Michigan Photographers - How do you handle sales tax?

<p>To all you Michigan photographers out there, how do you handle the sales tax situation? Technically speaking, we are supposed to charge a tax on, say, a wedding package or sitting fee because the service leads to the sale of tangible items. But my research, based on examining pricing sheets of several dozen MI photographers, shows that very few actually do this, e.g. "MI tax applies to all packages" or "Before MI sales tax as required by law."<br /> <br /> How do you handle this? How should I handle it? I fully understand the tax situation when it comes to products, but this whole services thing has me lost because it seems to more or less be a gray area.<br /> <br /> Thanks,<br /> -Daniel</p>

<p>Great question! I'm in WA and it's the same situation!</p>

<p>I thought Michigan added sale taxes on services too; in many "fields" back about Dec 2007.<br>

<br /> The folks in Lansing need cash and make the rules too.<br>

<br /> Your state is on its bum and is in a deep hole.<br>

<br /> The last thing you need is bad advice and get busted for not charging sales taxes; unless you enjoy an audit; back taxes; penalities and interest too.<br>

<br /> The chaps in Lansing know *all* about this is matter</p>

<p>You don't have to "Charge" sales tax, you have to pay sales tax. Many service businesses, eg, architects, engineers, etc. located in states where sevices are taxed don't add sales tax to their fees. They basically include the tax in their fees and calculate the tax and remit to the state as required. For instance, if the tax rate is 6% the you divide the fee by 1.06 to determine the "revenue" and subtract that from the total fee to determine the tax.</p>

<p>I live in Central Ohio. You know, where that college team that keeps kicking your butt in football is? ;-)</p>

<p>I called the State of Ohio Sales Tax people and was told (and no, I didn't get the persons name like I should have) the photography business is one of those strange businesses in Ohio that doesn't need to charge sales tax for the shoot. Just on anything tangible that is sold from the shoot. In my situation, I charge for the shoot but include so many prints in the cost. I was told I needed to pay the tax on the prints that I deliver. I also sell prints online but that's handled by a company that is out of state so I'm not delivering anything, the out of state company is. Clients can also order more prints from my studio at a little cheaper rate. For those, I need to charge sales tax since I'm delivering a tangible product.</p>

<p>Call the sales tax people in your state for correct info.<br>

This is from the Michigan Tax Website:<br>

http://www.michigan.gov/taxes/0,1607,7-238-43529-154427--,00.html</p>

<p align="justify"><strong>Who needs a sales tax license? </strong> </p>

<p align="justify">Individuals or businesses that sell tangible personal property to the final consumer need a sales tax license. </p>

<p align="justify"><br /> </p>

<p>John; in many states you do charge sales tax on services; it is a line item on the customers invoice.</p>

<p><br /> All this "charged sales taxes" is added up and paid weekly; monthly, quarterly, or yearly to the state tax commission. The pay period varies by your sales amount. With my two business it is each month; the bookeeper has the state tax commission yank out the sale tax each month out of our operating checking account(s). The state gets a breakdown of total sales; non taxable due to being sold to a reseller; not taxed as being sold out of state.</p>

<p>The tax one *collects* on invoices to customers get paid to the state. This is for an actual business; not a hobby. In way saying one doesnt have to charge sales tax is like saying one can run red lights; if you are brash about it it can backfire.<br /> How one pays varys by business type and service and how the business is legally set up.<br /> <br /> Since it is all different; getting Lansing involved and an accountant is what one should do; unless on wants a darn audit. In repairing camera stuff; printing and shooting images about all here has sales taxes added; it is shown on the invoice that a customer gets.</p>

<p>In some states you only charge tax on the albums and prints and not the shoot/sitting fee,<br /> <br /> Many states have one charging tax on the postage, handling,UPS too for instate shipments.<br /> <br /> Others want the sales tax on the entire ball of wax.<br /> <br /> *****Since it varies so much; asking a broad brush question is going to get one in deep dung via amateur assuming.<br /> <br /> Since states are hurting for taxes you are prime to be harvested for tax evasion.<br /> <br /> In California all the out of state photo stuff one buys via mailorder is taxable; except the stuff resold like albums.<br /> <br /> If the stuff is part of manufacturing say printing there are sometimes lower rates or none.<br /> <br /> I am abit baffled why folks are afraid to charge legal sales taxes.<br /> <br /> Is it you want to price stuff cheaper?<br /> <br /> Or are you on a death wish and like audits?<br>

<br />***In the long run it is better to use a real accountant and just pay the required taxes; than fart around with audits and fines</p>

<p>Thanks for the responses! I'm not at all afraid to charge legal sales taxes. Rather, I am spending countless hours researching every little thing possible so I do things legally.</p>

<p>I'm considering hiring an accountant, but unfortunately they're all giving me different answers as well, both accountants in general and accountants that work with photographers. In short, I'm either told that yes, the client pays sales tax on sitting fee or no he/she doesn't. And it's not just accountants; I'm finding that some professionals in my area do things one way and others do it another. This is all very frustrating. I've got everything figured out except for this one ordeal. As a side note, I'm fully aware that I as a business pay tax on those sitting and package fees, be it monthly, quarterly or yearly or whatever. The question is whether or not the client pays tax when I invoice them for my services, and in some cases, on the retainer that's part of a package.</p>

<p>Thanks,<br /> -Daniel</p>

<p>Can't you ask your state tax authority directly?</p>

<p>In Calif, the sales tax code that applies to photographers is so complex that they have posted a "Guide to Sales Tax for Photographers" on their web site.</p>

<p><Chas><br /></p>

<p>Kelly, you didn't understand my post. You don't have to show sales tax as a separate item on an invoice. You do have to calculate the sales tax and remit it to the state taxing authority. It is, of course, much easier bookkeeping for most businesses to show the sales tax as a separate item. Its all in the bookkeeping.</p>

<p>Daniel; the tax folks are the ones you want to understand/please. They are many times regular folks too. Call them up; see if they can answer your questions. Online non government links can be valid; but in error because it is so old. See if you can fine a real human in Lansing at the Michigan tax dept that can sight/say what it is required; and where it is written down. You might have to write out some payment schemes of your services to the person to help with them understanding. It can all be done without an accountant too; but this requires more work. Accountants may not be up to snuff either; nor fellow water winter wonderland Photographers. A better accountant should find out too if they are in doubt. </p>

<p>Typically sale tax is <em>collected</em> by the retailer from the customer, and then submitted to the state. Many small businesses miss that states that have sale tax also - generally - have <strong>use tax</strong> . This means that when you buy gear, equipment, etc from out of state and sale tax isn't collected it is your obligation to pay that tax into the state government yourself. Fines can be very high and over the years I've talked to a lot of photographers, and other business people, who don't know about this tax. <br /> <br /> Most often the use tax is the same amount as the state sale tax. As an example, here in Nebraska the state rate is 5.5%. If I buy $5,000 worth of equipment from Adorama and B&H (or any other out of state retailer that doesn't collect Nebraska sale tax on orders shipped to Nebraska), it is my responsibility to send in 5.5% of that $5,000 ($275) to my state Department of Revenue.<br /> <br /> My wife works for the department of revenue here in our state which is how I came to know about this. It adds up quickly with fees, interest etc added onto the tax owed and if you're ever audited you'd be very happy that you have been taking care of this year by year! <br /> <br /> I agree with previous posters that the best thing to do is to ask your local tax agency as well as a good local CPA.</p>

<p>John;<br /> <br /> if you do not breakdown the sale tax then a buyer may or may not wonder if the sales tax is charged.<br /> It is abit a goofly thing. It can make some buyers happier; like they got away with not paying taxes. They may brag to Mikael's wife and and you get audited; since somebody thinks you are not charging taxes. ! :)<br /> <br /> One has the issue too of how do you show an invoice for work that is NOT taxed;<br /> <br /> ie stuff that a client is reselling;<br /> <br /> stuff sold to the goverment;<br /> <br /> stuff sold to a charity that has a valid tax number with the state not to pay sales taxes;<br /> <br /> or to a big company that pays direct and has valid state direct pay number.<br /> <br /> Here I do business with all these types; and if the tax or lack of is not on an invoice; it would be insane to keep track off; a total nightmare.<br /> <br /> Even if I did not show the sales tax amount on invoices; I would have to still flag which invoice is taxable or not and tie it to tax documents on file for the non taxed stuff.<br /> <br /> With an internet in state sale (paypal); or counter sale for a 100 buck sale that is taxed at 8.5 percent; I still have to get a paypal payment for 108.50 ; OR run the customers card for 108.50. Since my shops give non taxed prices on stuff like most brick and mortar stores do; If a customer buys 100 bucks worth of prints; repairs; I have the run their card for 108.50 to get the sales tax. If I run their card for 100; I cannot ask them back in 2 weeks for the 8.50 tax. Thus as a practical matter I show the sales taxes and collect them when I run a card; so I do not have to keep track of it; or hunt down the tax later.<br /> <br /> One can not show sales taxes and still collect them; movie tickets do this. The ticket might be 8.50 bucks; but really it is 8.50/1.085=7.83 before tax.<br>

<br /> Since I got audited on this long ago; I try to make what happened on the paper invoice; this helps with an audit; it shows/documents what happened.</p>

<p>In a state where say services were not taxed; but the product & album is; and shipping is imagine the taxes and its breakdown.<br>

<br /> Services 300 not taxed; photos/album 200 ; UPS to Bride and Groom's parents 29.45<br>

<br /> If the 500 buck shooter got paid 529.45; he might pay the state sales tax on the 229.45; if it was 8 percent this would be 17.00 .<br>

Thus he might pad goods and freight to absorb the 17.00<br>

<br /> 229.45/1.08= 212.45<br>

<br /> 229.45-212.45= 17.00</p>

<p>the bookkeeper would just earmark taxed stuff *(1- 1/1.08) ie 0.074074<br>

<br /> ie 229.45 *.074074=17.00 bucks to pay to the state on this invoice as sales tax.<br>

<br /> The before tax revenue is thus 300 + 212.45 ; but UPS really cost you 29.45<br>

<br /> thus revenue is more like 300 + 212.45- 29.45 = 483<br>

<br /> cool a 483 buck wedding shooter!</p>

<p>Seems fairly straightforward to me...from the State of Michigan website - this is the law covering photographers...</p>

 

<blockquote>

<p>205.109 Photographers and photo finishers. Rule 59. (1) The making of photographs for sale is an industrial process, and tangible personal property used and consumed directly in the process is not taxable.</p>

<p>(2) The total amount charged for making photographs, including the camera charge, is taxable. When an order is not received from proofs, the amount of the deposit retained is not taxable.</p>

<p>(3) The development and processing of exposed film or negatives in black and white or in color, and the production of film strips, slides, or prints therefrom, are subject to sales tax on the total price charged to the customer. The purchase of machinery, equipment, materials, and supplies used by the processor in processing the exposed film, and in the production of the film strips, slides, and prints, are exempt from tax as being a part of an industrial process.</p>

<p>(4) The coloring or tinting of photographs returned to the photographer for such a purpose is a nontaxable service. However, if the coloring or tinting of the photograph is included in a quoted price, the total amount is taxable.</p>

<p>(5) Sales of cameras, films, frames, and other articles to the consumer are taxable.</p>

<p>(6) Sales of x-ray films to laboratories, physicians, surgeons, and dentists, and to other persons primarily engaged in rendering x-ray services, are taxable.</p>

</blockquote>

<p>Steve:<br /> <br /> Good info. I agree, pretty darn clear.<br /> <br /> Was there any info as to if Michigan have a use tax?</p>

<p>This issue isnt clear to me, still. I read through the Michigan law on taxing services and photographers were not mentioned at all (about 40 other professions are specifically named as taxable). Plus I pay sales tax to my print shop for the 'tangible good' that I turn around and hand to my clients. I then have to pay sales tax on that again? That seems wrong...the markup that I make is for my service, not the tangible good. Not to mention I paid tax on my camera, lenses, my computer, my hard drives, etc... I am going to call Lansing on this and ask them to point me to the exact code and give me exact direction before I apply for my sales tax license. I'm sure I will end up paying, but as you can see, I am frusterated because I work my tail off to build a business, eek out a profit, and a bunch of it goes to the government to waste on their inefficient programs. I guess politicians have had 235 years to think of ways to tax me, so its no surprise that everything I do gets taxed. Thomas Jefferson is turning over in his grave, haha.</p>