Retainer Fee and Charging Sales Taxes in Texas?

[JohnCainPhotography]

Hi y'all.

I have bee scouring through sales tax discussion and have a quick question.
If you charge $2,000.00 for a wedding, and require a 25% retainer to reserve the date (yes, there is a legal difference between a retainer and a deposit as a deposit can be deemed refundable)... is that retainer subject to the TX State sales tax?

That $500 payment is to guarantee the date to dissuade cancellation of the contract.

This is not a 'sitting fee' for portraits, rather it is a genuine retainer for guaranteeing the service to be paid with contract signing.

I want to have integrity with my business and paying what is owed, but would really appreciate any insight to paying taxes for a wedding.

A $2,000.00 package is subject to $145 in taxes... for a bride that is on a budget that is a lot to give back to the State!

Please correct me if I am wrong (and I very well may be):
In the state of Texas, all $2,000.00 paid for a wedding is subject to the Federal Income Tax.

If $500 is a retainer fee, is $1,500 then subject to the TX State Sales Tax, or is all $2,000 still subject to the State Sales Tax as well?

Thanks so much for clarifying.
This link below was a very helpful resource, and addresses sitting fees for portrait photographers but not 'retainer-fees' to garauntee a wedding photographer's calendar of work.
http://www.window.state.tx.us/taxinf...s/tx94_176.pdf

[XtremePhoto]

Pretty simply if you think about it. IF you do NOT fulfill the contract for the wedding then the 'retainer' fee is then non-taxable as you really did no work for the client. However, IF you actually do the contract for the client, then you owe tax on the ENTIRE 2,000.00 (including the 500.00 'retainer'.) In photography, everything is taxable.

In the tax world, when you collect, you owe. So when you collect the 500.00 retainer, you owe the sales tax to the State of Texas in that reporting period. IF you do not do the wedding, then you would claim a credit for the tax remitted but not owed on a future report, but be prepared to support that with the State Comptrollers Office.

Just because it is a retainer, does not exempt it from sales tax. It is still part of the contract for services on the wedding coverage and therefore taxable.

-G-

[LadyShutterBug]

what he said. if your "service" results in tangible goods (which all photography does) then it is all subject to sales tax.

even if you just refer to it as a retainer or booking fee, it still results in the output of a product. this is why, even if you include no prints/products, you still charge sales tax on your sitting fee.

if you provide a service that does not result in a product (for argument's sake, let's say you charge for a timeline consultation, or a private photography lesson), only then is it non-taxable.


brides on budgets still need to pay all of the required sales taxes. they're paying it on everything else subject to tax. if you want to accommodate someone with a max $2000 budget, you need to back out the tax and price your packages to where, after tax, you'll be within their guidelines.

[pbyd]

Originally Posted by XtremePhoto

Pretty simply if you think about it. IF you do NOT fulfill the contract for the wedding then the 'retainer' fee is then non-taxable as you really did no work for the client. However, IF you actually do the contract for the client, then you owe tax on the ENTIRE 2,000.00 (including the 500.00 'retainer'.) In photography, everything is taxable.

In the tax world, when you collect, you owe. So when you collect the 500.00 retainer, you owe the sales tax to the State of Texas in that reporting period. IF you do not do the wedding, then you would claim a credit for the tax remitted but not owed on a future report, but be prepared to support that with the State Comptrollers Office.

Just because it is a retainer, does not exempt it from sales tax. It is still part of the contract for services on the wedding coverage and therefore taxable.

-G-

Thanks Glenn,
You just saved me the time to type this.

[hdctx]

As for federal income taxes, they are due not on revenue (the $2000), but on your profit after all your expenses. I feel certain you understand that, but your comment implies you'd pay (Federal) taxes on the revenue.
State? Pay the sales tax on the $500 in the quarter you received it, even if the actual event is in a different tax year. Kinda like the way you'd treat property taxes. If you pay at the end of 2011, you can take the deduction this year. If you think you'll have higher tax liability next year, put off paying until January.

[pbyd]

After you have been in business for a while you will start to understand the tax codes or you will soon be out of business, it is hard to really be in the business of photography and not know how to run a business. So many people do photography but never get into the business of photography even if they are charging clients for work.

Sales tax is collected when the money is paid to the business, if the company is operating on a Cash not Accrual basis. If the company is operating on an Accrual basis then the tax would be due in full on the next reporting period after the invoice is issued (be it monthly, quarterly or yearly), even if the invoice is not paid in full.

You can read about Cash and Accrual at the following:

Cash Vs. Accrual for Quarterly State Tax Reporting | Small Business - Chron.com

Wayne
Photography by Design

[XtremePhoto]

Originally Posted by hdctx

As for federal income taxes, they are due not on revenue (the $2000), but on your profit after all your expenses. I feel certain you understand that, but your comment implies you'd pay (Federal) taxes on the revenue.
State? Pay the sales tax on the $500 in the quarter you received it, even if the actual event is in a different tax year. Kinda like the way you'd treat property taxes. If you pay at the end of 2011, you can take the deduction this year. If you think you'll have higher tax liability next year, put off paying until January.

Just a quick note. You CANNOT put off paying State Sales Tax in the proper reporting period EVER. If you fail to report and pay State Sales Tax in the proper reporting period the fines can be very large, along with interest and penalties on that amount.

In fact, the State used to allow one 'boo-boo' or Ops I forgot to pay, but no longer can you get away with that and not pay the fine immediately. The State legislated a change that eliminated this and you are now immediately assessed a fine for late payment. The State is aggressively pursuing State Sales Tax violators now as they are not receiving as much revenue with the economy in the shape it is in. If you have never been through an audit, they are anything BUT nice. They tell you what you did wrong and you are guilty until YOU prove you are not. No such thing as innocent until proven guilty!!

-G-

[pbyd]

[ If you have never been through an audit, they are anything BUT nice. They tell you what you did wrong and you are guilty until YOU prove you are not. No such thing as innocent until proven guilty!!

-G-[/QUOTE]

I have been though an audit by the Texas State Comptroller and will tell you it is not fun. This statement is so true. If anyone would like to know what a State Comptrollers audit is like and what can happen please feel free to contact me and I will be happy to share.
Wayne
Photography by Design

[hdctx]

U did not mean to imply you could delay payment. You could, however, move a taxable event from obe period to another, by delaying when money actually changes hands. As everyone has said, sales tax is due when you receive payment using cash accounting. The guys I pity are the destination photographers who establish nexus in several states and have to pay sales tax, and then fight to prove which state is due business taxes.

[pbyd]

Dave, as a small business running on a Cash Basis I can not nor do I delay payment. When a business is set up on Accrual, it is handled different and taxes are due when the client is invoiced the tax collected is due on the next reporting date, just another way for tax to be paid in the state of Texas. But you are right you never delay paying taxes when they are due, it is just the date they are due will depend on your status.
I must add that I am not a tax lawer nor do I play one on TV, I am only in the business of Photography.

Wayne
Photography by Design

[hdctx]

Wayne, you could delay a retainer from December into January in order to move revenue to the following year, and you could certainly make capital purchases or pay expenses to one or the other month for the same reason, and it's not considered the least bit shady.

[XtremePhoto]

Originally Posted by hdctx

Wayne, you could delay a retainer from December into January in order to move revenue to the following year, and you could certainly make capital purchases or pay expenses to one or the other month for the same reason, and it's not considered the least bit shady.

You can with Revenue and Capital Expenditures etc. to some extent. NOT with State Sales Tax. Period. You pay when the payment is received (Cash Basis) or Invoiced (Accrual Basis). The only way you could deferr the Retainer is NOT accept payment until a later date to manage the report period. (I don't know too many people that would hold a date on their calendar & forego any other opportunities without payment, thought.) The OP's original question and discussion is about State Sales Tax and not Federal Income tax or revenue.

Fail to report a retainer in December (and remit the sales tax) and get audited, you will not only owe the sales tax, but interest and penalties and late filing charges on that amount dating back to the original payment.

Again, NOTHING in Photography is exempt from sales tax. (Unless you do nothing for the money.)

-G-

[hdctx]

I meant exactly that, you could delay accepting the payment. If you had an exceptional year, it might make sense, and yes, you still pay sales tax in the month you actually get the money.

[FireHeart Photography]

Everything in our business is taxable.... no way around it....