LAST WARNING - Get it Legal!

[CobyPhoto]

Just a word to the wise. The economic crunch has a wide ranging reach and touches more people and agencies than you realize. I know that many of you who think that being legal and following the rules is a joke and you don't think it matters and you would like me to quit posting about what you are required to do legally...

Oh well, I don't listen to well myself, but I am legal and in the near future, if you aren't legal you could well be paying the price! Many State, Local and even federal agencies are on the move to locate, identify and fine those business(s) that are NOT operating within the legally required minimums. I have been aware of this move for quite some time and have continually posted and warned individuals to "get it right!" They are now even taking 'tips' from individuals and paying rewards for turning in business(s) that owe back Sales Tax, Property Tax and other violations of the legally required minimums to be in business.

I am posting an e-mail alert from PPA (Professional Photographers Association) where the frequency of this occurrence has actually been noted nation-wide! The move is on to find, audit and collect back property, sales and other revenues that should have been collected and were not or improperly handled!

It boils down to this, money is tight and if you are in business, you have a legal responsibility to comply with the law and if not, they are actively coming after you and collecting that revenue. (In the past, it was not actively pursued.)

So get it right or pay the price! (If you don’t like what I have to say, hit the back button and don’t waste the time of those who want to know how to be legal and responsible in their endeavor --- those individuals know who they are.)

CJ

Here it is:

Dear PPA Member,
Even the scariest trick-or-treater is not nearly as frightening as finding out that you are about to experience a sales tax audit.
From members around the country, we are hearing that state and even county and city governments are increasing their audits of small businesses, searching for missing tax revenue. In some states, photographers are even being targeted because of sales made over the Internet!

Dealing with sales tax is a fact of life that we all have to deal with, whether we pay it or collect it. This week’s message addresses some of the common sales tax questions that members ask, including the Internet/sales tax subject.

Staying out of trouble helps you stay in business, and we’re here to help.

Sincerely,
Al Hopper
Director of Membership

To Sales Tax or Not to Tax
All of us want to reduce the amount of our tax obligations, but sales tax is a fact of life for most people. It is something we can’t avoid paying and most businesses can’t avoid collecting. Understanding sales tax rules and procedures is critical. And not following these rules can result in costly interest and penalties that can ultimately shut down your business.
Sales tax laws vary from state to state and, in some states, by county or city. Understanding the rules is important, but it can be a daunting task. That’s why we will discuss general sales tax laws and suggest resources to locate information specific to your state or jurisdiction.

Getting Started
Basically, if there is sales tax in your state or jurisdiction, your business should be collecting and paying sales tax. The first step is obtaining a Sales Tax License. Contact the Department of Revenue in your state for an application or information as to where you obtain an application. In some states, the administration may be done by a city or county government.
The same department can also tell you the correct sales tax rate you should charge. Usually, the sales tax rate is based on where your business is located. Remember, sales tax rates can vary county by county as well as city by city in some states.

The Million-Dollar Question: What part is taxable?
The million-dollar question is whether or not sales tax should be charged on services, such as a portrait session or the creation fee for photos. Generally speaking, if the labor or service is part of the creation of a product, then the labor which is used to create the product is taxed as part of the total selling price of the product. Simply put, the cost of creating the photograph is considered taxable since it results in a taxable product, a photo.
This is in contrast to having a repair done. Your local garage may charge you labor and parts separately—with sales tax only applied to the parts—because it is a repair, not the creation of an original product.
Is it possible to separate the labor involved in the creation of the photo from the cost of the photo itself…and not collect sales tax on the labor? We strongly advise against this position unless your state or local laws allow sales tax to be collected/paid only on the cost to produce the photograph.
Collecting Sales Tax: Dealing with tax-exempt folks, complaints, & the Internet

How do you deal with tax-exempt organizations, such as non-profits, or with an ad agency that tells you they shouldn’t pay sales tax since they are using the image in another commercial application? If an organization isn’t liable for paying sales tax, they should be able to produce a sales tax exempt certificate or other written notification from the tax authorities. We recommend that if you collect sales tax in your state, collect sales tax from all of your clients unless they present a tax-exempt certificate, which should be kept on file.

What about customers who tell you Joe Photographer down the street doesn’t collect sales tax and is, therefore, cheaper? Well, cheaper isn’t always better. And it is likely that Joe Photographer either doesn’t have a sales tax license or is not complying with the sales tax laws required in your state or jurisdiction.

Internet sales provide more questions from a sales tax perspective. Are you liable for collecting sales tax for sales of products over the Internet? The answer is a little more complicated, but usually, if the client who is ordering prints or other products is located in the same state or jurisdiction as your business, you are required to collect sales tax. If the actual print is made out of state and delivered directly to the client from a third-party lab or other provider, you are also required to collect sales tax.

Consider this example:
• Your business is located in Ranger, Gordon County, Georgia. You cover a wedding for a customer, and put the images on a third-party Web site so guests can order prints. The bride’s Aunt Sally, who lives in Chatsworth, Georgia, orders prints directly via the third-party Web site and pays online with a credit card. The prints are actually made at a lab in Tennessee and delivered to Aunt Sally in Chatsworth. Are you liable to collect sales tax on that transaction?

Yes, in all probability, you are responsible for collecting and paying sales tax because your business and Aunt Sally are located in the same state.
• Uncle Billy, who lives in Alabama, also orders some prints via the same service, and they are delivered directly to him in Alabama. Are you liable to collect sales tax on that transaction?

Probably not. Your business and Uncle Billy are located in different states.
What’s Right for Your Situation?
All of the above is a simplification of the rules and may not be correct for your specific situation. Again, just to drive home this point, it is important for your business to know what the rules are for your jurisdiction and to follow them.
Frankly, if you aren’t sure how the rules will apply, we suggest that you collect and pay the appropriate sales tax as a simple precaution. You should check with your accountant and/or with the proper government authority to confirm you are in compliance with your state and/or local sales tax laws.
The “good” news is that if your business is located in a state with sales tax laws, your customers are familiar with paying sales tax on purchases already. Americans are used to paying taxes…even if we don’t like it.
What To Do Now:
• Get a Sales Tax License (if you don’t already have one). Contact the Department of Revenue in your state for an application or information as to where you obtain an application. Usually, if you just search by your state name plus “sales tax,” you’ll find the department you need to contact. For example, go to www.google.com; type in search terms “georgia + sales tax.” You may find that this is handled by your city or county government.
• Learn the correct sales tax rate you should charge (the same department you talk to about getting a Sales Tax License can give you this information).
• Check with your accountant and/or the proper government authority to confirm that you are in compliance with your state and/or local sales tax laws.
• Learn more about taxes (income taxes this time) by listening to Scott Kurkian, PPA’s CFO, as he gives an Income Tax Strategies Webinar on December 8, 2008

[brad]

Note: In Texas, the penalty for operating without proper proof of sales tax license is something like $500 per day... and that's in addition to sales tax you didn't collect and the penalties on those amounts for not filing.

[AndrewCCM]

I have always been a little confused about second shooters. I am selling my services to the primary shooter that is using my files to create a final product for a customer (typically an album). He is charging sales tax on the full amount for the package which includes the labor of a second shooter.

I have recently transitioned pretty much all over to second shooting as far as my wedding services go and just want to be clear.

I'll probably contact the SBA about it and/or an accountant, but thought you might have some advice.

[brad]

IANAL and IANACPA but I think it comes under contract labor... and even if it didn't, it would be "for resale." As a non-trained guy giving advice, I'd say get a copy of the primary shooter's sales tax license in order to cover your butt if some auditor decides you are in the "for resale" category and not contract labor. A CPA or Tax Lawyer might have different advice.

[CobyPhoto]

Originally Posted by brad

Note: In Texas, the penalty for operating without proper proof of sales tax license is something like $500 per day... and that's in addition to sales tax you didn't collect and the penalties on those amounts for not filing.

Correct. The penalties and interest on those tax and penalties can get as high as 50% of the amount due, depending upon the length of time they have been outstanding!

Bottom line, you just can't afford to be on the wrong side of this issue.

CJ

[AndrewCCM]

Thanks guys.. I am definitely going to talk with an Accountant going forward since this represents a shift in how I do business. Plus I am starting to do more work for other companies that are using the work for product, marketing, etc.. So I need clarity...

[CobyPhoto]

I definitely advocate talking to an accountant, CPA (actively practising his trade), he will be up to date on the latest and greatest and be able to keep you out of trouble.

I still have a CPA do my taxes every year and review my work to insure I have it all correct!

CJ

Got that PPA email too.

Time for the state to find their revenues. Amazingly enough, I know of some small businesses that have already been hit by the audits, fines, etc.

[Jeff Lane]

Andrew, the short answer is that from what you've described, you're an independent contractor for the primary shooter, not a "seller" of services to the ultimate consumer. The guy actually making the sale should collect sales tax, but it's not your responsibility in this situation. There are likely other issues besides sales tax, however, and you're right -- you should get more specific advice from a tax professional (a.k.a CPA) about those kinds of issues.

Because you're in the DFW area, you might also want to talk to the folks at the North Texas Business Development Center to help alert you to other issues you might not have thought about, including insurance and regulatory issues. Here's the link:
http://www.ntsbdc.org/

As to Coby's original warning: GET IT RIGHT, AND GET IT RIGHT NOW! Some taxing authorities are being a lot more aggressive lately, because tax revenues are getting hit hard by defaults, foreclosures, etc., and they need to make up the difference any way they can. Can you get away with being a scofflaw and not paying all your taxes? Yeah, maybe, at least for a little while. But when you get caught (and unless you're so lousy in business and only in it for a few weeks, you're pretty likely to get caught) the penalties (and pain) are more than enough to make you sorry you were ever illegal in the first place.

Originally Posted by Jeff Lane

Andrew, the short answer is that from what you've described, you're an independent contractor for the primary shooter, not a "seller" of services to the ultimate consumer. The guy actually making the sale should collect sales tax, but it's not your responsibility in this situation. There are likely other issues besides sales tax, however, and you're right

I make sure that I get a copy of the tax resale certificate from every photog that I shoot second for and put it with my payment information in my records so that if I get audited, I can show that it was a non-taxable invoice.

[HotHolly]

Originally Posted by CobyPhoto

I definitely advocate talking to an accountant, CPA

Ditto. The SBA missed a form we need to file & the accountant found it. Cover your butt and pay the fee.