Sales Tax information for photographers on photography products and services

Sales Tax Rocks at Inspire 2012 Photo Seminar

Thursday, March 15, 2012 Posted in sales tax No comments

At the end of March I’ll be speaking at Inspire 2012, March 26th through the 28th. Inspire is entering it’s third year, woohoo!

This will be my first time attending/speaking at Inspire, but this highly praised seminar focuses on northeastern photographers from the New England area down to New York. The presenters actually attend and become a part of the conference, even mentoring attendees and participating in round tables. And get this — everyone eats meals together. Meals together, that sounds awesome…Other conferences can seem so scattered and it’s hard to connect with people! At WPPI there are thousands and thousands of people and you can get lost amongst them. Inspire promises to be intimate and I can understand why people love that, it’s a great way to learn and make new friends. They cap things off at 150 people, so that’s definitely manageable and fun!

So…yeah, I am excited that I have been invited to give a presentation on sales taxes. I will be presenting Sales Tax Rocks which will be a nifty learning opportunity for photographers, packed with lots of juicy information that will help them keep their money in their pockets as well as provide some sanity and reassurance. I will be covering lots of issues photographers need to look out for and even discussing taxability specifics in Massachusetts, Vermont, Maine, Connecticut, Rhode Island, and a little bit about New York.

I am really excited to be kicking things off with Sales Tax Rocks at Inspire…kicking things off meaning there is some great stuff coming for you photographers in the near future. Add your name to the mailing list to stay updated with the latest Sales Tax Rocks new and hopefully I will see you at Inspire 2012!

** Edited because I forgot to add that I have several $50 off discounts for Inspire 2012. Shoot me an email and I will give you the promo code **

Screen Shot 2012 03 15 at 8.58.54 AM Sales Tax Rocks at Inspire 2012 Photo Seminar

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Sales tax and Groupons

Monday, October 24, 2011 Posted in Massachusetts No comments

11 19 10groupon Sales tax and Groupons

Anyone doing Groupons or similar types of discount advertising these days? These types of Third Party Coupons are really creating havoc for folks in terms of sales taxes. In a lot of cases, the merchant utilizing the Groupon is only collecting sales tax on the portion that they retain.

For example, consumer purchases $40 Groupon to be used at a merchants by paying $20. Groupon gets $10 and the merchant gets $10. Many merchants are only collecting sales taxes on the $10 portion that they retain, or on the $20 that was paid in total. This might sound crazy, but based on the law in a variety of states, the merchant should be collecting sales tax on the entire amount of $40.

Well, the Massachusetts DOR is working on a draft directive entitled Application of Sales Tax to Sales and Redemption of Third Party Coupons and it is now open for practitioner comment. This directive forces Massachusetts merchants to collect tax on the full value of any taxable goods or services bought with the Groupon.

So….if you are doing a Groupon, etc., make sure you know what obligations you have as the merchant. As usual, you want to collect and remit the proper sales tax up front, or you might end up with the responsibility of remitting money out of your own pocket if you fail to collect it.

If you are interested in reading more about this topic, check out the Groupon discussion on the TaxProf Blog.

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The draft Directive from the MA DOR is here!!

Tuesday, May 17, 2011 Posted in Massachusetts 2 comments

A few weeks ago I put together a formal request with questions regarding photography services and I forwarded it to the Massachusetts Department of Revenue. I did my best to cover the transactions for which I wanted complete clarity. Even for an attorney, or a tax professional, sales tax laws are not black and white.

Many of you are familiar with various letter rulings and court cases involving photography transactions, but those sources just didn’t provide the details I felt were necessary for our evolving profession…

Today the MA DOR sent me (as well as other practitioners and involved parties) a working draft of the directive they have put together to address the countless questions regarding sales tax as it relates to photography services. This directive is supposed to offer a more black and white answer, so to speak. Specific examples assist in determining how these transactions should be taxed in the state of Massachusetts.

You can read the draft directive right here.

After reading it – if you have comments or a request that will provide benefit to the directive, you can email the MA DOR at this address: Rulesandregs@dor.state.ma.us

I feel really awesome that all of my years in law school are paying off and I have found a specific community to which I can try and provide some answers, or get local government to provide those answers when I don’t know them. Nobody likes dealing with taxes and the less glamorous tasks of owning a business, but unfortunately, it’s a part of doing business…

I am still working on my sales tax guides for photographers and hope to have the first one released in the near future. My goal is to put all of the sales tax information you need in ONE place, making the answers easily accessible, letting you know what you need to do from start to finish, and hopefully saving your business money in the long run…

Please sign up for the mailing list (I won’t bug you) so you know what is happening! I also plan on putting together a monthly newsletter in the near future about sales tax related news throughout the United States.

My letter to the MA DOR:

To: Rulings and Regulations Bureau

From: Kristin Korpos

Re: Taxability of Photography Services relating to Portraits and Weddings

The purpose of this request is to seek written advice on specific scenarios relating to transactions that occur between a professional wedding/portrait photographer and their clients. I am a new wedding/portrait photographer and just started my business this past year. I am not currently under audit, nor have I been contacted to schedule an audit by the Massachusetts Department of Revenue, nor any other state Department of Revenue.

I have read various rulings and cases related to photography transactions, including the Millers case, but I am still not confident that I am collecting the appropriate amount of sales tax on my transactions.

I should also preface this by stating that I am having a hard time deciphering what the test is to determine if a tangible product is “so closely entwined” with a service that the service itself becomes taxable.

The scenarios I am questioning are as follows:

Scenario #1

Wedding Photography – $3500 charge for services to photograph a client’s wedding day. Then a fee of $500 is charged for a DVD of the images captured that day. The client pays for the DVD of images at the same time they pay for the wedding photography services.

The invoice may appear like this:

Wedding Photography Services $3500

DVD of wedding images $ 500

Is sales tax on the total amount of $4000, or is it only charged on the $500 for the DVD?

Scenario #2

Wedding Photography – $4000 charge for a package that includes wedding photography services for the wedding, and also a DVD of the images taken that day provided to client on DVD.

The invoice may appear like this:

Wedding Photography Services with DVD of wedding images $4000

Would sales tax be charged on the entire $4000 in this transaction?

Scenario #3

Wedding Photography – $4000 charge for a package that includes wedding photography services for the wedding, and also the images taken provided to client via digital download from the photographer’s FTP site.

I know that Massachusetts doesn’t charge sales tax on the download of digital images, so I want to confirm this transaction. Would this transaction be fully exempt from tax?

Scenario #4

Wedding Photography – $3500 charge for services to photography a client’s wedding day. Then a fee of $500 is charged for a DVD of the images captured that day. Also on the same invoice is a fee of $1000 for a wedding album. The client pays for the DVD of images and the wedding album at the same time they pay for the wedding photography services.

The invoice may appear like this:

Wedding Photography Services $3500

DVD of wedding images $ 500

Wedding Album $1000

Is sales tax on the total amount of $5000, or is it only charged on the $500 for the DVD and the $1000 for the Wedding Album, with the $3500 paid for the wedding photography services exempt from tax?

Scenario #5

The invoice may appear like this:

Wedding Photography Services with digital image download $4000

Wedding Album $1000

As stated earlier, it is my understanding that the digital download of the images do not carry any taxability, but if a client does order a wedding album at the time of hiring the photographer, would it just be the $1000 for the wedding album that is taxable?

Scenario #6

Portrait Photography – $200 fee charged for the photography session of up to 1 hour, $300 charged for the DVD of 40 images taken during that session. The client pays for the DVD at the same time they pay for the photography session.

The invoice may appear like this:

Portrait Photography Session $200

DVD of 40 images $300

Scenario #7

Portrait Photography – $500 fee includes a photography session of up to 1 hour, along with a DVD of 40 images taken during that session.

The invoice may appear like this:

Portrait Photography Session with DVD of 40 images $500

Scenario #8

Portrait Photography – $500 fee includes a photography session of up to 1 hour, as well as 40 of the images provided to client via digital download from the photographer’s FTP site.

Again, I know that Massachusetts doesn’t charge sales tax on the download of digital images, so I want to confirm this transaction. Would this transaction be fully exempt from tax?

Scenario #9

Portrait Photography – $200 fee charged for the photography session of up to 1 hour, $300 charged for the DVD of 40 images taken during that session. Also on that invoice is a fee of $500 for an album of the photos taken that day. The client pays for the DVD of images, and the photo album at the same time they pay for the photography session.

The invoice may appear like this:

Portrait Photography Session $200

DVD of 40 images $300

Photo Album of images $500

Is sales tax on the total amount of $1000, or is it only charged on the $300 for the DVD and the $500 for the photo album, with the $200 paid for the portrait photography session exempt from tax?

Scenario #10

Portrait Photography – $500 fee includes a photography session of up to 1 hour, as well as 40 of the images provided to client via digital download from the photographer’s FTP site. Additionally, there is a charge on the invoice for a $500 photo album.

The invoice may appear like this:

Portrait Photography Session with digital images downloaded $500

Photo Album $500

Would sales tax apply to only the $500 album in this transaction?

Please let me know if you need any further information. I thank you very much for your assistance with these questions.

Sincerely,

Kristin Korpos

Screen shot 2011 05 17 at 11.09.56 AM1 The draft Directive from the MA DOR is here!!

2 comments

Maureen Cotton – Wow. Thank you for asking these questions and working to share what you find out! It’s such a grey area for our profession.

Best,
MaureenMay 17, 2011 – 6:28 pm

Kristin Korpos – Thank you for visiting the blog Maureen, and for appreciating the information!May 18, 2011 – 7:47 am

Nexus – Why you may need to collect sales tax in other states

Thursday, March 10, 2011 Posted in nexus No comments

I have seen a few comments from photographers regarding collecting sales tax in states that are not their home states. Actually, I read a recent thread in which one photographer stated he only collects sales tax for transactions in his home state, and he is a well known photographer that travels around the country shooting weddings…

So what is this nexus thing?

Nexus refers to a connection, link or tie.

When you have nexus, in terms of discussing Sales and Use Taxes, it means that you have a duty to register and collect sales tax in that state, for taxable transactions. The post on Interstate Transactions offers a more in depth discussion.

The constitution guides nexus issues, with the stronger arguments being under the Commerce Clause, but the Due Process Clause is sometimes utilized. The Commerce Clause deals with the Federal Government’s power to regulate commerce between states. There are several huge court cases that focused on nexus issues, National Bellas Hess, Complete Auto, and Quill Corporation. Yes, this is legal mumbo jumbo, but this info may be of interest as a background:

Complete Auto Transit, Inc. v. Brady, 97 S. Ct. 1076 (1977) - The U.S. Supreme Court held that to be subject to tax in a state, a taxpayer must have a “substantial nexus” with the state.

Quill Corporation v. North Dakota, 112 S. Ct. 1912 (1992) - For sales and use tax purposes, the Supreme Court held that a taxpayer must have a physical presence in the state.

Possible Nexus Creating Activities (reasons you may have to collect in another state)

You enter that state to photograph a person, a wedding, an event, anything
You sell items at a trade show in a state (WPPI, almost every vendor should have charged NV sales tax, I doubt they did)
You have an employee in the state, and it doesn’t matter whether or not they sell for you
Unrelated agents, independent sales agents that might even represent another company

And now what….

What happens if you have just read this post and realize that you need to be collecting sales tax in another state? Many states offer a Voluntary Disclosure Program for people like you. It is an incentive to start complying and usually offers the advantage of a limited look back period (for example they only look at taxable sales for the past 3 year vs. 10 years), and often penalties and interest won’t apply.

If you don’t register, and you let them find you first, the look back period not only can be 7 to 10 years, but penalties and interest can sometimes add up to 60-70%. I know that sounds crazy, but those numbers are VERY real.

And I sense that several photographers might be thinking that they won’t be found. Did you know that some states actually offer a bounty of up to 30%….this means that either a disgruntled employee, or a competitor can submit your name to the state they know you should be collecting sales tax in and that state will give them a finders fee for calling you, the taxpayer out.

And here are some statistics as to approximately how many state auditors are employed:

Texas – 600 auditors
California – 800 auditors
States like New York and Florida have 500 auditors each

There are lots of auditors out there looking for you and it might just be a matter of time until they find you. It is important to comply with not only your home state’s sales tax laws, but also those of other states in which you have created nexus, due to your activities. If you are unsure as to whether you have nexus in a particular state based on your transactions in that state, just call up the State’s Department of Revenue or visit their website. Nexus can be tricky and it certainly isn’t always black and white.

The bottom line is that as photographers, especially wedding photographers, we are regularly traveling into other states. If I have a client in Rhode Island and I physically enter Rhode Island to shoot their wedding, I must charge Rhode Island sales tax to that client (with the assumption that the transaction/service is taxable due to tangible transfer of images on DVD) and submit it to the Rhode Island Department of Revenue. It does not matter that I am a resident of Massachusetts, and that my business is located in Massachusetts. I enter Rhode Island to shoot weddings and therefore I have the obligation to register and collect sales tax from Rhode Island clients.

I hope this was helpful!

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Sales Tax info for the Massachusetts Photographer

Thursday, March 3, 2011 Posted in Massachusetts 10 comments

One of the reasons I decided to start this blog, and produce my upcoming sales tax guides, is because month after month after month I keep reading tweets and forum threads from confused photographers that don’t realize they should be charging sales tax on their entire photography transaction.

As a wedding photographer in Massachusetts – check me out here – I try to be super clear on what I need to collect sales tax on. I basically have one package that includes my services, as well as the high-resolution images provided to my clients on DVD so I will use that as an example. What I found is that many photographers in Massachusetts invoice the transaction like this:

Wedding Photographer Services – $3500 – Exempt from Tax

DVD of Images – $500 – Taxable at 6.25%

Sales Tax charged to client = $31.25

The belief is that the DVD is tangible, thus taxable, and the wedding photography services are just pure services, therefore exempt from sales tax. This is incorrect because you need to be charging tax on the service as well, like this:

Wedding Photographer Services – $3500 – Taxable at 6.25%

DVD of Images – $500 – Taxable at 6.25%

Sales Tax charged to client = $250.00

Check out this ruling issued by the Massachusetts Department of Revenue that discusses photography services. The key sentence used in that ruling is the following:

“Where the services and the property are inseparable, because of the integrated nature of the transaction, the character of the transaction must be analyzed to ascertain whether the buyer’s basic purpose was to acquire the property which was sold to it or to obtain the services. (373 Mass. 772, 774 (1977)).”

When a client hires a wedding photographer, they are hiring a photographer because they want photos of their wedding. If no images are provided, the photography service would be exempt, but I have never heard of such a thing? The pure nature of paying for the service are the images!

If you read the ruling you will see that the example used is sitting fees – so portrait photographers need to pay attention as well. If you have any questions about your particular scenario and transactions specific to your business, definitely call the Massachusetts DOR and they will help you out.

So there are probably more than a few Massachusetts photographers that have never collected sales tax. What should you do if you just read this post and had a total panic attack because you haven’t properly collected sales tax for the past few years?

The good news is that they have a Voluntary Disclosure Program because they want the revenue, and they want to increase compliance. The program has certain criteria, but if you qualify the “look-back” period is only 3 years and they might even waive penalties.

A general note of caution…I was talking to an associate at the Massachusetts DOR the other day and they informed me that they are going to start cracking down on photographers and have realized that many are failing to properly collect sales taxes. Let’s face it, states are desperate for revenue in these hard economic times…if tax had properly been collected on my example transaction above, a total of $250 would have been remitted to the Massachusetts DOR on that transaction, which is a big difference when compared to $31.25.

Note that your clients are not required to submit this sales tax to you after the fact. You can’t go back to them and say “hey I should have collected $x amount of money in sales tax and you have to pay me the sales tax now” because the system doesn’t work that way. It is your duty as a business owner to know the tax law and collect the proper tax. If you fail to do that, you are required to make payment. Can you politely ask them, sure. But they don’t have to give you the money…

I am working on a Massachusetts Sales Tax Knowledge guide that should be completed in the next month or so. This guide will have a bunch of information on the basics, as well as the more advanced things you should consider when it comes to collecting sales taxes, along with resources for rates, returns and other fun sales tax goodies.

10 comments

Stacey – Awesome, thanks for keeping on top of this! I’m always unsure what to do when I, as a MA photographer, book out-of-state weddings. Or when I book a NH couple for their VT wedding…March 4, 2011 – 3:37 pm

Sheryl Widberg – Thanks Kristin! Not only does Sales Tax Rocks, so do you!!

Be well,
SherylMarch 4, 2011 – 3:49 pm

Mark Andrew Photography – I have heard so many crazy things on this. I have even heard of photographers uploading to ftp site so physical DVD was given to try and skirt the issue. My take has always been to collect on the whole, coverage, dvd, album , prints…whatever I PROVIDE I collect sales tax on. I will say that MA makes it easy to pay online every month. I look at the revenue I pay them ass a pass through of my business. It was never really MY money anyways.March 5, 2011 – 9:23 am

Lisa Merrill – Thank you so much for this invaluable resource, Kristen!March 6, 2011 – 4:10 pm

Kristin – Thanks for your comments and I am glad that this resource is being so well received. It’s only been a few days since this article, and me making the blog more public, and I have gotten such great feedback! Awesomeness!March 7, 2011 – 8:12 am

Krista Photography – Thanks for putting this together, Kristin!! I’m very relieved to know I’ve been doing it right so far!!!April 7, 2011 – 9:24 am

kristin – Krista, thanks so much for taking the time to visit this site and leave a comment, I really appreciate it!April 11, 2011 – 10:55 am

LAUREN METHIA – This is great!! What a relief to finally have CLEAR answers on this subject!April 20, 2011 – 11:01 am

Steven Erat @steveneratphoto – First, THANK YOU! This site is a fantastic resource I just stumbled across. So glad I found it.

I wanted add that nearly every link to the Working Draft Directive for photographers appears broken (now that the draft has been issued/finalized), but by searching the DOR site directly, I found the new link, which I’ll share here:
http://www.mass.gov/dor/businesses/help-and-resources/legal-library/directives/directives-by-decade/2011-directives/directive-11-4.html

The conclusion regarding taxation on services vs. goods for portrait photographers appears to be determined based on the “Miller Studios decision”, cited often in the document. The scenarios indicate that the portrait sitting fee and digital assets delivered as an online download rather than physical media like a DVD are *not* taxable. I’ll quote one scenario here for reference in case that link goes away too:

“Example 10: A portrait photographer charges a $500 sitting fee which includes a photography session of up to 1 hour, as well as 40 of the images provided to client via digital download from the photographer’s FTP site. Additionally, there is a separately stated charge on the invoice for a $500 photo album. The customer is obligated to pay the sitting fee, but not obligated to purchase any tangible personal property under the terms of the agreement with the photographer, but elects to do so. Sales tax would apply to only the $500 album in this transaction with the $500 paid for sitting fee and digital download not subject to tax under the Miller Studios decision.”December 13, 2011 – 11:16 am

Kristin Korpos – Thanks for letting me know about the broken links. Looks like the MA DOR updated their website. I think I fixed most of them…glad you enjoyed the information!December 13, 2011 – 11:29 am

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Sales tax and Groupons

The draft Directive from the MA DOR is here!!

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