Exhibits and Sales Tax
JOHN ROLLINS, YALE UNIVERSITY PRESS
In recent years, as state and local governments have faced increasingly serious budgetary problems, the issue of sales tax registration and collection at exhibits has become a greater concern for university presses. Ten years ago, few governments sought to collect sales tax at exhibits. However, in an effort to boost tax revenues, they have turned their attentions to the exhibitors who display and sell products at professional and business meetings. The response of the university presses to this attempt to collect sales tax has at times been uninformed, confused, and inconsistent.
Why Sell Books at Exhibits?
Direct sales are not the primary reason why our presses exhibit at scholarly and professional meetings. In fact, exhibits are not even a particularly effective vehicle for direct selling. For most presses, total annual sales at meetings either barely cover or fall short of covering the direct costs (excluding salaries) of their exhibits programs. Most of us would probably agree that our presses use exhibits mainly as an acquisition tool, to promote our lists or sections of our lists. While university presses could undoubtedly survive without the direct sales from meetings, it is very important for a press's list to be well-represented at meetings so that its commitment to an academic field and the strength and success its publishing program in that field can be demonstrated. Seeing our books helps academicians make decisions about which presses they will submit their manuscripts and proposals to, as well as which books they will assign in class, recommend for their university library, and use for their research. Although probably not absolutely necessary, direct sales are useful and help a press to achieve its acquisitional and promotional objectives for exhibiting at a meeting.
Direct and indirect exhibit sales also serve an important function beyond their obvious financial benefit to a press. They provide feedback about the interest in a press's list in a particular field and the interest in, activity of, and health in general of that field. Exhibit sales are part of the important knowledge-gathering function of attending scholarly meetings.
Problems with Sales Tax Collections on Exhibit Sales
Developing an intelligent, clearheaded, and consistent response to the sales tax-collecting activities of state and local governments has been difficult for several reasons. Sales tax laws and their interpretation and enforcement vary from state to state, county to county, and city to city. As more and more jurisdictions chime in to try to collect sales tax at meetings, it becomes harder to stay informed about tax regulations and practice. In addition, government tax-collecting efforts are often inconsistent, depending on such variables as staff availability and the importance of a particular meeting. The reaction of the presses themselves adds to the confusion. Big and small presses, public and private university presses, tend to react somewhat differently to the exhibit sales tax issue. In fact, even within a particular press, concern differs among editors, exhibit managers, and financial officers. To the limited extent that we have developed policies concerning exhibit sales tax, many of our presses share similar approaches. First of all, remain flexible, keep your nose to the wind, sell when you can, never register or sign anything, and stop selling immediately at the first sign of trouble. Sounds like street vending in New York City, doesn't it?
Responses of University Presses to the Problem
I did an informal telephone mini-survey of financial managers from a variety of presses: big and small, public and private, from all over the United States. First of all, I found that presses at private universities, especially large presses, seem to be much more concerned and cautious about the exhibit sales tax issue than public university presses are. Many public university presses are comparatively unconcerned about this issue, because many state and local governments, either by law or custom, apparently do not force agencies of other governments to collect sales taxes. Smaller presses also seem less concerned than larger presses. Perhaps this is because smaller presses do not go to as many meetings at which they have their own booths, and so have fewer exposures to the sales tax threat and are less cautious about it.
The financial managers surveyed were in general less enthusiastic about selling at exhibits than were exhibit managers or editors. This disinterest in selling at meetings is related to several factors, including the relative financial insignificance of exhibit sales and the inefficiency of exhibit selling (i.e., high overhead expense, small size of orders, and frequent problems such as delays in processing orders, lost orders, and payments that don't balance with the orders). In fact, several financial managers thought that editors often lose sight of the fact that sales are not the primary objective of an exhibit, and one financial manager described exhibit selling as a side-show that should be shut down. At least three CFOs told me that the dollar value of orders mailed in from meetings where direct sales did not take place was virtually the same as for meetings where direct selling occurred, an observation that is borne out by our experience at Yale. But to this group of financial managers, the most important reason to be cautious about selling at exhibits is the potential tax liability that a press may be exposed to.
Virtually all the financial managers surveyed said that their staffs had been cautioned to never register with the tax authorities. Several of these managers reported that their universities had told them that no one at their presses had the authority to register and thereby indirectly register their universities and expose them to possible tax problems. Most state university presses seem to feel safe about selling at meetings even if they have filled out sales tax registration forms, but the private university presses usually don't sell if they've been asked to register by a convention manager or tax authority.
University administrators and press financial managers are nervous about registering with tax authorities to sell at meetings because they are worried about where registration may lead. Obviously, filling out a registration form for a meeting, collecting sales tax, and remitting it to the authorities is not in itself an overwhelming operational or financial burden, although it is a bit of a nuisance. However, certain state and local governments are very eager to find new tax sources and are very aggressive in looking for them. These governments are seeking opportunities to broaden their tax base. Registration gets you into the state or local tax-collecting system, which can lead to increased attention and efforts to collect other taxes.
The Risk of Substantial Presence (or Nexus) in States
As it is now, federal law is very clear that state and local governments have no right to collect tax on interstate direct mail. Our mail sales to individuals are direct mail. States do maintain, however, that they have the right to require registration and sales tax collection for organizations that have a substantial presence or nexus in the concerned state. The courts have supported them in this assertion. Substantial presence can of course be interpreted in different ways, but typically it means a plant, a warehouse or an office, and employees. It is possible that some states might take this to mean something as simple as a sales rep and his home from which business is done. It is true that a number of university presses pay sales tax in more than one state, because they have offices and other facilities in these states. It is not much of a jump from there for a state government to claim that registration and repeated attendance at meetings in their state, with employees present and direct sales being made, is a substantial presence and completes the conditions necessary to compel an organization to collect and pay sales tax, and possibly other taxes as well, on transactions. This is a situation that could involve not only your press but also your university.
Audits and Back Taxes
Once you have registered for an exhibit, filed your tax report, and paid your sales tax, it is not unusual to get forms periodically from the authorities in the state or city where you registered asking your press to report subsequent sales and to make payment on any taxes due. Tax registration also usually gives the state or city the right to audit your press, and an audit could turn up past exhibit sales for which taxes, interest, and penalties are due. In a case like this, the press would bear the full financial impact, since no taxes would have been collected on the original sales.
States and Cities that Pose the Greatest Threat
The risk associated with direct selling at an exhibit without registering varies from location to location and from meeting to meeting. California, Tennessee, Minnesota, Massachusetts, Louisiana, New Mexico, Wisconsin, Iowa, Washington, and Texas have all been problem states. New York City, Boston, Baltimore, Washington, Atlanta, Miami, Minneapolis, Dallas, San Francisco, Los Angeles, and Seattle are some of the cities that require registration. If you sell without registering in one of these locations, you have to be prepared for the worst. I know of two editors who ignored the instructions from their presses and sold in New Orleans; they were caught by the authorities, threatened with fines or jail, and intimidated into paying sales tax with personal checks. They put their presses, their universities, and themselves at risk. However, even in the most vigilant locations, some meetings are held without any attention from the tax man. It often depends upon how big your meeting is and what competing meetings are taking place at the same time.
Yale's basic policy is to never register, and to never sell if asked to register. Like many other presses, we do not ever sell in California, probably the most aggressive of the states when it comes to tax collection. I know that our editors are often tempted to sell where they should not, and I know that occasionally they give in to this temptation. They've been caught twice, but not in California (and incidentally, not in New Orleans).
Alternatives to Sales
What constitutes a sale? Unfortunately, this differs from location to location. Obviously, accepting a payment and giving a customer a book in return at a meeting is a sale, but the State of California and some other governments believe that just collecting an order at a meeting establishes a point of sale and therefore makes it subject to sales tax. In such locations, a number of presses will only hand out order forms and business reply envelopes to collect orders. I talked to one CFO who said that soon his press will completely cease to sell at any meetings and will only accept meeting orders through business reply envelopes. To avoid the sales tax question, some presses have used local bookstores to sell for them. Based upon my observations and the increasing number of occasions when we are asked to register, I believe that selling at meetings will eventually be a thing of the past for my press and many others, to be replaced by orders collected through BREs and by bookstores selling on behalf of presses.