I've got a client who didn't like that I added sales tax to the entire contract price and said I should have only added it to the album price. However California Sales Tax code says that the service that goes into making the final product is taxable. Hence the whole enchilada. Isn't this right?
Below is straight from the California Sales Tax pamphlet in regards to photography. It seems pretty straight forward.
Tax generally applies to sales of photographs and related products
In general, the sale of goods and merchandise in California is taxable unless the sale qualifies for a specific exemption or exclusion. Labor and service charges are also taxable if they result in the creation of products. Sales of photographs and related items are treated the same as other products and are generally taxable unless a specific exemption or exclusion applies. This is true whether you have a role in creating the photographs yourself or sell photographs other people create. Note that tax may apply each time you sell a copy of the photograph, even if you are making an additional sale of the same photograph to the same client. The general rules explaining how tax applies to sales of photographs are explained in this chapter. The amount on which you calculate tax may depend on the type of sale as outlined below.
Portrait, wedding, and other noncommercial photography When you sell art prints or shoot photographs for noncommercial use, the taxable amount of your charge will generally include all of the following:
∙ Your charges for the physical product you transfer to your customer
∙ Any labor and services involved in producing or fabricating the photograph
∙ Any reproduction rights associated with the photograph
If you consider that the PHOTOGRAPH is not the JPG...which I do consider different...then there can be a different interpretation.
Consider if you are taking photos for a contract price of $200. The client decides not to buy a single print from you. She hated them all. You would not owe sales tax on that $200 session fee, would you? No physical products changed hands, no photograph was "fabricated" for them...
Unfortunately Katie I do not think that is the case. It's been discussed here before and I believe it varies by state but for the most part the whole thing is liable for sales tax.
You are absolutely correct. The client doesn't know what he/she is talking about. The entire package is taxable if the photography service will produce a print, an album or a DVD. Tell the client you won't charge tax only if you perform the photography service and they view it online ONLY
Brian Lingle wrote:
tuannie, IMO, digital images produced for viewing in any media are a product, even if only viewed once.
Brian,
To be taxed, it has to be a TANGIBLE product. Thus, a digital file is not what being taxed when you hand clients the DVD of high res files - it is the DVD itself. Of course, that DVD is $1000-$2000 depending on what you charge
State taxes vary by state, and interpretations are all over the place regarding goods, products and services----which can make it very difficult to file correctly.
I'm in CA. CA is one of the "easy" states according to my accountant. In CA, we tax EVERYTHING!
In other words, everything is included as taxable and part of the final product.
If there's interpretation of the tax code, you better bet the tax man will interpret it to their favor. You don't really have a choice, and you'll never win a battle of interpretation.
The rules are different in every state, so do your homework.
My tax adviser said that if NO PHYSICAL materials were exchange then no tax, but if any material exchange hand, then sales tax applies. Digital files transfered onto a customer owned HDD is not taxable, but is taxable if those digital files are copied onto a dvd and then given to a customer. The DVD in this case made it taxable.
I ran into this while researching other prices in CA. I'm starting up a wedding photography biz here on the East Coast by doing mostly portfolio building stuff with the intention of using it as a source of income when I move to CA. I ran across a photographer's website who was charging the tax to the whole package, just as this post describes. I read all this, but my follow on question, for those of you in the biz, is how do you actually pay that tax?
Say for this example, your package costs $2000. You sell a DVD for $200, which makes it now taxable since goods changed hands. When you pay your tax bill, do you pay the sales tax for the $2000 package AND the $200 for the DVD AND pay income tax on your profit for the $2000 base package? It sounds like you're essentially being taxed twice here.
I do plan to address this with a CPA when starting up as well. I apologize in advance for being that guy and bringing up super old threads.
You would charge sales tax on $2,200. Where I live in Los Angeles that's 8.25% which in this case is $181.50. Your client would pay this additionally to you just like with any other retail sale. You would then pay that to the state of California.
By the way...I called the CA tax people just before the July 1st deadline to discuss this exact question. The answer, straight from the tax guy was...
Tax is due on the whole package if ANYTHING tangible is delivered. If NOTHING tangible is delivered, then no tax is due.
Specific examples, you shoot a wedding. Nothing is produced except an online gallery for viewing only. No prints are ordered. Then, no sales tax applies.
You shoot a wedding. One 4x6 is ordered. Sales tax is owed on everything. The package, the print, etc. EVERYTHING.
You shoot a wedding. You offer digital negatives for them via burning a DVD. The whole package is taxable....even if no prints are produced. The DVD is considered a tangible product.
You shoot a wedding. You offer digital negatives for download via some place like YouSendIt or the like. The client never orders a single print, nor do any of the guests. Just the download is available. There is NO sales tax on this package or product. Electronic files are not considered tangible products until burned to a disc.
SO...there you have it straight from the CA tax guys. And, I called twice to ask two different people to make sure their answers were consistent. I asked each of these different scenarios. Those were their answers.
Where the problem would lie...(1) finding a client who wants to spend 10 hours downloading digital files to save themselves a couple $100 on sales tax, then ending up having to pay it anyways because Aunt Susie ordered one 4x6. (2) the line where you tell the CA tax people that you are deducting that gross income as non-taxable is under "Other"...have fun telling them that you really do have wedding negatives for download ONLY.
LAPhotoPro.com wrote:
You would charge sales tax on $2,200. Where I live in Los Angeles that's 8.25% which in this case is $181.50. Your client would pay this additionally to you just like with any other retail sale. You would then pay that to the state of California.
You would pay the income tax on the $2,200.
Don
I guess I'm still confused. Ok your client would pay you the $181.50. Would you pay CA the full $181.50 or just $16.50 (tax on the $200 for the DVD) and apply the remaining balance to the income tax payment on the $2200?
I'm not sure if I'm really explaining/asking the question in the right way, but based on my logical thinking, you would be getting taxed twice on the same service by both the income tax and sales tax. It just seems strange to me that CA would get the photographer for the whole service fee via income tax and also the client for the tax for the whole fee even though the only tangible item the client receives is a $200 dvd.
Thanks for the info, but taxation is never straightforwrard. Unfortunately, the Gov't always wins.
navyasw02 wrote:
I guess I'm still confused. Ok your client would pay you the $181.50. Would you pay CA the full $181.50 or just $16.50 (tax on the $200 for the DVD) and apply the remaining balance to the income tax payment on the $2200?
I'm not sure if I'm really explaining/asking the question in the right way, but based on my logical thinking, you would be getting taxed twice on the same service by both the income tax and sales tax. It just seems strange to me that CA would get the photographer for the whole service fee via income tax and also the client for the tax for the whole fee even though the only tangible item the client receives is a $200 dvd.
Thanks for the info, but taxation is never straightforwrard. Unfortunately, the Gov't always wins. ...Show more →
The way it works in CA is the sales tax on photography is on the total value of the work + tangible product, in this case (LA) 8.25% of $2200. That sales tax is paid by the end buyer, thru a payment made to the retailer (photographer), which is then paid to the state on a monthly basis (or quarterly, if low volume business)...the photographer is not 'paying', he is merely forwarding the money collected from the payer (end customer).
The income tax on the $2200 is not truly that, it is the income tax calculated on the NET INCOME after materials and business operating expenses have been deducted out. If you only had one job all year, and the total expenses of operating the business (including the materials used for that job) came to $2200, he would owe no income tax on that amount.
