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Times Are Changing

20-Dec-2012 4:43 PM | Steve Royal (Administrator)
Times are changing

By Lawrence R. Berger

Thanks to the RPCN annual tax presentation, I’ve learned some things that mean more to me than the ”fiscal cliff.”  Some of them have had me unable to sleep since the presentation. One reason is Form 1099–K (Payment Card and Third Party Network Transactions). We were told that this form would be issued by companies who receive credit card payments to the vendors who charge them. Pay Pal was specifically mentioned as was Visa and Master Card. The example given was this: a florist accepts credit card payments. That florist will now get a 1099-K from Visa saying just how much he made through them. He’d also get one from Master Card and maybe about 20 other service providers, depending on how many he accepts.  Does anyone else see the danger in this?  We already have about five banks in America controlling everything (Citibank, Bank of America, Wells Fargo, Chase and one other)! Will this be the death of the credit card? There was a lot of other information and discussion, but what really got me going was a question by RPCN member Lynn Dessert asking what the presenter knew about a new Law on the books stating that e-books were not taxable under New York State Law.

Now I’m no lawyer by any stretch of the imagination, but I am a writer and I work with a lot of other writers. Some of them have produced e-books for which they have been charged sales tax in New York State. I also follow the writers’ trade magazines (Publisher’s Weekly , Poets and Writers, The American Book Review etc.) If there was any truth to this, there would have been articles in these magazines because it would be the first such legislation in the country. It would be all over Yahoo, Google, and Amazon.com for sure! Yet, I had seen nothing. So, I figured that it simply was not true. RPCN’s presenter said that he hadn’t heard of the law either, but if an e-book were sold through Amazon.com, it would not be subject to sales tax in NYS.  However, it might be subject to a usage tax. After the meeting, I talked with Lynn, who showed me an article from an on-line magazine showing me that there was a law on the books that said e-books would not be subject to taxation if they met certain very specific conditions as outlined in the article. I couldn’t sleep for two days. Finally, on Sunday I was able to go online and find a Google Tax Exemption for e-books in New York State. I also located an article from Forbes magazine stating that “The petitioners’ e-books will not be subject to New York State Taxes.” I began to feel better.

Clearly, somebody had gone to either court or the Tax Board directly for a ruling and there was in fact no blanket law that changed everything yet. But again the articles said “New York State Exempts E-books from sales tax.” I also found the specific article Lynn had shown me. Now that I was a little calmer I became curious as to what was actually going on so I went directly to the New York State Department of Taxation Web Site. There I found that on April 7th 2011 the department issued form number TSB-M-11 indicating that it was still working on legislation regarding e-books. However, as stated in the form, they were issuing an interim policy stating that if e-books met all of the conditions specified in the memorandum and do not constitute the sale of information services as defined under section1105(1) of the tax code, they may not be subject to sales tax. This tells me three things:

1. There is no separate law specifically covering e-books (I couldn’t find anything indicating there had been any updates since April 7th 2011).
2. The Tax Board has instituted a policy to deal with e-books pending legislation.
3. This may change at any time.

Let’s take a look at that policy.  It specifically states that an e-book cannot contain any embedded computer codes and must meet all of six very specific criteria. Those criteria are

1. The purchase of the product does not entitle the customer to any additional goods or services and any revisions done to the e-book are specifically for correcting errors.
2. The product is provided as a single download.
3. The product is advertised as an e-book  
4. The product is not designed to work with software other than the software necessary to make it legible on a reading device (the memorandum specifically mentions Kindle, Nook . Ipad, Iphone, or personal computer as examples).
5. It cannot contain information which would constitute informational services as defined by section 1105(c)(1) of the New York state tax code.
6. If the intended or customary use of the product requires that it be updated or that a new edition or revised edition of the product be issued from time to time (example: an almanac). Those updates are not issued more frequently than annually.

As I mentioned, I’m no tax attorney! You can look up the code in form TSB-M-10(7)s for yourself, I will tell you it covers all printed materials including previous history’s and historical information, Technology, Self Help, News,  Advertising and Marketing “and all related materials,” educational materials (including “How To”  books) and more.

So let’s take a look at a few of these conditions:

• The product is provided as a single download: Ever get an e-book as a PDF file? Ever forward it to anyone when you did?    That’s at least two downloads right? Clearly if any of your customers forward the e-book to a friend you’re in trouble!
• The product cannot contain information which would be covered as an information service.

This covers History, Education, Technology, Self-help, How-To books and more. What’s left for your e-book to cover and still be tax exempt under New York Law? Even Poetry e-books and e-novels cover at least some of these topics!  I’m sure the others have holes that are just as big.

One last item. What happens if your customer decides to print out the e-book? Clearly it is no longer a single download or using only the software necessary to read the e-book on the computer. I did not check on US federal Law that affects e-books but if you want you can go to http://www.loc.gov/index.html and look it up under the section of the New Millennium copy write act addendum for e-books. Clearly this policy is a thinly veiled way for The New York State department of taxation to actually charge taxes for the sale of e-books and still comply with the judgment that e-books are not taxable in New York State.

Again, the memorandum covering this is form TSB-M-11(5)S and the form covering the current laws concerning information services is form TSB-M-10(7)S.   You may want to read both before considering doing an e-book. Special thanks to Lynn Dessert for bringing up this matter. 


" Laughing" Larry Berger is a Writer , Author and Marketing Consultant working with Writer's, Literary Agents, Publishers , Movie Studios and the venues where people in the industry can be found . Examples include theaters, colleges , coffee houses and more.

Contact Larry to set up a meeting.

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