can reach that level very quickly.

Effect on self-publishing
I haven’t self-published so I’m not exactly sure how it will affect those who do, but I can speculate. I believe big companies who have self-publishing services will create new offerings to help self-publishers manage this. Most self-publishers probably aren’t over the $1M threshold so they won’t have the day-to-day headaches of compliance anyway.  (However, if you sell through a distributor, you will have to pay the tax because they sell more than $1M a year and will be required to comply.)

Effect on consumers
Then there’s the readers. At first blush, the impact will be minimal. So you have to pay your local tax on an ebook you buy for somewhere between $2.99 and $5.99. It’s minimal and not likely to impact your decision. However, I foresee some online retailers discontinuing services into smaller market. The big providers probably won’t, but if you like to buy from small shops, don’t count on them selling to you tomorrow. Same goes for those of you who live in cities and counties with complicated and ever-changing tax codes. Some online retailers just won’t bother.

After a closer analysis, I think the small publishers have the most to lose. That’s a shame because those small publishers are how many of us, including me, got our start. I’d hate to see them chased out of the business.

What do you think? Do you see an internet sales tax impacting publishing? I’d love to hear from you!


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