Monday, May 31, 2010

Sales tax on ebooks and rising prices

I have been reading a lot of complaints on Kindle's facebook page about rising prices and confusion about sales tax. It seems there are many e-readers who are still unaware of the changes made to e-book sales, so I thought I would briefly comment on it.

A while ago, a new Agency Model was introduced. This model is applicable to other online e-book sellers, not just Amazon. It's a little complicated and I only know as much as interested me (i.e. there is more info out there, but I read a lot of it and go bored). Here's the basic info...

The way it used to be.... Amazon et al sold e-books like they sold regular paper books. The publisher set the price then the booksellers set theirs, very often at a discount. That way, a book at Amazon might be different in price to a book in B&N.

The way it has become... Those publishers who have signed up to the Agency Model will be selling their e-books to the reader via Amazon and other sellers. Amazon will just be a "venue" through which these publishers will sell their e-books, presumably paying the websites a set fee. That means the e-book prices will be the same across the internet. It also means Amazon can't discount them as they were last year, and it also means some of us must pay sales tax on them. (I've seen numerous complaints that the 1-click payment was more than the adervertised price: that's why)
So it won't be unusual to see an paperback on a reduced price with Amazon but the e-book at a higher price from the publisher.

What's more, the sales tax is pretty complicated. You only pay tax based on your state's rate if and only if the publisher has a physical presence in your state.

Not all publishers have joined this agency model, and authors can still self-publish on the Kindle. To tell whether an e-book is sold within this model, look at the image above. Underneath the price of this one, it says:
Sold by:Simon and Schuster Digital Sales Inc

This price was set by the publisher

If it says that, or one of the other model publishers, then they are setting the price and you may be billed sales tax. (Note that many online sales are subject to your own state's Use tax on your personal tax returns so this now just being collected upfront).

I might be wrong, but numerous articles from earlier in the year give me the strong impression that Apple's heavier launch into the e-book market has had a large impact in the creation of this model. Apple have a similar set up with their apps & pushed for it with their iBook store. They get a set price or percentage per app. Now it's happening with books.

Why don't I like it? 

Well apart from the obvious (Amazon no longer able to keep their 9.99 bestseller pricing with these publishers), this does reduce competitive pricing, in my opnion. In theory, the price competitions have switched from retailers to publishers. But in reality, one might not care if their book is purchased from B&N or Borders and so shop where the price is lower. But they might care if their book is published by Penguin or by Macmillan.

I'd go as far to say that in some situations, there isn't really competition anymore. Example: if I like a particular genre or author, chances are many of the books I buy are from just a few publishing houses. So that publisher has my business. I can't get the book I want from any other publisher so I have no buying power anymore. I can't take my business elsewhere if they prices get too high. I pay it or I change my reading habits.
With the old model, I could at least wait for a sale in one store versus the other. The new model ends that choice.   Macmillan claim it makes the prices more stable. I say it just keeps the prices higher.

The positive side to it is that it will cost me the same wherever I go, and I can pick and choose my e-book retailer based on other features, such as formatting for my Kindle,  returns policy, customer services or any other added benefit.

What will I do?

I don't know yet! Honestly, I have never joined any of the 9.99 boycotts or given bad reviews based on cost. I ranted against doing that last year! If I want it and can afford it, I will buy it. But honestly, in the past year I've only paid as high 9.99 for a couple of e-books. Most books I've read have been under $5; they've been from smaller publishers or lesser known authors.

But if publishers insist on setting prices too high, I'll do what I used to do with high priced hard covers: I'll wait or I just won't buy. There aren't many individual books that I cannot live without. There are just too many cheaper but excellent books out there. I have over 100 unread books on my Kindle so I don't need to worry for a while!

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