Tax Code for Photographers

[Shane]

After reading through all of the different opinions on another thread regarding taxation on photographers, I sent an email to the Texas Comptroller asking for clarification. Here was their response:
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12/21/2005

RE: 05353817 FW: Question

Dear Mr. Summers:

Thank you for your inquiry concerning the collection of Texas sales and use tax for your new business venture. You are an amateur photographer who has been thinking about expanding into doing professional photo shoots. You have asked what the sales tax rules are for a photographer and what is considered as “being in business”.

Response: The Texas Sales Tax Code does not define ‘in business”, however, each sale of a taxable item or service in Texas is subject to tax. Therefore, for sales tax purposes, you are considered to be “in business” when you begin to offer for sale taxable items or services.

The sale of photographs is the taxable sale of tangible personal property. A photographer, when billing a client for finished photographs, must collect sales tax on the entire charge (including sitting fees), whether the billing is lump sum or separated, except for separately itemized expenses not connected to the production of the photographs being sold (e.g., consultation fees and itemized charges for expenses and professional services incurred prior to an agreement to produce a photograph and prior to the first production stage of the photograph to be transferred).

The charge for photographs delivered electronically is also subject to tax.

A "sitting charge" is not subject to sales tax when the customer fails to purchase any prints, negatives, or transparencies.

Photographers who sell their photographic images are manufacturers. Texas Tax Code Section 151.318 exempts tangible personal property that becomes an ingredient or component of an item manufactured for sale, as well as taxable services performed on a manufactured product to make it more marketable. The exemption also applies to tangible personal property that makes a chemical or physical change in the product being manufactured or is necessary and essential in the manufacturing process.

A photographic studio or professional photographer who creates and sells photographs may give an exemption certificate claiming a manufacturing exemption to a vendor for purchase of the following equipment:
° Cameras (conventional and digital),
° flashes and batteries for the cameras and Flashes;
° Scanners used exclusively to scan transparencies into computers used in editing images;
° Computers and software used exclusively in editing images (e.g., adjust color, etc.);
° Image setting and proofing equipment;
° film developing chemicals;
° lights;
° props;
° special effects equipment and supplies; and
° sets;
Note: A person who claims an exemption for an item is required to pay tax on any divergent use based on the fair market rental value of the item during the period of nonexempt use. Divergent use occurs when an item purchased tax-free under a valid exemption is subsequently used in personal or other nonexempt activities. For example, you cannot claim a manufacturing exemption when purchasing equipment that is primarily used for personal reasons. See Rule 3.287(e)(1-4) regarding exemption. See Rule 3.300 for additional information regarding manufacturing exemptions.

Complete Texas sales tax information, including rules, statutes, publications, and frequently asked questions can be found on the Sales and Use Tax web page at: http://window.state.tx.us/taxinfo/sales/.

This opinion is based on the information presented. Other information, though similar, may provide a different result.

If you have any questions or need additional information, you can reply to this email, call me at 1-800-531-5441 ext. 31810, or write to Tax Policy Division, P. O. Box 13528, Austin, Texas 78711-3528.

Our goal is to provide you with prompt, professional service. Please take a moment to complete our on-line survey at http://aixtcp.cpa.state.tx.us/surveys/tpsurv/.

Regards,

Robin Corrigan
Tax Policy
Texas Comptroller of Public Accounts

[Clint_Smith]

great thread

[JohnT]

Thanks very much, Shane. Important info for sure.

[MyKey]

Good Information, thanks for posting.


Are you guys interested in making this a Sticky?

[WhiskeyBoy]

Very much Appreciated. Good job hunting down that Info!

[brad]

Thanks for doing that (and sharing the results), Shane... and Sticky is a perfect thing for this FAQ item. :)

[krodgers]

Thanks Shane for contacting them. I didnt realize the other thread would get so involved, but I have learned alot from the post in that thread.

guys thx for answers

[Steelsun]

Shouldn't this be a sticky in teh Biz forum instead of the Open Talk?

[Shane]

Glad the information was useful - about time I actually added some useful information around here!

[Sonny]

Originally Posted by Shane

Glad the information was useful - about time I actually added some useful information around here!

I for one appreciate you sharing the info. Thanks again!!!

[markfh]

"Note: A person who claims an exemption for an item is required to pay tax on any divergent use based on the fair market rental value of the item during the period of nonexempt use. Divergent use occurs when an item purchased tax-free under a valid exemption is subsequently used in personal or other nonexempt activities. For example, you cannot claim a manufacturing exemption when purchasing equipment that is primarily used for personal reasons. See Rule 3.287(e)(1-4) regarding exemption. See Rule 3.300 for additional information regarding manufacturing exemptions."

Think about your photography habits and how this would apply. State sales tax auditors are good at determining that you bought 100 frames and only sold 60. They might ask where the other 40 went.

I speak from experience in my businesses.

[brad]

Never claimed tax exemptions for equipment... deductions for equipment expense, yes... tax free, no.

[gpgyo]

Originally Posted by brad

Never claimed tax exemptions for equipment... deductions for equipment expense, yes... tax free, no.

I think you may be mixing income tax and sales tax here.

In the letter, the author was referring to paying sales tax at the point of purchase for manufacturing (camera) equipment. As a manufacturer, a photographer would be exempt from paying sales taxes (if you went into Pro Photo Supply before they closed and they asked you if you were tax exempt when you checked out this is what they were talking about.) If you bought a camera and claimed a sales tax exemption then a sales tax auditor later determined that you used the camera 90% for business purposes and 10% for personal use, the 10% part would be subject to sales tax.

When you say you have claimed a deduction for equipment, I believe that you are referring to including the cost of what you have paid for camera equipment on your Schedule C (if you include your photography income on your personal return) as part of your business expenses.

If important to remember that income tax and sales tax are two very different animals.

Have fun,
Greg

[brad]

Originally Posted by gpgyo

When you say you have claimed a deduction for equipment, I believe that you are referring to including the cost of what you have paid for camera equipment on your Schedule C (if you include your photography income on your personal return) as part of your business expenses.

Yes, I didn't make it clear. I was stating that deducting it as part of business expense on the business income taxes (we are a Class C corporation) was something I have done... never tried to claim the purchase was sales tax free, though... too much trouble.

[suzyjazz]

I agree.... I use my equipment too much for personal use, so I won't avoid sales tax. Lucky for me, most of that equipment is purchased from out of state vendors so I didn't pay the sales tax anyway! I only do it on prints nad materials that actually go out the door to a customer.