Many self-publishing authors use a marketplace facilitator to market, sell and distribute their books. Here are two common methods marketplaces use to distribute self-published books:
- Facilitators sell the author’s book under something called a distribution arrangement.
- Authors grant facilitators a right to copy and sell the book.
Method 1: Distribution arrangement
Under a distribution arrangement, a marketplace sells the author’s books on a consignment basis. The author does not receive an advance and they need to prepare the book for sale. This includes:
- public relations
- cover design
- obtaining a unique International Standard Book Number (ISBN)
The marketplace facilitator typically charges a fee (a cost of doing business) for each book sale.
Author must report business and occupation (B&O) tax
The author must report retailing business and occupation (B&O) tax on the full selling price of book sales made to Washington consumers. The author can’t deduct fees they paid to the marketplace. For example, an author sells a book for $10 and the marketplace keeps a $3 service fee. The author must report the $10 selling price.
Note: Some marketplaces call the amount paid to the authors a “royalty payment.” This payment is the author’s portion of the book sales. These payments do not qualify for the royalties B&O tax classification.
Reporting retail sales tax for in-state customers
The author does not need to collect sales tax on sales they made through a marketplace if they received confirmation from the marketplace facilitator that the facilitator will collect sales tax. The author must report this under the retailing B&O tax and the retail sales tax classifications and claim a “Retail Sales Tax collected by Facilitator” deduction.
If the author does not get confirmation from the facilitator, the author needs to collect and submit retail sales tax on book sales to Washington consumers.
No tax on out-of-state sales
The author does not need to charge Washington’s sales tax on out-of-state customer sales. A Washington-based author must report these sales under the retailing B&O tax and the retail sales tax classifications and take an “Interstate and Foreign Sales” deduction.
Method 2: Author grants facilitators a right to copy and sell
This method is similar to a traditional publishing arrangement. The author grants the marketplace (or a third party) a license to use its copyrighted manuscript and the right to copy and sell the book. In this case, the marketplace or publisher pays the author advances and helps in the preparation process. Under this arrangement, the author must pay royalties B&O tax on the gross income received. (RCW 82.04.2907).