It’s almost April 15th, my least favorite day of the year. I’m sure you’ve heard the saying that there are only two certain things in life, death and taxes. The greedy tax monster comes in all shapes and sizes and he must be treated appropriately or he can destroy the business that you worked so hard to build in the blink of an eye. Due to the complexities of the tax code this will be another series taking a look at Sales Tax, Use Tax, Income Tax, and managing that tax money.
Sales and Use Tax is really the first tax that you are going to have to worry about paying in your business. Income tax is only paid once you start receiving an income, which often takes at least a year or two when starting a new photography studio. However, sales and use tax needs to be paid from Day 1. Yes, from day 1. If you are taking money for your services you need to be collecting sales tax. Period. Thankfully, it is extremely easy to apply to collect Sales Tax, and there is no application fee! Simply go to your state’s Department of Revenue page and fill out the form.
The details of what types of goods and services are taxable differ from state to state so I recommend some research with the Department of Revenue in your state. Some states require that you collect sales tax on your products AND your session fees. Even if your state does not tax “services” so you don’t have to pay tax to your handyman, they may very well tax photography services, as is the case in Pennsylvania. Often it is because it is getting more and more common for photographers to include product credits or some other goods in their session fees so those greedy tax monsters (I’m picturing the little family from the Mucinex commercials) have decided that our session fees are fair game in many situations.
A word of caution, the session fee sales tax issue is a VERY GREY area for many a Department of Revenue. I have heard numerous stories of photographers being hit with tens of thousands of dollars in back taxes because the Department of Revenue changed the rules of what was considered taxable. Unfortunately, those photographers often have little recourse but to pay the back taxes, interest, and penalties.
I recommend getting something IN WRITING from the Department of Revenue stating that session fees are not considered taxable if you are not planning on collecting sales tax on them. I would then recommend getting it in writing each year following, whether in a mailed form or simply an email from someone at the Department of Revenue. Is that over-kill? Maybe. Can that save you from losing your business if the state knocks on your door and says you owe us $20,000 in back taxes and penalties? Absolutely.
If you are a photographer that offers services in multiple states, you must be collecting Sales Tax in those states. For instance, I have photography clients in Southwest Florida, therefore I am registered with the Florida Department of Revenue to collect Florida Sales Tax on those sessions. I am responsible since I am providing the services in Florida to Florida residents. However, if I was in Pittsburgh and I photographed a client that lived in Ohio I would NOT have to collect sales tax on that session or those products sold. Since that person does not live in Pennsylvania and the transaction took place in Pennsylvania, it is their responsibility to submit Use Tax on their personal returns in Ohio.
Tomorrow we’ll take a look at Use Tax. This is a sneaky little tax that if left unattended to WILL cause you huge headaches and cost you a lot of money when the greedy monsters start knocking.