If you’re selling your books directly to readers—whether it’s through your own website, a storefront provider, or some other platform—you’ve stepped into the world of running an official business. And with that comes the not-so-glamorous (but still very important) concept of sales tax nexus.
What Does “Sales Tax Nexus” Mean?
Sales tax nexus is the level of connection your business has to a state that requires you to collect and remit sales tax there. In other words, if you reach nexus in a state, that state then expects you to act like a tax collector on its behalf.
There are two main types of nexus that it’s important to know about as an author:
Physical Nexus
This can be considered a more “traditional” kind of nexus. You automatically have nexus in a state if:
- You live there
- You store inventory there (including third-party warehouses)
- Have an office, employee, or contractor there
For most indie authors, this often means that you have nexus in your home state when starting out with direct sales. But if you’re selling direct with the assistance of a remote employee or contractor who lives in a different state than you, you will automatically have a nexus in their state as well.
Economic Nexus
This is the nexus where things get a little trickier. Many U.S. states require that if you sell enough products to customers who reside in their state, your business owes that state sales tax, whether you physically live in that state or not.
The thresholds for economic nexus are most often based on:
- A total dollar amount in sales or
- A total number of transactions in that state, and
- The year(s) trailing the year you reached nexus
The tricky part is that each state not only uses different thresholds, but may have a different number for the threshold. One state may have a $100,000 threshold, while another state has a $500,000 threshold, while yet another state instead has a 200 transaction threshold (regardless of sales amount). And many states will require you to continue paying sales tax for the year (or several years) following the year that you actually reached nexus.
Some states also have different rules for different types of products, specifically digital products (like eBooks and audiobooks) versus physical products (like print books). You may reach nexus for one type of product without having reached it for the other, even if they are simply different formats of the same book.
So if your direct sales grow large enough, you could trigger nexus in multiple states for different reasons, whether you live or work in them or not. The hard part is knowing which states have which nexus thresholds and rules, and keeping track of how and when your sales may affect them.
Why Nexus Matters for Authors
If you’re selling books through your own website and store, you are considered the seller, the payment processor (or are connected to one), and the one legally responsible for tax compliance.
That means if you reach nexus in a state, you may need to:
- Register for a sales tax permit in that state
- Collect the correct sales tax at checkout
- File the appropriate tax returns
- Remit that tax to the state
If you skip or miscalculate these steps, it’s possible to face penalties, back taxes, and general administrative headaches or hardships down the road. It’s admittedly not a fun prospect to think about, and is certainly not what you envisioned when you started writing books.
Your Options as an Author
There are generally two ways to handle sales tax calculations and payments.
The first would be to handle it all entirely yourself. This would mean:
- Researching and understanding the nexus rules and regulations of each state
- Tracking your sales very closely to know exactly when you reach a nexus
- Registering within any states when you reach their nexus
- Calculating and filing the appropriate returns for those nexus states
This method is best for authors who enjoy research, developing systems, and maintaining control over every aspect of their accounting and legal obligations. Just keep in mind that maintaining this information can be time-consuming, is easy to get wrong, and can grow in complexity fast.
It’s also possible to hire third-party services to handle the above steps for you, such as tax professionals and accountants who would then work together to track and maintain and file for you. But their fees can become quite expensive.
So the second option you can explore is to use a Merchant of Record (MoR) for your direct sales business. An MoR is a service that becomes the legal seller of your books at checkout. This means they handle all the sales tax instead of you.
An MoR will:
- Calculate the correct tax
- Collect it from the customer
- File and remit to the appropriate states
- Take on the compliance liability
You can think of an MoR as handling the critical tax and legal infrastructure of sales, while you still get to fully own and sell your books directly to readers, while still maintaining many of the benefits of doing so.
Why Many Authors Choose a Merchant of Record
For authors selling direct, using a MoR is often the simplest and safest route for their business. There is usually some type of fee associated with using a direct sales platform that also acts as a MoR, but for many authors, this fee is well worth the peace of mind.
With a MoR, there’s:
- No need to track nexus thresholds
- No state registrations
- No filing deadlines
- Overall reduced legal risk
- More time to focus on writing and marketing
Granted, it may take many authors quite some time to reach nexus in any states outside the one they reside in, so an MoR may not be immediately necessary. But setting yourself up with one early not only makes it so that you don’t have to worry about sales tax in your own state, but you don’t need to even think about this burden of growth as your business blossoms.
Want to learn more about exactly how an MoR works? Check out this article.
Sales Tax Nexus Summarized
To understand sales tax nexus is to understand where you’re required to collect sales tax based on your author business’s activities. It may sound simple when put that way, but with so many different requirements from different states, it quickly becomes convoluted.
If you’re selling direct, sales tax nexus will be an inevitable part of your business requirements in at least one state. But that doesn't mean you have to fear it or let it completely take over your business. You can always learn and manage it yourself, or offload it onto a Merchant of Record.
The right choice depends on how you prefer to run your author business and your level of comfort with maintaining the necessary steps, as well as your ability to pay for services or platforms that can do the job for you.
Either way, understanding nexus before you start selling direct is necessary for keeping your author business healthy, sustainable, and hopefully, free from unexpected surprises down the road.
Want to learn even more about how to build a great direct sales business for your books? Check out The Ultimate Guide to Direct Sales for Authors.
Related Questions
Does selling on retailer marketplaces avoid nexus issues?
Usually, yes. Many familiar retailer platforms like Amazon act as marketplace facilitators who are the MoR, meaning they automatically collect and remit sales tax for you, often for a share in your sales profits. But this will only apply to books sold through their platform; the protection does not extend to books sold through your own website.
Are most storefront services Merchants of Record?
This answer can vary widely, so be sure to do your due diligence when choosing a potential storefront to use for selling your books. For example, platforms like Shopify and WooCommerce are not MoRs. So even though you can create a storefront through their platforms, you are still responsible for tracking your own nexuses for every item sold through them. Other platforms, such as The Bookshelf, are storefront platforms and MoR.
Do I have to charge sales tax for digital books?
It depends on the state, as each one has their own laws regarding digital products. Many states exempt or reduce taxes on digital products like eBooks and audiobooks, while some states will still require normal sales tax be collected. This is why the “research and understanding” phase of nexus is so important if you plan on handling the process yourself.
