How E-book Pricing and Sales Taxes Affect Your Photography Business

Unless you've been living under a rock somewhere, you are no doubt aware of the continuing battle between online retailers and "brick and mortar" retailers over the collection of state sales taxes. Physical retailers claim online retailers have an unfair advantage by not being required to collect sales taxes for states in which they have no physical presence. Anytime someone starts preaching about the need for legislation to "level the playing field," their motives should be examined closely. Two recent examples suffice.

When Apple decided to add books to its iTunes store it knew it couldn't compete with Amazon, which was offering most e-books for $9.99 and absorbing the losses to build its business model. Amazon's heavy discounting upset the major publishers because they felt the discounted e-books were undercutting their ability to sell physical books at full retail. So Apple, completely self-serving, approached the publishers with an agency model agreement which allowed the e-book price to be set by the publishers with a fixed commission to the sellers. Not surprisingly, the publishers leaped at the deal.

Armed with this leverage, the publishers immediately threatened to withhold their books from Amazon unless they also agreed to the agency model. The blackmail worked, Amazon caved, and the result was an immediate increase in the price of e-books. Consumers were treated in some cases to the ludicrous spectacle of e-books, which carry no costs for printing, storage, or distribution, being priced higher than physical books. Now there is very little difference in pricing between Barnes & Nobel, Apple, or Amazon. In other words, no competition. Price fixing. And consumers are paying for it. The European Commission and the US Justice Department this week announced independent investigations into whether the agreement constitutes price fixing. This will be one to watch.

In the second case, which has not come to fruition yet, Amazon is supporting an idea for Federal legislation that would require the collection of sales taxes by all online retailers. Again, completely self-serving, since Amazon knows it must compete against thousands of small mom and pop internet stores that cannot afford to collect and remit sales taxes to 50 states and hundreds of municipalities. Many of them would simply give up and close their doors. Even though Amazon claims to support an exemption for businesses that do less than $500,000 annually in sales does not mean that it will come to pass in the final legislation if enacted.

What does this have to do with you as a photographer? Like many of us, you probably make major purchases of cameras and lenses from an online retailer like B & H Photo or Adorama. On a $3000 camera body or a $1700 lens, a five or eight percent sales tax adds up to real money, money that's no longer available to your family or business. Now imagine you are a modestly successful photographer and sell a few hundred prints via your web site. Are you prepared to get a sales tax license for each state and deal with the paperwork for 50 different taxing entities?

So keep an eye on the price fixing investigations and the progress of any legislation to extend state sales taxes to online purchases. It's all money out of your pocket. And beware when any corporation looks for a legislative solution to competition in the name of fairness.