When should I consider adding sales tax?

[kwest1]

<p>The subject of taxes just hit me today when giving a client a price. I am curious as to what everyone's opinion would be on whether or not to 'fly under the radar' while I am just getting my footing and building my portfolio at discounted rates. (I ran an inexpensive promotional special for that recently, it has worked very well so far.) I highly doubt I will book more than 6 weddings/portrait session during the summer, but I am likely going to make enough money to pay for most of my new equipment... maybe I will get into profit range if people keep contacting me.</p>

<p>Does anyone advise against doing this while I am small potatoes and testing the waters of the business world? I would rather not deal with filing and charging my clients 8.25% sales tax (Austin, Texas) until I have a season under my belt and I've officially decided to declare myself as a business/do the appropriate paperwork.</p>

<p>It doesn't seem like it would be very difficult to obtain a sales tax collection permit though - would I be better off getting this and being 100% legit from the start to be on the safe side?</p>

[Jeremy Stein]

<p>Do you think it is wise to announce on a public (very public!) forum that you are debating whether you are going to break the law or not? If you are taking money for photographing weddings, I think you had better make sure that you follow all applicable tax statutes in your location, because the fines are likely to cost you much more than you would like. Furthermore, it looks much more professional if you charge the sales tax; people pretty much expect to have to pay that.</p>

[ccommins]

I would advise filing for a sales tax ID # and pay sales tax. As soon as I started selling at shows I filed, the very next show the state revenue inspectors were there checking sales tax license. 75% of the vendors were fined for not having a license. Thank goodness I had mine. Rather safe than sorry.

[kwest1]

<p>True... I wasn't entirely set on 'going under the radar' once I saw that the permit is free and easy to obtain, it was just something I hadn't given any thought until I suddenly got multiple requests for my business from only one ad. I've done random portrait shoots for pay here and there, much like a kid getting $40 a month for mowing somebody's grass or something, but this is the first time I've felt like I have something with a lot of growing potential on my hands. It was genuinely a surprise to get interest quickly, so I'm playing catch-up I suppose.</p>

<p>*scurries off to comptroller office*</p>

[leicaglow]

<p>I have to say Kerri, I got a short laugh when I read the title of this post. You present it as if collection and payment of taxes is a choice. If only so!<g> In my state, the coffers are lined with the fines paid by business owners who see the issue of tax payment as gray or blurry line.</p>

<p>I would consider paying a CPA or other tax advisor a hundred bucks, or going to a Chamber of Commerce or community college course for new business owners to learn how to file taxes.</p>

<p>I don't know your laws, but in my state, you could start your business with your SSN, a business license, a DBA, and filing your taxes regularly. The IRS has a lot of help on their website as well.</p>

[brucecahn]

<p>Register for sales tax and pay it. Otherwise you may be in for some unexpected bills. This is not an option, it is the law. Don't be a fool.</p>

[kwest1]

<p>I know it may sound laughable Michael - I feel silly asking - but I honestly had not been doing business before, and the realization that I'm actually attracting a number of clients has been a huge surprise. Despite that I'm very fiscally conservative, I definitely wasn't trying to give the impression of wanting to avoid tax laws altogether. How can I make a comparison... I'm just so small potatoes now that I couldn't help but wonder, 'Would not charging sales tax on three gigs be serious like, going 10mph over the speed limit because you're learning to drive serious... or... is it stealing a car serious?' I had no threshold for it because I'd had no reason to think about it before.</p>

<p>Right now I am merely in the process of booking people, and all work I have done before has been for practice/fun. I've just happened to land into a perfect opportunity to start a business that I've been considering for some time, but lots of things in my personal life kept me from seeing that I really could do it until now... there's a lot more behind that than I care to elaborate on here. (Thus I hadn't researched the legal end, save copyrights and contracts.)</p>

<p>As far as permits/licensing goes, in Texas I only have to have a permit to collect sales tax, and it's free. The rest of the filing will be a chore I'm sure, but fine-print isn't anything I'm not used to... and I do have a CPA. I just happen to have plenty of experience with self-promotion for the sake of sharing my work, so that's pretty much taken care of.</p>

<p>Bruce: Not entirely sure how you meant that, but excuse <em>me </em> for being new to the world of owning my own business. I'm quite aware of the law: I work for it; just not the financial side.</p>

[plavchak]

<p>Check your state sales tax laws. Some states do not require you to collect sales tax on services only on products you sell. For example, in Illinois, I would not have to charge sales tax on a portrait session fee. But if they bought prints, I would have to charge tax on the prints.</p>

[dawn_kelly]

<p>Be legit, pay your taxes. You need to find out what your local tax authority expects you to collect taxes on. That varies greatly acros the country. Here in California, that includes not only amount charged for the wedding or sitting fee, but also on any "shipping & handling" fee as well. <br>

You don't necessarily have to add the 8.25% to your prices, you can go with the approach of adjusting your pricing and specifying that "pricing includes applicable taxes". Example of $100, either you collect $108.25 - $100 for you & $8.25 for taxman OR collect $100 - $92.38 for you & $7.62 for taxman. You just need to adjust your pricing to make sure you collect the amount you want/need.</p>

[kelly_flanigan1]

<p>Once you startr to collect and pay sales taxes SOME customers will say they are tax exempt; when they are legally not. If you knuckle under and dont charge tax the monkey is on your back if and when you get caught. The states look at the percentage of sales that are taxed; it if it too low; they check out why. You might be just selling alot to local governments; ie non taxable and thyus be OK. Or maybe some contractor type jsut gave you his tax-id for his construction business; and you shallowed the locad of BS and thus are holding the bag; ie unpaid taxes.</p>

<p>In California; when caught figure paying double the tax due to penalities and interest.<br>

Just becuase somebody gives you a tx-id doesnt mean they can buy stuff tax free.<br>

Some groups and Nationalities of folks will do this thing as a rule; it is their DNA not to pay taxes; sometimes it is better to charge abit more and just make an internal invoice that really pays the proper tax. Folks will give you tax paperst that are offical; but do not apply to photography; its for building materials; their boat trailer; their dogs license; whatever. Keep a 3 ring binder of the few folks that do have proper no-tax id's; so when audited one does not waste time.<br>

Each mistake thy catch is like throwing raw meat with blood to sharks; they get exicted and fine more mistakes; leaving no stone unturned.</p>

<p>On the other side similar folks will check that you paid sales taxes on all that out of state photo gear you bought; paid except for physical stuff sold ie albums; ie a physical product. It really doesnt matter if ACME photo in New York didnt charge you sales tax for your camera that wentr to say California.<br>

Here too figure paying doubel the taxes due to fines and penalites. The states need money; thus hunting down tax cheats pays off.</p>

[aimee_pieters]

<p>Kerri,<br>

I guess you have your answers, but take this a step further. You need to declare your additional income. Also, if you're legit, you can probably deduct your equipment purchases too. If everyone paid everything they were supposed to, we'd all be paying less!...-Aimee</p>

[kwest1]

<p>Sounds good. Thanks Aimee. I haven't made any money that I haven't declared - other than maybe, $40 or $50 once or twice, years and years ago. (Probably before I was even filing a W-2 at all - I'm young.) Good to know about deducting my equipment purchases: I was wondering about that.</p>

<p>Kelly - thanks for the heads up. I am definitely the type to hate haggling with people over B.S. like that. I think I will figure in taxes to the total rate rather than adding it later, just to protect myself and avoid the, "Jeeze I didn't know it was going to be THAT much after taxes were added..." reaction that I'm sure some clients would have.</p>

[john_bellenis]

<p>Kerri, The general consensus here is right... get set up right as soon as possible. It is a bit of a chore initially, but if you get a decent system set up by a book keeper you can make it quite painless. I can offer a few bits of advice... Only accept that someone is Sales Tax Exempt (ie. they are presumably selling your work to another party) if you get their tax exempt number and put it on your invoice. You will probably be filing a Schedule C for your profit or loss, so get a book keeper to get you set up with a system for deductions, receipts and invoices that makes your year end as easy as possible. Planning ahead really helps and avoids a potential nightmare.</p>

<p>The following example applies in Massachusetts, but it's worth checking everywhere, as I know photographers in MA who misunderstood it and ended up owning a LOT of back taxes. People may tell you that photography is a service and therefore that portion is not liable for sales tax - only any materials you may sell them (film, CDs, prints, etc). This is not the case (at least in MA) - photography is not a "service", if you don't supply a product (an image) there is ZERO value to your "service" therefore the image contains ALL the value. A plumber can provide a service by tightening a valve, no product need change hands. Not so with a photographer. Sales tax is charged on the end result and includes everything it takes to produce that end result.<br /> The example that the tax office gave to me to demonstrate this years ago was the example of buying a pot. You pay sales tax on the final total sale price of the pot - as you would the total price on your photography. The potters time is not separated out, leaving you to only pay for the clay. This law may be different in other states, I can only speak for Massachusetts, but I would talk to the Dept. of Revenue to be sure and not go by anecdotal advice. I keep being told by MA photographers that they don't have to charge sales tax on the fee portion of their income and I know this to be 100% wrong.</p>

<p>Good luck - this is an area that you really need to be on top of, to be able to relax and enjoy the rest of the business.</p>

[kwest1]

<p>Thank you for the thoughtful response John. I was looking at Texas law and the sales tax exemptions are pretty specific - and at times seemingly arbitrary. (Florists and 'amusement services' like live bands are among the exempt... flowers die and rot, hah.)<br>

I have a friend who works for a small business, so I think he's going to be able to help me quite a bit with getting an organized bookkeeping system set up.</p>

[aimee_pieters]

<p>In Illinois, there are laws that apply specifically to photographers and professional photographs. Sessions don't require you to collect sales tax and if you're a professional photographer selling finished portraits, etc. you are only required to collect tax on 10% of the price of the photograph. So if you sell $1,000 worth of portraits, you're required to charge your tax rate (say 9%) on $100. In this example, you collect $9.00. If you over charge your customer and they come back to you at a later day, then YOU are responsible to refund your customer. Illinois will NOT reimburse you.<br>

All in all, get some advice from an accountant, NOT a friend. Good luck....-Aimee</p>

[john_bellenis]

<p>Hi Kerri and Aimee, I guess that proves the point that all States differ greatly in their Sales Tax laws and regulations. Clearly it's a potential minefield if you don't start out with the right information and don't get your systems set up correctly at the outset.</p>

<p>I'm with Aimee that you should see an accountant - preferably one with some experience in the tax laws that are specific to photographers. I wish you the best of luck with your business. Don't get overwhelmed with the administration side - once you get set up, it will become routine and you will be able to concentrate on the creative side that drew you to it in the first place.</p>

[marcward]

<p>Kerri,<br>

Don't make bets you can't afford to lose. I've been self-employed and running a business for 30+ years... plus I've been subject to a sales tax audit. A root canal is a better choice or maybe a kidney stone. I can't speak to your state, but many things are common. Here's what I know;<br>

If you have a sales tax number, you can buy some things tax free. The "end user" is the one that pays the taxes. Take photo paper and ink. You can buy these things tax free because they become part of the "manufacturing" process. You then sell these items to your clients who become the "end users" and have to pay the tax (on your prices, not your costs) you collect as an agent of the state.<br>

Some of your sales to others may be gray areas. If they claim they are tax-exempt,... fine. Just get a blanket certificate (standard state form) from them claiming they are exempt. This transfers liability to them as long as you keep a copy of the certificate. No copy, and you're liable. There are subtleties to this. I can give someone a blanket certificate and not pay sales tax while knowing I'm the "end user" (I buy a camera). They don't have to charge me sales tax, but as the "end user", I'm liable to pay the tax on my next sales tax report. You might get lucky doing this end-around and not paying the sales tax, but if caught, you'll wish you had just paid the taxes.<br>

Bottom line: a sales tax number is something every business needs and it has advantages. Don't game the system. An IRS audit is far easier than a state sales tax audit. My own audit went fine as I had kept my nose clean, but I had an agent sitting at MY desk, on an off for 6 weeks looking at anything they wanted. I'll echo some of the advise here... get the license. <br>

Now, Good Luck, and have fun... the world is an exciting place if you're looking ahead and not over your shoulder.... Marc</p>

[etiennephotography]

<p>HI-<br>

I actually teach about this subject in my photo workshops, ("Create A Successful Photo Biz" Dream team Photo Workshops). The standard rule is you must charge sales tax for "products" . If your product, (photographs, CD's digital files) is combined with your services, (i.e. a wedding or portrait session that INCLUDES your time AND your product as so many of ours do) then you must charge tax on the entire job. When I shoot commercial advertising jobs everything is broken down into expenses and creative fees. I only tax my expenses, not my creative fees in situations like this. If the person and the job your are shooting is out of the state you operate your business in you do NOT charge sales tax. This is the law. I am shooting a HUGE wedding in Mexico. I reside in CA. My client is from NY. I charge no tax on the jobn(they saved almost 3K in sales tax! yes I charge a lot to shoot weddings).<br>

Good luck!</p>

[tom_boston1]

<p>@John - In Massachusetts, do you know if an image provided to a publication as a freelancer is exempt? Does it matter if the image is provided on a tangible medium, like a CD, or an intangible medium, like email?</p>

<p>Of course I will fully check this with a the state department of revenue and/or an accountant.</p>

<p> </p>

[john_bellenis]

<p>Hi Tom, my understanding - through countless chats with the Mass Dept of Revenue and my tax advisor - is that if you take pictures for someone professionally and supply them with an image - no matter how it's delivered, electronically or on some physical form of media (CD, transparency, print, etc.) the deal is the same - sales tax must be charged. A product is changing hands.<br>

If a freelancer supplies an image to a publication (in state) and gets paid for it, they are by definition a professional photographer, and sales tax should be charged and remitted to the state. Unless of course the recipient is tax exempt for some reason. <br>

Please understand that I am the farthest thing from a tax professional myself and I would check up with everything yourself so that you can be fully satisfied and receive copies of the various forms and regulations. However, we aren't reinventing the wheel here and they have specific guidelines that refer to professional photography.</p>

[tom_boston1]

<p>@John - The Massachusetts DOR clarified the issue back in <a href="http://www.mass.gov/dor/businesses/help-and-resources/legal-library/directives/directives-by-years/2011-directives/directive-11-4.html">August 2011</a>. If we deliver files via FTP then they are intangible and sales tax is not collected. If we charge separately for a DVD, sales tax is only on the price of the DVD. If the DVD or prints or an album or anything else is included in a package, sales tax is collected on the ENTIRE package.<br /><br /><a href="http://www.mass.gov/dor/businesses/help-and-resources/legal-library/directives/directives-by-years/2011-directives/directive-11-4.html">Mass DOR Directive 11-4</a> <br /><br /><a href="http://blog.mass.gov/revenue/current-affairs-2/a-snapshot-of-salesuse-tax-on-photography-services/">DOR blog post on the topic</a></p>