The Amazon Tax

The US Constitution clearly prohibits states from taxing interstate commerce, as SCOTUS confirmed in the Quill decision. Unless a business has a physical presence in a state, that state cannot tax transactions between that business and a resident of the state.

Cash-strapped state governments and brick-and-mortar retailers wish desperately that were not true, the states because they want more money and the retailers because they want to force sales to their local stores. Several states, North Carolina among them and most recently California, have passed laws on the dubious theory that affiliates constitute a legal nexus for taxation.

But, no matter how dubious that theory, at least it’s used to enforce sales tax collection, which is Constitutional. What seems to skate beneath notice are use taxes, which are not. All states that have a sales tax also have a use tax. A resident from one of those states who purchases something from a vendor in another state is legally obligated to pay the use tax, which is invariably calculated at the same rate as the sales tax, and is simply a transparent attempt to violate the Constitutional prohibition on taxing interstate commerce.

North Carolina goes further than most states. Every year, when I do our state income tax return, I have to fill out a section on use tax. North Carolina offers residents a choice. Other than for major purchases, which always require paying use tax on the actual purchase price, we can either pay use tax on actual purchases or on estimated purchases as a percentage of adjusted gross income. That percentage is small enough and we buy enough on-line that it always makes sense for us to use the estimated method. In effect, we usually end up paying something like 1% or 2% use tax rather than the nominal 7.75%. Still, it’s perfectly legal for us to choose the estimate method.

It’s also perfectly unconstitutional for North Carolina to impose that tax, intended as it is to get around the Constitutional prohibition on taxing interstate commerce. The problem, you see, is that North Carolina charges use tax only for purchases that did not incur sales tax.

For example, if I buy a $100 widget in a local store, I’m charged $7.75 sales tax. If I buy that $100 widget on-line from an out-of-state vendor, I am (at least in theory) required to pay a $7.75 use tax. So far, so good. The problem is, when I buy that widget at the local store, I’m charged only the $7.75 sales tax, rather than the $7.75 sales tax PLUS the $7.75 use tax. Because the use tax is not charged on in-state sales, it is discriminatory and a violation of our Constitutional right not to be taxed on interstate commerce.

I keep hoping that someone will pursue a case against a state government and take it all the way to SCOTUS, because use taxes as currently implemented are prima facie not Constitutional.

Writers despair

Kristine Kathryn Rusch has an excellent post up about the despair prevalent among traditionally-published novelists. Even recently bestselling authors are being dropped by their publishers and those who are “lucky” enough to continue being published are being paid peanuts. Publishers are unilaterally changing contracts terms, grabbing e-publishing rights they aren’t entitled to and haven’t paid for, grossly underreporting sales numbers, and otherwise ripping off their authors. Nor are agents any friends of writers, if they ever were. Most literary agents are no better than publishers, and many are worse.

All of this was predictable and predicted, a result of the ebook tsunami that has destroyed traditional publishers’ and agents’ business models. Traditional fiction publishers and agents are at panic stations, and the authors are the first ones to be tossed out of the lifeboats. Print fiction publishing is in a death spiral, and it’s every man for himself.

If you think I’m exaggerating the death-spiral thing, see the sales numbers for mass-market paperbacks. From April 2010 to April 2011, MMP sales fell 50%. If anything, I’m being generous. A 50% decline in one year isn’t a death spiral; it’s a crash-and-burn. And, if anything, we’re likely to see a greater decline over the coming year. MMP is toast, and hardback is already on life support. Traditional fiction publishing is dead. Unfortunately, most traditionally-published authors haven’t heard the wake-up call.

Barbara came across a new-to-her author yesterday, and asked me to check availability of her titles for Kindle. The good news is that most or all of them are available for Kindle; the bad news is that all of them are more expensive than the MMP versions, and most are priced at hardback levels. NFW will we buy those books at those prices. Nor will many others, which leaves that author and others like her hung out to dry.

When one of the parties to a contract substantially violates the terms of that contract, as traditional publishers have done and continue to do, that contract is void and the injured party is entitled to damages. It’s unlikely that many authors have the resources to sue their publishers successfully, but that doesn’t mean those authors have no recourse.

If I were Kate Atkinson or another traditionally-published author, I’d treat my publisher to some of its own medicine. I would immediately send my publisher a legal notice that they are in violation of the terms of our contracts, that those contracts are now void, and that I was hereby demanding full and immediate reversion of rights on all of my titles with them. I would then self-publish all of my own titles on Amazon and B&N, pricing them at $0.99 for backlist titles and $2.99 for frontlist titles. Let the publisher try to sell ebooks of those same titles at $15.99 when I’m selling them for $2.99.