Print Sale Taxes to Collect From out-of-state Sales (CA)?

<p>Hi, I'm new to this forum and have been searching for a clear answer to a question but have been unable to find a definitive answer. First a short run down of my situation.<br>

I'm in the process of transferring over my website (www.owenrothphotography.com) from my current host at godaddy to a new host, photoshelter. This decision was made because of a number of reasons but the one that pertains to my post here is print sales.<br>

<br />I'm based in California and will be most likely using Adoramapix to do my print fulfillment via photoshelter. I've got a seller's license through the CA BOE and understand that I need to charge and collect CA sales tax from people who buy prints from me who are located in CA. <br>

<br />My question is: What am I supposed to do with out of state sales on tangibles? Do (collect) nothing, or collect the appropriate state taxes and pay it to the respective states? It's very unclear to me. <br>

Also how does the fact that the print fulfiller is based in another state (NY)? Is that a factor?<br>

<br />Thanks in advance. From all the research I've done in theses forums there's some great people here who really give some good advice. I'm looking forward to being part of the community.</p>

<p>- Owen</p>

<p>While only a lawyer should be counted on for advice about your relationship with state government(s), the most common scenario is: you collect sales tax and remit it to <em>your</em> state government when the sale is taking place within your state. If you ship to another state and you have no physical presence/operation in that state, then it's incumbent upon your customer to pay any related sales/use taxes to their own state government. <br /><br />Not sure how the photoshelter/Adorama relationship works. Who is cashiering the sale - Adorama? If so, and they happen to be shipping to a destination in NY, they may feel the need to collect and remit NY sales tax on the transaction. That would have no bearing on your commission. If photoshelter is cashiering the sale, then it's more likely that it's their state of residence (or multiple states, depending on where they keep their datacenter/internet operations) that would impact things. It seems unlikely that those other two players wouldn't have some sort of FAQ posted about their own policies and requirements along those lines. But if they're leaving it all up to you, you're generally just on the hook for clients receiving your work in CA. But I'm a caveman, not a lawyer, so you'll want to double check the details and keep yourself whole before the gubmint. </p>

Owen, the following link is to a page about California thar covers your situation with Adorama as a fulfilment agent. See

section 5.

 

http://blog.taxjar.com/sales-tax-for-california/

 

Also, have checked to see if California has an exemption for small vendors? In my jurisdiction, we have a valued added

tax system. A small vendor (annual gross sales under $30,000) is not required to collect sales tax but in return cannot

deduct any sales tax he has paid to his suppliers.

<p>These are good counter questions. I'm looking into the photoshelter/Adorama relationship and tax exemption for small venders. Thank you for the helpful input.<br>

Also out of curiosity, Benoit, what jurisdiction are you in? Is it in California?</p>

<p>Hello Owen,<br>

<br />I'm in Québec, Canada.</p>

<p>Benoit's article, although technically correct, overcomplicates how a California company would find out how much tax to charge for California sales. The California BOE maintains a comprehensive sales tax table showing the whole tax rate for cities and counties in the state. I use a shortcut on my desktop to pull this table up whenever I need it. It is important to make a note on every taxable sale invoice outside your own district to tell you which district tax applies. The BOE requires you to report taxes collected by district.</p>

<p>Use your resale certificate to open commercial accounts with your main suppliers. You do not want to pay sales tax on goods you expect to resell, especially if you will be collecting sales tax yourself. I am not in the photography business so I can't tell you what items in a sale are taxable and which are not. Each state can write its own rules to settle the question for itself. If a service like photo shelter/Adorama collects out of state taxes on your behalf and then turns the money over to you then IMO it's all the better for you. You are not required to register your business in other states and it probably isn't worth the effort if you tried. Some states have residency requirements to meet to be able to register at all. You would want to turn over the tax collected, but the red tape needed to do it properly would likely cost a lot more than the amount of tax collected.</p>

<p>My evil nephew thinks that you should collect the tax if it's given to you and just keep it! It's a mess that isn't worth straightening out. My nephew notwithstanding, the simplest thing to do if it is a matter of conscience is to just send the sales tax back to your out of state customer.</p>

<p>BTW: You report out of state sales as a deduction on your CA BOE sales tax report. CA does not consider these sales to be taxable.</p>

<p>There's another wrinkle to California sales tax. A sale is taxable only if it involves a "tangible" item. For example, I'm in Los Angeles County. If you're in Los Angeles County and I sell you an image as a JPEG file that I attach to an e-mail or make available for download, it's not taxable. If I mail you the identical file on a CD (or deliver it to you myself), I have to charge you 9% tax. In other words, data sent over the Internet (or modem) without physical media is not a "tangible" item and is not taxable. The very same data provided on physical media is "tangible" and taxable. One of these days the Legislature will stop that revenue hemorrhage, but they haven't yet done that.<br /> <br />Another wrinkle (and a bit contrary to what Albert Richardson noted). If you're in Orange County and I mail you a print or a CD, the tax is 7.5% (the statewide rate). (You would owe the 0.5% county use tax, but that's not my concern.) But if I put the CD in my car and drop it off at your house (on the way to visiting friends from my undergrad days at UCI who still live in Irvine), the tax is 8%.</p>

<p>The rationale is that if I mail you the CD, I can't charge you the additional county sales tax because my business is strictly in Los Angeles County, and I have no business presence in Orange County. (I also don't charge you the 1.5% Los Angeles County sales tax because the CD is shipped outside Los Angeles County). But if I deliver the CD in my own car, that constitutes a (temporary) business presence in Orange County, which means I have to collect and pay that county's tax. It's complicated to be sure, but unlike much involving taxation there's actually some logic to the complexity.</p>

<p>And of course, if I mail the CD to you in New York, there's no California sales tax at all. I have to report it to the Board of Equalization as a non-taxable sale, however. You might owe use tax in New York, and be subject to whatever punishment accrues who don't pay it, but that's none of my concern-- at least for now.</p>

<p>With the increasing ubiquity of Internet sales, many states are pushing for a compact that would require sellers anywhere in the country to collect and pay sales taxes for every jurisdiction where a buyer lives. That might not be a problem for Amazon, or for any large corporation that has a full-time staff of accountants and experts to handle all the tax requirements. But it would be a serious problem for someone like me. Any out-of-state sale, even if it's the only one I ever make to someone in that state, would open a Pandora's box of registration, figuring out the laws and requirements, and filing a tax return. The choice would be to ignore the tax and risk whatever audit and punishment mechanism is in place, raise the price of a print or CD to cover the cost of compliance, or simply refuse to do business with customers in other states. There probably would be services a small vendor could sign up with to handle the tax compliance, but the cost may make doing small volumes of business impractical.</p>

<p>There's more to the story.</p>

<p>There are four things to attend when it comes to CA sales taxes. CA consumers pay tax based on the location in the state where they take possession for the goods. The important thing to keep in mind is that the customer Invoice should document where this location is. Usually it is the shipping address used for the order. Be reasonable. If you write the order and then drop it off half way because you happen to be going that way don't bother to adjust the tax. </p>

<p>So the first point is to be careful and as accurate as reasonable in charging the customer for the tax. Some cities, Oak Park, for example, lie across county lines and fall into two tax districts. Look up "Oak Park' in the BOE table to get the right rate. Make sure you keep your documentation straight. I need say that again. <strong>Make sure you keep your documentation straight. </strong><br>

<strong> </strong><br>

The second point explains why I highlighted the first one. The State can <strong>audit your books</strong> at any time to make sure that you are indeed keeping your documentation straight. In this case I'm referring to you accurately collecting the tax due based on the location you put on your invoices.</p>

<p>Keep your invoices. You must report (and pay) the taxes you collected to the BOE by tax district. Whether you use eFILE or some other reporting system you have to identify the tax districts the taxes you collect fall into so the State can distribute the money correctly. I don't use an integrated accounting system myself, so I don't have the computer summarizing taxes by district for me as I make sales. Frankly, the accounting systems I have seen don't handle non-taxable services very well and they make me enter inventory in advance of any sales. Since most of my sales are unpredictable and small this is just a nuisance to maintain. (Plus - even though my business practices don't change that much from year to year, most accounting software vendors expect me to pay for their product over and over again every year.) I summarize my sales manually for the BOE. This works for my small business although it would not be suitable for a larger one.</p>

<p>The third point, then, is that you must be able to remember where the sales taxes you collected came from so that you can tell the State. Don't screw around with this. Make sales on scraps of paper thrown all over the place. The State can <em><strong>audit your books</strong> </em>and make you pay any money it feels you owe plus penalties.</p>

<p>I'm asking you to practice some discipline in this area. If you just don't have the mind for it, and you can afford it, this is part of the service you would expect get from a hired accountant.</p>

<p>The fourth point is that the <strong>sales tax you collect is never income</strong>. You are collecting taxes as an agent of the State. Be careful not to spend this money yourself. That is, you want to make sure you actually have the money on hand when you are required to turn it in. CA BOE establishes your payment schedule based on the amount of your gross sales. You might report annually, quarterly or monthly. I transfer tax money into a savings account every so often to keep it in escrow and away from my evil nephew. Exclude sales taxes collected when you enter gross sales on Income tax forms and when renewing a business license.</p>

<p> </p>

<p>Jeff Spirer,</p>

<p>Please delete the response I wrote just before this one (<strong>Mar 09, 2015; 08:56 p.m.</strong>) and this one. I exceeded my ten minute time limit before I had revisions ready to post again. The message is too long to have repeated in the thread.</p>

<p>There's more to the story.</p>

<p>There are four things to attend when it comes to CA sales taxes. CA consumers pay the whole sales tax due based on the tax district location in the state where they take possession of the goods. The important thing to keep in mind is that the customer Invoice should document where this location is. Usually it is the shipping address used for the order. Be reasonable. If you write the order and then drop it off half way because you happen to be going that way don't bother to adjust the tax.</p>

<p>You must collect the <strong><em>entire tax due</em></strong>. This is just practical. I have to pay the entire amount due to the State. I'm not going to pony up the difference for district taxes out of my own pocket. Neither should you. The reason I use the BOE tax table is that it shows me the whole rate due based on city without bothering me with the incremental percentage the district wants for itself.</p>

<p>The first point is to <strong>put your sales transactions in writing</strong>. You may have to prove to the State that you have been managing this part of your business correctly. It's convenient for me to keep everything on the computer. </p>

<p>The second point is to be careful and as accurate as reasonable in charging the customer for the tax. Some cities, Oak Park, for example, lie across county lines and fall into two tax districts. Look up "Oak Park' in the BOE table to get the right rate. Make sure you keep your documentation straight. I need say that again. <strong>Make sure you keep your documentation straight. </strong></p>

<p>The second point explains why I highlighted the first one. The State can <strong>audit your books</strong> at any time to make sure that you are indeed keeping your documentation straight. In this case I'm referring to you accurately collecting the tax due based on the location you put on your invoices. You will have to have business records to show when required.</p>

<p>Keep your invoices. You must report (and pay) the taxes you collected to the BOE by tax district. Whether you use eFILE or some other reporting system you have to identify the tax districts the taxes you collect fall into so the State can distribute the money correctly. I don't use an integrated accounting system myself, so I don't have the computer summarizing taxes by district for me as I make sales. Frankly, the accounting systems I have seen don't handle non-taxable services very well and they make me enter inventory in advance of any sales. Since most of my sales are unpredictable and small this is just a nuisance to maintain. (Plus - even though my business practices don't change that much from year to year, most accounting software vendors expect me to pay for their product over and over again every year.) I summarize my sales manually for the BOE. This works for my small business although it would not be suitable for a larger one.</p>

<p>The third point, then, is that you must be able to remember where the sales taxes you collected came from so that you can tell the State. Don't screw around with this. Make sales on scraps of paper thrown all over the place. The State can <strong><em>audit your books</em></strong>and make you pay any money it feels you owe plus penalties.</p>

<p>I'm asking you to practice some discipline in this area. If you just don't have the mind for it, and you can afford it, this is part of the service you would expect get from a hired accountant.</p>

<p>The fourth point is that the <strong>sales tax you collect is never income</strong>. You are collecting taxes as an agent of the State. Be careful not to spend this money yourself. That is, you want to make sure you actually have the money on hand when you are required to turn it in. CA BOE establishes your payment schedule based on the amount of your gross sales. You might report annually, quarterly or monthly. I transfer tax money into a savings account every so often to keep it in escrow and away from my evil nephew. Exclude sales taxes collected when you enter gross sales on Income tax forms and when renewing a business license.</p>