Wednesday, January 04, 2012

A Short Course in Sales and Use Taxes for Artists (Part 2)

Well, you don't see this everyday

This is Part 2 of a "short course" on sales and use taxes for artists.   Read the first article in the series for foundational information, more on how this series came to be, and a list of articles (at the bottom).  Consider it a prequisite to this article.

Services that you sell (and buy)

In Part 1, the discussion covered the works of art that you sell (hint: they're taxable).

In this part, we'll talk about the services you may sell and buy.  And yes, they're sometimes taxable.

If the model is working independently, it's very rare that this service would be taxable (but never say never).   However, if you've hired him or her through an agency, there are a couple of states where the fee is, to some extent taxable.  And that includes any worker hired through a help supply service.

Make-up artists
Their services are even more taxable than models.  Several states tax personal services including make-up. No agency needs to be involved for their services to be taxable.  

Digital transfer
If you deliver your work to someone digitally, you might think there's no tax.  Well...  In the last few years, more and more states have started passing laws and regulations essentially declaring that digital downloads are taxable.  And they usually include in the definition photographs, art, music, movies, books, photographs, etc.  Essentially, if it was taxable before, and the only thing that's changed is the method of delivery, it's still taxable.  Note, this hasn't happened yet in the majority of states.  But it's coming.  Let's face it.  The states were counting on the sales tax on all those CD and DVD sales, but that's going away.  I blame iTunes and Netflix.

Commissioned work
This is usually taxable.  Even though it's custom and commissioned, you are selling "stuff" and therefore it's taxable.  There are a couple of interesting exceptions.  One state says that commissioned work that has no value to anyone else is not taxable when sold by the artist to the person who commissioned the work.  And another state has an exemption for artists producing work at parties as long as the person giving the party hired them, not the individuals in the portraits.  But if you're on the street doing cartoons for hire, you better be charging tax.

Restoration and repair
This is a big one.  This type of labor is taxable in about half the states.  So if you've been hired to repair, restore, or clean an item, there's a good chance you're performing a taxable service.

Doing work on the customer's property
This is even bigger.  This type of work could range from pin-striping a car, to silk-screening, to engraving.  Even though you haven't technically transferred any property to the customer, you have sold them a service which has improved their property and made it more valuable.  This is usually taxable (and often called a fabrication service).

If you charge an admission to a performance or display of your art, you may need to give the state some of that money.  In many states, admission charges are a taxable service.  And occasionally, the state doesn't impose a tax on admissions, but the local county or city will.  Thankfully, there are frequently exemptions for registered (with the state) non-profit organizations.

Finally, remember that the rules are completely different in every state.

Part 1 - Introduction and overview
Part 2 - Services that you sell and buy

The Sales Tax Guy

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details that haven't been discussed, and every state is different.  Here's more information

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