This blog was last updated on June 27, 2021
Reading is unquestionably fundamental, but the taxation of reading material is anything but that. Organizations that sell publications (newspapers, magazines, books, and alike) face a variety of taxation challenges both domestically and internationally. Those challenges are only growing as we continue to move into the electronic age where print media yields to its digital equivalent. In the course of this article, we will attempt to address some of the more interesting and perplexing sales issues associated with the publications industry. Books Whether fiction, non-fiction, murder mystery, high-tech thriller, or the latest edition of the dictionary, books are generally taxable at standard sales tax rates across the country. However, the same cannot be said for digital books that are downloaded to your customer’s e-reader. The words on the page (or in this case the digital screen) may be the same, but the taxation differences between paper books and e-books are significant: 
States That Exempt Electronic Books Then, there are the increasingly popular “Back to School” Sales Tax Holidays which occurred in 18 different states last year during the months of July and August. While Alabama stands alone in including books within the scope of their holiday without any qualification as to the type of book being sold, several states, including North Carolina, South Carolina, New Mexico, Puerto Rico, and Georgia extend a Holiday exemption for printed books that are required as part of primary or secondary education or part of a summer reading program. Textbooks The proper taxation of textbooks presents an entirely different level of complexity. While Tennessee is the only US state that applies an every-day exemption for textbooks sold in all contexts, many states apply special rules to textbooks sold in specific types of circumstances. However, the types of circumstances warranting tax exemption vary greatly from place to place. Sellers of textbooks should keep the following factors in mind:
- Is the textbook new or used?
- Is the textbook required for a particular course of study or is it merely “optional” or “recommended” reading?
- Is the textbook being sold by a licensed on-campus bookseller or a third party?
- What is the nature of the educational institution (primary school, secondary school, state university, private university, for-profit, or not-for-profit?
- Is the student purchasing the textbook able to provide documentary proof that they are a registered student and that the book at issue is on their required syllabus?
In the last few years, business have sprung up that offer semester-long textbook rentals, most likely in response to the high price-tag often associated with purchasing college textbooks, However, if you are considering this line of business, be aware of an additional layer of tax complexity. While most states apply similar tax rates to sales and rental transactions, there are a number of places where significantly different tax rules apply. For example in Maine and in Illinois, true rental transactions are not taxable. Rather, the “rentor” is required to self-assess use tax on items to be rented. However, if an item is rented in the City of Chicago, not only is it taxable, a special 8% rental tax applies. Likewise, special rental rates apply throughout Alabama and states such as Arkansas and Virginia apply special short-term rental rules. Before we leave the topic of textbooks behind, there is one last thing to keep in mind. A number of states construe the word “textbook” literally and while they may exempt the sale of “Advanced Topics in Sales Tax” purchased for a class in your Masters of Taxation program, they would not exempt a copy of “Macbeth” purchased for English Lit 101 as its not technically a “textbook.” Newspapers and Magazines While most states do not provide an every-day exemption for the sale of books, a number of places have exemptions that may apply to newspapers and magazines. However, the complexity lies with respect to how a “newspaper” or a “magazine” may be defined. The good news is that state definitions in this area are usually pretty clear. By way of example, the state of Washington defines a newspaper as follows: A publication issued regularly at stated intervals at least twice a month and printed on newsprint in tabloid or broadsheet format folded loosely together without stapling, glue, or any other binding of any kind. The challenge lies in the fact that between states there is a lick of consistency and what qualifies as an exempt newspaper in one jurisdiction may not qualify in another. For example, states will often differ as to how frequently the newspaper must be published in order to qualify (daily, weekly, monthly, etc.) and some states have rules that vary taxability based on how the newspaper is sold (subscription, newsstand, route carrier, etc.). The tax landscape for magazines is somewhat similar. New Jersey, for example, exempts magazines but only when all the following criteria are met:
- Published (printed or written form) periodically at least four times a year;
- Available for public circulation (whether or not through paid subscriptions);
- Contain a variety of articles or other information;
- Contain no more than 90 percent of its printed area as advertising;
- Have continuity as to title and the general nature of its content from issue to issue; but not constitute a “book.”
- Whether the item would be classified as having second class mailing privileges.
The tension between the print and digital world is definitely present here as well, as some states construe their exemption for newspapers and magazines to only apply when they are printed on paper. E-newspapers and e-magazines simply may not qualify. Publications Worldwide In many countries around the world, reduced rates or exemptions for books, magazines, and newspapers are extremely common. This is absolutely true in the European Union, where the EU VAT Directive specifically allows Member States to adopt reduced rates for books and other periodicals. As is the case within the United States, there is significant variation as to the types of items that qualify. For example, while the Greek VAT law specifies that children’s picture books are properly taxed at the reduced rate of 6.5%, many Member States expressly exclude picture books of a more adult nature from special tax treatment. In the EU, the question of whether to afford a similar preferential VAT treatment to electronic publications is a matter of significant debate. Under the strict terms of the VAT Directive, reduced rates are not permitted for electronically supplied services. However, both France and Luxembourg have enacted rules which afford reduced rates to e-books. In response, the European Commission instituted an infringement action against both countries in the European Court of Justice. The Commission takes the position that under the EU VAT Directive, e-books constitute electronically supplied services and as such, reduced rates are expressly prohibited. The Commission further contends that by applying a reduced rate of VAT to e-books, France and Luxembourg are creating unfair competition within the EU. Since a digital book can be transmitted anywhere in the EU within nanoseconds, e-booksellers located in Luxembourg currently enjoy a pronounced tax advantage over similar sellers located in places like the UK, where the VAT on e-books is 20%. Concluding Remarks The above discussion represents just a sampling of the complexities faced by companies in the business of selling published materials. Further, as technological advancements provide new and exciting ways to transmit the written word, new taxability questions will undoubtedly arise. Taxware remains committed to supporting our clients within this industry and providing proven technology solution that significantly eases their compliance burden.
