Sales Tax

[d2creative]

I have a client/friend that was looking over an itemized estimate I gave them and the question of what services are actually taxable was brought up. The quote below is part of my reply, and I wanted to know if this is correct or if I'm off base and going about it all wrong.

ya, i know... it's a weird gray area, and it's even hard to get hard/fast advice from a CPA on it, but i'm doing what I have been advised.
I don't charge tax for my freelance design because I'm usually just handing off "concepts" and then the client has the piece printed and delivered and that's where they get charged the tax. This is similar to your architectural drawings.
But in this case the photo that I'm giving you is an actual end product that can be a revenue generating item for you. For instance, if you take it and put it in an email blast to potential new clients, or up on your website. In the end you have a finished product in hand. And all services rendered in order to arrive at that end product are therefore taxable. It's like if you bought a silkscreened t-shirt. The price of the shirt includes time, materials and talent and you are taxed on that final product. You just don't see it itemized.
We purchase photography at my office and it does vary from job to job, how we get taxed. For instance, if we are designing a package for frozen waffles and we need the waffle image for the front of the package, we are not charged tax by the photographer because that image will be placed into the design and then we charge the end client tax on the materials delivered. But if our photographer shoots an image of that final printed package so we can use the image in our advertising, then we are charged the tax.

So I'd like to know how you handle this when shooting commercially and handing off images (not prints from portrait sessions or such).

Thanks!

[timbertoes]

iirc, tax on labor applies

[WarrenG]

Dennis,

I am no expert, but as I have been advised; regardless of what your client does with the end product, they must pay tax on the cost of your service (i.e. - the photography itself).

Your email response is not actually 100% accurate, as even if your were providing a print to the client, it could still be a raw material, which in turn they will add to (maybe framing, etc) and sell to someone else. So it seems your both right (depending on what the client is doing with the images). You could collect sales tax for the photography services, and treat the images as raw materials that are not taxable if that is what the client requires (much like a lab treats a pro photog). Keep in mind that you need to get a Texas Sales and Use Tax Exemption Certification (The back of Form 01-339).

My commercial clients pay sales tax unless they specifically state that the comission is for images which will then be resold, and of course in this instance, the end use of the image is worked into the commercial use license.

Again, I am not tax expert so I would defer to the advice your CPA gives you.

W

[d2creative]

Thanks guys. I just found this informative pdf, and as Warren states, I was correct.
http://www.window.state.tx.us/taxinf...s/tx94_176.pdf

[WarrenG]

Wow, I had not seen that previously.

[tukaniray]

Nice post. I am going to download that PDF and read through it. I charge sales tax ... but with this knowledge I'll know what to tax and what not to. And how to handle it.

-Ray-

[sldi]

It does clarify somethings, such as the sitting fee being taxable if the photos are sold.

[Steelsun]

There's an old maxim, that a Texas Sales Tax Auditor told me that they go by alot:
If in doubt, tax it.

You won't get in trouble from the state for Taxing, as long as you turn in the money to them that you tax.

[Howard Barlow]

Originally Posted by Steelsun

You won't get in trouble from the state for Taxing, as long as you turn in the money to them that you tax.

In line with that, if you 'round up' to avoid pennies, or anything else, it is legal, and you owe all the 'round up' to the state. You cannot, legally, keep the extra change.

[d2creative]

Originally Posted by Steelsun

There's an old maxim, that a Texas Sales Tax Auditor told me that they go by alot:
If in doubt, tax it.

You won't get in trouble from the state for Taxing, as long as you turn in the money to them that you tax.

That what I always did before, but now I know I was correct all along.

[bryanlindsey]

I would replace "it's a gray area" with "the law is quite clear." If you speak authoritatively on the subject you are unlikely to get a rebuttal.

[island bound]

I don't not want to get called out in an audit, so I charge tax on EVERYTHING.
The total amount I charge them, it gets taxed.
That includes shipping, travel, hotel, EVERYTHING.

[Steelsun]

Good choice.

When I first started working as a professional investigator for a small PI company, they were going through audits (both state sales and IRS). The IRS one was easy, relatively. The state one was a pain. One of the things they got hit hard on was not charging sales tax on direct expense reimbursement, mainly car rental, airline tickets, meals, and hotels.
I even asked: We are paying up to 15% sales tax already on hotel rooms & car rentals (due to crazy cities like Houston and San Antonio with their "visitor taxes"), yet we have to charge another 8.25%? Isn't that double taxation?
The lady responded "Yep, and that's the way it is, don't fight it"
Apparently if we had separated out all the expenses like that into separate invoices and billed them as direct reimbursement, we did not have to charge tax. But by putting them on the same invoice with taxable stuff, we had to tax it.
Weird.

[d2creative]

Originally Posted by bryanlindsey

I would replace "it's a gray area" with "the law is quite clear." If you speak authoritatively on the subject you are unlikely to get a rebuttal.

Well now that I know for sure, I will.
But if I was wrong and said that, I would have looked like idiot. She WOULD have found out.