I've received some confusing "advice" from the state board of Equalization here in CA regarding my sales tax. I was told face to face by one of their "specialists" that if Im going to tax ONLY the products in my wedding packages, that each product has to be listed on the contract with the price next to it. Then I would calculate the sales tax based on those product prices.
If I didn't itemize on the contract, then the entire package price would be subject to sales tax, making the states take much larger since a large chunk of the package is "service" which is not taxable.
Whatever you do, you need to get that advice in writing for it to mean anything if you get audited. The question I would have for you is what part of your product would be considered non-taxable, according to you or that rep? The Ca.BOE considers photographers manufacturers of photographs and everything that goes into that manufacture is taxable to the end user. The only way around it is to be selling to a legitimate reseller with a valid reseller cert or deliver electronically where no physical, tangible product changes hands. I'm not sure how itemizing would change any of that, but I'd love to know if it's true.
So we're not a "service" any more ? We're a manufacturer ? I was told that the actual labor was non taxable, and that only the "goods" were taxable. Albums, prints, discs etc.
Not true ? As I said, they gave me confusing information regarding taxation.
We never were a service. Read the BOE rules regarding photographers. It's plain as day. They clearly state "manufacturing", and as such, it's all taxable. The problem of course, is, if you've doing it wrong for years, and get audited, you're screwed, unless you get an idiot for an auditor, which does happen.
Once you get your head around it, it really does make sense. The product is the photo. Everything that goes into making (manufacture) of that product is taxable, remembering that you can correctly not pay tax on any part of the product that is delivered to your client - paper, ink, preservative spray, albums, etc. The person who cuts your hair is providing a service.
Peter Figen wrote:
We never were a service. Read the BOE rules regarding photographers. It's plain as day. They clearly state "manufacturing", and as such, it's all taxable. The problem of course, is, if you've doing it wrong for years, and get audited, you're screwed, unless you get an idiot for an auditor, which does happen.
Once you get your head around it, it really does make sense. The product is the photo. Everything that goes into making (manufacture) of that product is taxable, remembering that you can correctly not pay tax on any part of the product that is delivered to your client - paper, ink, preservative spray, albums, etc. The person who cuts your hair is providing a service. ...Show more →
At one time we were classified as a service and the taxable portion was the product produced.
So if YOU do a photo shoot for a client, post ONLY an online gallery, and they purchase nothing, you still collect tax with NO end product produced ?
I though that digital files emailed were not taxable ? Are you saying they are ?
^^^ I don't know about CA, but here in NJ, if you produce a "tangible" good, like a CD or print, it's taxable. If you ONLY provide electronic items, like ONLY an online gallery, it's non-taxable.
I am not a tax expert, so I can't say that if you divide your charges into "service time" (like 6 hours of wedding coverage) and then provide an album separately I don't know if you are allowed to charge tax ONLY on the album part.
Since I'm still small potatoes and am not doing weddings (just portraiture/events for now), I just charge tax on everything. Edit to clarify: clients receive a CD, so they are getting a "tangible" good from me.
"At one time we were classified as a service and the taxable portion was the product produced."
I've been doing this since the mid 1980's and even back then, it was the same. There were a lot of people who were plain mistaken in thinking that it was a service. It's entirely possible that photography was considered a service at one time, but it must have been several decades ago.
"So if YOU do a photo shoot for a client, post ONLY an online gallery, and they purchase nothing, you still collect tax with NO end product produced ? "
If you do a shoot for a client and nothing tangible changes hands, meaning there is nothing physical delivered, you don't have to charge sales tax. The BOE will never object if you do, and in that case, it may be easier in the long run, accounting wise if you do, but you're not required to. About ninety percent of my shoots have nothing tangible delivered - all electronic delivery of high res files via FTP and those are not taxable.
"I though that digital files emailed were not taxable ? Are you saying they are ? "
Where did you get that impression? Until they change the rules, in order for it to be taxable, you have to deliver something tangible that you can hold in your hand. Electronic delivery is just bits and bytes. Not tangible, therefore not taxable. There are, however a set of very complex rules for going to a client, attaching a portable hard drive to their computer and copying files, or temporarily lending them a portable drive, but that's a separate conversation.
California's still a tangibles state, but Peter and the BoE are correct that if you deliver any tangibles, the entire transaction is taxable because the labor and services went into creating that taxable product.
The BoE rep is not correct about itemizing (except in some really weird hypothetical circumstance where your services have nothing to do with creating the end product). See BoE Publication 68 and the APA CA sales tax guide. Tangibles? Everything's taxed, period.
Thanks guys.....clears up things.......I don't know why that BOE specialist told me specifically " If you itemize each "product" on your contract THAT is the taxable portion"......"not your labor"............."but if you don't itemize, then you must tax the entire amount". "If there is no tangible product delivered then it is non taxable".
I had a meeting with them two weeks ago regarding my sales tax filings and have another meeting next week. I'm trying to be clear when explaining to them how I collect state sales tax on my photography.
Peter Figen wrote:
"At one time we were classified as a service and the taxable portion was the product produced."
I've been doing this since the mid 1980's and even back then, it was the same. There were a lot of people who were plain mistaken in thinking that it was a service. It's entirely possible that photography was considered a service at one time, but it must have been several decades ago.
"So if YOU do a photo shoot for a client, post ONLY an online gallery, and they purchase nothing, you still collect tax with NO end product produced ? "
If you do a shoot for a client and nothing tangible changes hands, meaning there is nothing physical delivered, you don't have to charge sales tax. The BOE will never object if you do, and in that case, it may be easier in the long run, accounting wise if you do, but you're not required to. About ninety percent of my shoots have nothing tangible delivered - all electronic delivery of high res files via FTP and those are not taxable.
"I though that digital files emailed were not taxable ? Are you saying they are ? "
Where did you get that impression? Until they change the rules, in order for it to be taxable, you have to deliver something tangible that you can hold in your hand. Electronic delivery is just bits and bytes. Not tangible, therefore not taxable. There are, however a set of very complex rules for going to a client, attaching a portable hard drive to their computer and copying files, or temporarily lending them a portable drive, but that's a separate conversation. ...Show more →
So OUR actual photography work time, which produced the electronic file, is not considered "manufacturing" ? Thus non taxable ?
No, the part that makes it non taxable is that you're not delivering a tangible. It's still manufacturing, but you have to deliver a physical product in order for it to be taxable.
colinm wrote:
California's still a tangibles state, but Peter and the BoE are correct that if you deliver any tangibles, the entire transaction is taxable because the labor and services went into creating that taxable product.
The BoE rep is not correct about itemizing (except in some really weird hypothetical circumstance where your services have nothing to do with creating the end product). See BoE Publication 68 and the APA CA sales tax guide. Tangibles? Everything's taxed, period.
Peter Figen wrote:
No, the part that makes it non taxable is that you're not delivering a tangible. It's still manufacturing, but you have to deliver a physical product in order for it to be taxable.
There you go. The APA guide is really good. They worked hard to make it understandable. Sometimes the actual regs can be obtuse to read, but they usually make sense once you understand their context.
As far as I aware, If you do a shoot and the client orders prints and you provide the prints, the entire cost is taxable because the shoot is part of producing the final print.
However, If you do a shoot, and charge the client for full access to download images for them to get prints or whatever, there is no sales tax. This is because there is NO TANGABLE GOODS passing hands.
Yes, it is very confusing. If you hand over anything, even previews, then Tax must apply.
When I was confirming with the BOE about the intangible thing, the agent I was talking to confirmed it and then semi jokingly added "I'm not sure how that happened...we'll have to look into that."
SO as the state keeps looking deeper and deeper our pockets for $$$ things may change.
Micky - I agree with you that things may indeed change, but for now, at least, this is the way it is. The problem is that they're going to have alter their entire concept of what constitutes taxable and what doesn't, as it's based on the whole tangible goods idea. They're already cracking down heavily on purchases made out of state or online that don't charge you sales tax, and finally putting a declaration line on individual state income tax returns. That's fine by me, as all of us with BOE certificates have had to declare out of state sales all along anyway. I've had very famous clients (who shall remain nameless) balk at paying sales tax. We got around it with digital delivery. We should enjoy it while we can.
