Sales Tax in Michigan

For those of you in Michigan:

 

I attended a Sales Tax seminar put on by our friendly state tax

people. Here is a quick summary of what I found out that would be

pertinent to those of us working in Michigan:

 

We do not have to pay sales tax on equipment used in the process of

producing photographs for sale. This includes cameras, lenses,

computers, etc.. This means you don't have to worry about some tax

auditor lurking in the bushes when you get that $10,000 shipment from

Adorama in Nuu Yawk. Nor do you have to pay a tax on equipment and

supplies you buy in Michigan as long as you do the proper paperwork

with your suppliers.

 

We must collect and pay 6% sales tax on wedding and event shoots.

That includes everything--your shooting fees, prints, frames,

etc..The kicker here is that the tax is due when we book and collect

the retainer on the ENTIRE amount of the contract. NOT just on the

retainer or when we collect the balance for the shoot! So if you

book a wedding for next year, you have to pay the tax now on the

entire bill, even if you haven't collected all the money.

 

Be precise about filling out the paperwork and filing on time. They

have rules about when you have to file and pay based on gross

receipts and you need to check that out. A CPA once told me that

Michigan's tax people are incredibly incompetent. The good ones go

into private practice. So, it's best not to fool with the

bureaucracy.

 

I'm sure many, if not all of you, know all this already, but much of

it was new to me even though I've had a sales tax number for a while

and I thought I would pass it on.

 

Talk to your accountant about all of this. I'm not an expert. I also

emphasize that I'm talking about Michigan, no other state.

Good to see this again, and it sounds pretty much like in NY.. oh, sorry, Nuu Yawk (hhahahah)

 

You get a tax ID from NYS, and a tax exempt form and we pay no sales tax on equipment, etc.

Marv

I'm over in St Clair Shores & I read your post with great interest. In fact, I called my CPA at home after reading it. After speaking with him, Professional photographers provide a professional service. Service as such is not taxable. The photographs albums etc are taxable. The exception to this would be, if the photographs & albums were purchased locally (in the state of Michigan)& sales tax was paid on those items when they were purchased by the photographer, they would not be taxable. Doctors & lawyers provide a profesional service & they don't charge or pay taxes. It sounds to me as though the person putting on the seminar is one of the "I'm from the government & I'm here to help you" guys. I'm sure that the State would not turn down taxes that were overpaid. It's good business to have & use a CPA. BTW he doesn't charge sales tax either.

Gerrald, I think Marv is right. When I started charging for my photography services, the first thing I did was call the Michigan Dept of treasury and ask what I had to charge sales tax on. They told me it was like an artist selling a painting, or a crafter selling a craft item. Every penny collected is to pay for the final ITEM, not service. The work that goes into it, is the work to produce an item. You are selling them items, not services. The only exception to this is if they do not order anything, or receive any thing. If you do a portrait shoot and charge a sitting fee, that is part of what goes into the final product, so sales tax applies. But, if they are not happy with the work, and they do not end up ordering anything, sales tax is not owed on that session fee, because they did not buy a product.

 

Marv, I did not know about the equipement. I am going to check into that. Also, I didn't know about paying the tax on the whole wedding when they pay the retainer fee. I have always just paid the tax for the money at the time I collect each part. What if they cancel the wedding? Or, upgrade or downgrade their package? I'll have to check into that too.

 

Thanks for a great post!

Michigan added a "use tax" in 1937 that you pay on your income tax, for all the crap you buy out of state. It is also called a remote tax, or remote sales tax. <BR><BR><a href="http://www.michigan.gov/som/0,1607,7-192-29940_31988_31989_25138-96452--,00.html"><b><I>Two classes of industrial property are exempt from sales and use taxes. These are:machinery and equipment used in the manufacturing and raw material used for production; and certain pollution control equipment."</i></b></a><BR><BR>So will a hard nosed Michigan auditor consider a persons photography business or hobby :) manufacturing? <BR><BR>When audited, what matters is the law, not a seminar. In many states the slaes tax on equipment, whether bought in or out of state is the same, not zero, but a lower rate than the full bore rate. Lansing, Michigan is where the buck stops, not a seminar. Having been burned by bogus info on sales taxes, even from accountants, it is wise to be abit vigilant and doubtfull, get some second opinions on what you can really buy tax free. Audits live to rake folks over the coals. In some states only ones printers get a lower rate, and ones cameras are full taxable.

Kelly, the seminar was put on by Michigan's Treasury department. They do it every year. The speakers were department heads within Treasury, so I think I can take their word to the point one can take the word of any state bureaucrat. Meaning, if they are wrong, it's stlll your responsibility. :-)

 

Kari's explanation of why the whole amount is taxable is the one given at the seminar--the whole amount is taxable because the end result is a tangible product; you can't get the pictures without doing the photography and they used that artist's painting as an example. I also thought the shooting fee was separate and non-taxable, but that seems to be incorrect.

 

They were quite specific on having to collect and pay the entire tax even though one only had the retainer. They smiled and said it was "accrual accounting". If the wedding or event is cancelled, you have recourse to recover the money from the state. A royal pain? Yes, but that's part of doing business.

 

I forgot to mention how important it is to file a power of attorney with the state specifying who can speak for you. If you don't have one on file and you happen to be unable to deal with an issue because you are out of town, incapacitated, or whatever, they will refuse to discuss any issue with anyone else.

 

Never forget you are dealing with a bureaucracy that can be capricious and has immense power to tax and seize assets. Because they are a state bureaucracy and staffed with people who are not necessarily the sharpest knives in the drawer, they can get on a power kick and lay a lot of hurt on you. It's important to make sure you file properly and document everything. Make sure you have that paper trail. In a past life, when I was manager of a small company, we were saved by that documentation, otherwise Treasury would have put us out of business. Don't be an alarmist, but be careful. Pay unto Cesear what is Cesear's, but ONLY what is Cesear's! :-)

"accrual accounting":

i do cash based accounting, since i am a sole propr. So i only pay tax when i get the cash. Did they talk about how different accounting methods affect sales tax payments (if at all)?

i also asked the SoMI about paying tax on photo services, and i was told that it was considered part of a product, not a professional service.