What's taxable when it comes to photography?

There was an link on Sales Tax News and Links today that brought up this topic.  I actually wrote about this originally on July 16, 2009.  Amazingly, the article needed little updating.  But I have changed a few things and applied a little wordsmithing.  So for you professional or semi-professional photographers out there, enjoy.

Photography services

Most states don't broadly tax services - but some do. And photography is also considered the delivery of product (the prints), and that product is usually taxable as the sale of tangible personal property. However, these rules vary enormously from state to state.  So you need to research what YOUR state does.

For example, I'm in Illinois, and photography services aren't taxable. Even the delivery of the prints, if they're part of the photographer's service, like doing a wedding or a portrait session, are still not taxable.

However, in Wisconsin (a popular vacation destination for people from Illinois in case you've never seen Stripes), most photographic services, including shooting those portraits and weddings, are taxable. I bet that just bummed out a bunch of photographers I know in Wisconsin.

Film or print processing

Getting prints from the drug store is taxable in most states. It's the delivery of tangible personal property. And if you order prints online and they're delivered to you, you'll owe use tax if they don't charge tax.

Sale of prints

Just like the sale of any other tangible personal property, sales of photographic prints (eg. at an art show) are taxable.

Delivery of images online

In a few states, the delivery of pictures electronically is taxable. But while many states tax downloaded video, music and books, most states just haven't gotten around to photographs yet.  But that will change over time. And the auditor might try to bluff you, just for grins.

And if you deliver the photographs on a flash drive or a DVD, then you've transferred tangible personal property, and the sale is no longer simply a transfer over the internet but a true sale of TPP.

Special tax breaks

There are a few states that have special exemptions for the sale of art - and this usually includes fine art photography.  Don't get excited though.  Only a few states do this.

Here's the cool part

If you're selling your taxable prints, then the paper and ink that you purchase is usually exempt as purchases for resale (or ingredients if you're thinking manufacturing).  Heck, the inkjet printer might even be exempt as manufacturing equipment.

Please remember that, as you saw with Illinois and Wisconsin, the rules vary widely from state to state.  You gotta look it up for your state.  Because it's going to be different there.

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The Sales Tax Guy http://salestaxguy.blogspot.com

See the disclaimer on the right.

Don't forget our upcoming seminars and webinars. http://www.salestax-usetax.com and there's more sales tax news and links here http://salestaxnews.blogspot.com

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

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.

Models
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).

Admissions
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

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

A Short Course in Sales and Use Taxes for Artists (Part 1)

A reader (Richard Streitfeld at peaceloveandbusinessplanning.com) recently asked me about sales taxes related to art and artists and I referred him to an article I’d written a while back. We continued to exchange emails and he told me about the writing and training he’s done on this topic.  He inspired me to try my own spin on this. In weak moments I think of myself as an artist, so maybe an article for the right-brained folk might be interesting.

I’m going to be writing this article in multiple parts because this is going to take some time. And this should be useful not only for artists but for other entrepreneurs as well. Most of the issues an artist faces will be dealt with by other businesses as well. So this “course” will apply to pretty much everybody.

Some of you may have taken issue with something I said above. Yes, if you’re selling your art, you’re in business. And you should be collecting and paying sales and use taxes as the law requires, just like any business. I’ll make the assumption that you want to do that. Everyone should be paying their fair share, right?

I’m going to avoid some of the theory that I love to talk about it. I will also be omitting, skipping and simplifying to keep the right-brained among you interested. But please see the disclaimer.  Get a second opinion; don’t take my word for it. I’m just trying to give you an overview. I strongly urge that you sit down with an accountant and discuss the issues I’ve raised here. And if you don’t have one, you’re making a big mistake.

OK, let’s dive into it.

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Things that you sell

I hate to break it to you, but to be very plain spoken, if you’re an artist and you’re in the business of selling your art, you sell stuff*. And sales of stuff are generally taxable. So if you sell a painting, you should be charging tax. And if you sell a photograph, you should be charging tax. If you sell crafts, you should be charging tax. If you're a musician and you're celling CD's at the back of the room, you should be charging tax.  It doesn’t make much difference if you sell five pieces a year or 500 a year. If this is your work, then you should be charging tax.

If you sell something from a web site, like Etsy, eBay, or your own web page, you should be charging tax. However, there’s a big exception here. If you’re shipping to someone who's not in your state, then you may not have to charge them tax. And the taxes that apply are based on the state you’re shipping to. If you’re not in that particular state, you probably don’t have to worry about charging taxes for that other state.

However, if you’ve visited clients (or prospective clients), done art shows, worked on an exhibit, have work on consignment at a gallery, or done any other kind of work or performance in that other state, or paid someone else to do so, then you may need to charge that state’s taxes. And yes, if you do that art show in another state, you should be collecting that state’s taxes on any sales you make both during and after the show.

Remember this also means that it's taxable when you sell something to someone who is in the same state you are.

And just charging taxes isn’t enough. You have to send that money to the appropriate state. Which means you must register in that state and start filing sales and use tax returns. You don't just write on a scrap of paper "here's your taxes" and mail them a check.  You have to register and then fill out a very left-brained form.

And to make matters even worse, the rules are completely different in every state. So if you do an art show in one state, and then do some production artwork in another, it's not going to be the same.

Are you sure you don’t need an accountant?

That’s enough for today. There’s lots more.

I'll post a link to the next articles as they get posted.  Here are all of them published so far.

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

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*My definition of stuff, to make it really easy: A single piece of stuff is something you can hear, see or touch and that can be moved without damage. This isn't complete but it's about 90% of the way there.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. 

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Sales Tax on Big Chickens?

You're on vacation and you stop in at an interesting looking art gallery.  A giant chicken catches your eye and you buy it for $10,000,000.  You're a collector of over-sized fowl and this one will be the crowning glory of your private art gallery.  It's a good thing you've got that really high limit on your MasterCard.

The dealer prepares the invoice.

Chicken.............$10,000,000

Sales tax (8%)..........800,000

Total...............$10,800,000

Oh, come on!  Whoever heard of paying $800,000 in sales tax?  This can't be taxable!

Actually, it is.  And you've just made the revenue department in this state very happy.

Let's use the golden rule of taxable sales:

1.  There's a sale
2.  It's tangible personal property.  It's obviously tangible.  You saw it and you sat on it. And it wasn't permanently affixed to the floor. So it's tangible personal property.
3.  The sale was made by an art gallery - someone in the business of selling art - a retailer.
4.  You're buying this for your home or office, not to resell, so you're the end user.

Congratulations, you owe sales tax.

Now, you didn't get rich by just throwing around $800,000 here and $800,000 there.   There's got to be a way out, right?

Hmmm.  Not really.  There are some common evasions, but no real and legal way out.

1.  You can ask the gallery to ship it out of state to your home in Gotham City, where all the best Big Chicken collectors hang out.  There's no sales tax when you ship out of the state, right?  The dealer, who just got audited last month, points out that he can't do that.  Since you're in the store, and effectively have control of the Big Chicken as soon as the sale is signed, you have taken delivery in the store.  That means that the state you're in has jurisdiction and will impose tax.  If the seller doesn't do this properly, he'll get nailed by the auditor (again) when she comes back in six months.

2.  Even if you convince the dealer (maybe he's new and hasn't been audited yet) to not charge tax and to ship it to your home in Gotham City, you will now owe use tax on that objet d′art in the great state of Gotham.  And since you're so stinkin' rich, you know they're going to audit you one of these days.  Actually, unfortunately this doesn't happen all that often.  You do owe the use tax.  Whether you pay it or not is more of a reflection of your character.  Bruce Wayne would pay the use tax.  Just sayin'.

A different scenario

Let's say you're driving down a dirt road while on vacation, and see a yard sale with that chicken standing there in all of its glory. In a cloud of dust you slam on the brakes and kind of casually ask the rube what he  wants for that "old chicken."

"Ah'll take $10,000,000 please.  Ah inherited that from mah Daddy and he durn told me whut it were worth."

Dang.  You write him a check since he can't take a credit card, and have him arrange for shipment to Gotham City.

Now, there's been a change in the situation.  It's no longer a sale by a retailer, it's an occasional sale.  Since the farmer isn't a retailer (he was having his annual yard sale) he doesn't collect sales tax.  And since you purchased the item in an occasional sale, you owe no use tax, either in the state where you bought it, or in Gotham.  Remember, the sale wasn't by a retailer, therefore it wasn't a taxable retail sale.

So in this scenario, you've saved the $800,000 in sales and use taxes.  Legally!  But only because you bought it in an occasional sale.  Buy it from a dealer, and you owe the tax.

As is usually the case, not every state does it in the ways I've described.  There are variations in several states on the way they handle in-store purchases that are shipped out of state, as well as use tax on occasional sales.  Do your research!

Which leaves us with the moral of this story:

If you're going to buy big chickens, stick to the dirt roads.

Yep, I know.  Sometimes these articles just write themselves.

This is our last article for 2010.  It has been a good year for us and I hope it has been for you as well.  We currently have January and February on our webinar schedule and will be adding March, hopefully by the first of next week.  Happy New Year!

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. 

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