Sales Tax – The Business Side of Photography
Let me start with a disclaimer: I am not an attorney or tax professional, so please don’t consider this information legal or financial advice. I’m just a business owner who has spent countless hours trying to make sure I’m doing everything legally, so I’m sharing a few things I’ve learned along the way. Laws vary from state to state, so please check your local laws or talk to a CPA to find out your legal responsibilities.
Now that we’ve got that out of the way, let’s talk about something that can be very confusing for photographers….SALES TAX.
If you’re selling prints, CDs, flash drives, or (in some states) digital downloads, you are required by law to charge sales tax on those purchases and remit that tax to your local and state revenue departments every month. In most states, sales tax payments are due by the 20th of the following month. If you are late filing your sales tax payment, the late payment penalty can be very expensive!
Here’s one little tidbit of advice to help you avoid those expensive late fees: Set up a monthly reminder in your phone’s calendar. At 8 a.m. on the 18th of each month, my phone reminds me that I need to remit the previous month’s sales tax to the state. I usually take care of it during the first or second week of the month, but the calendar reminder is helpful just in case I get busy with other things and forget to do it.
“What percentage do I have to charge?”
The amount of sales tax is going to vary depending on where you’re located. In addition to the state sales tax, there also may be a city and county sales tax. Your sales tax rate may be different than another business just a few miles down the road from you. For example, our total sales tax rate is 10%. 4% of that goes to the state, and the city and county each get 3%. We have to add the 3% city sales tax because we’re located inside the city limits. However, if we were located in an unincorporated part of our county, we would only be required to charge 7% (4% for the state and 3% for the county).
“So how do I remit this sales tax after I’ve collected it from my clients?”
In a lot of states, the state Department of Revenue’s website will allow you to pay your state and local sales tax in one online location. Just search for your state’s Department of Revenue website and you’ll usually find instructions for setting up your account. You can also contact your city or county business license office. They’ll probably be able to refer you to the right place.
“But if I only offer digital downloads, I’m not selling a tangible product, so I don’t have to charge tax, right?”
Many states now consider digital downloads a taxable product just like prints, CDs, or flash drives. These rules seem to be changing constantly and new states are being added to the list, so check your state’s laws or contact a CPA to find out if this applies to you. “The LawTog” Rachel Brenke also has several articles on her website relating to this issue.
“If I mail the product to someone in another state, I don’t have to charge sales tax, right?”
Now we’re wading into some really murky water! In the past, businesses didn’t have to charge sales tax on a product that was ordered by mail or online and was being shipped to an address in another state. However, due to the popularity of online shopping, some states have passed laws requiring online retailers to charge sales tax on products shipped to their state, even if that online retailer is not located in their state. In Alabama, it’s been nicknamed the “Amazon Tax”. This is another part of the sales tax law that is constantly changing. As online shopping grows, I’m pretty certain that there will be “Amazon Taxes” in more states during the coming years. How this will affect businesses like photographers remains to be seen.
“What’s taxable and what’s not taxable?”
This is probably the most confusing part for photographers. But in most cases, detailed invoicing is the key to keeping you from having to add a huge amount of sales tax to your client’s bill. In other words, you have to separate the non-taxable cost of your time from the cost of the taxable products (prints, CDs, or flash drives). If you charge a flat rate that includes your time AND the product, most states are going to require you to charge sales tax on the full amount. Some states have very confusing rules on how this works, so again, check your state’s laws or contact a CPA for advice.
I know this may seem overwhelming, but if you do a little bit of research to make sure you’re doing it right, then make it a part of your monthly routine to submit your payment, it’s really not that painful! Using financial software like Quickbooks is also helpful. When you’re ready to remit your sales tax payment, just pull up your previous month’s sales tax report from Quickbooks, then enter the information on that report into the sales tax filing website and make the payment.