Hobby or a business?

[ggeen]

I am not sure if this is the correct forum to post this. If not, please feel free to move it.

A coworker wanted to buy a copy of one of my tiger pictures from Pug Mark Park. Hmmm, this whole tax thing is confusing. So I googled it. If I understand the code in its entirety, I can sell one or two items in a 12 month period under the occasional sales rule -- IF I am not acting as a business. I'm not.

A third sale within that 12 month window would classify me as a business and I would then need a sales permit and collect all applicable sales taxes.

Up until now, I simply provided a JPG file that a colleague could have printed out. She wanted a big print like the one I have and I d not normally provide high resolution JPGs to anyone. So I thought that I would print it, mat it, and frame it. Then charge her cost for the entire package.

From what I gather, I should be pretty safe this time. But if I wanted to offer prints at a hobby show, THEN I would need a permit.

Am I understanding this correctly?

STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
STATE SALES AND USE TAX

Section 3.316. Occasional Sales; Joint Ownership Transfers; Sales by Senior
Citizens' Organizations; Sales by University and College Student Organizations;
and Sales by Nonprofit Animal Shelters. (Tax Code, secs. 151.055, 151.304,
151.310, 151.321, 151.332, and 151.343)

(a) Sales exempt. A taxable item that is sold or purchased by way of an
occasional sale is exempt from sales and use taxes, except as provided by
subsection (i) of this section.

(b) Occasional sales by persons not in the business of selling, leasing, or
renting.

(1) One or two sales of taxable items, other than an amusement service, during any 12-month period by a person who does not hold himself out as engaged (or who does not habitually engage) in the business of selling taxable items are occasional sales.

(2) The third sale of a taxable item in a 12-month period by a person not
previously in the business of selling, leasing, or renting taxable items causes
that person to become a retailer. Tax must be collected and reported on the
third sale and all subsequent sales unless the sale qualifies for exemption
under subsection (d) or (e) of this section. If three or more sales are made
in a 12-month period, then the person must obtain a permit. See sec. 3.286 of this title (relating to Seller's and Purchaser's Responsibilities). Example: A
lump-sum contractor sells a backhoe in October, a typewriter in December and a crane in February. The contractor has not sold, leased or rented any
construction equipment prior to the sale of the backhoe; therefore, the
contractor can sell the backhoe and typewriter tax free as occasional sales.
The sale of the crane is the third sale within 12 months from the sale of the
back-hoe. The sale of the crane is not an occasional sale. The contractor
must obtain a permit, collect tax on the sale of the crane and, until an
intervening 12 months have passed between sales, all subsequent sales of
taxable items.
...

[bondarnes]

I think that the amount of the sale would also come into play. If you make three sales that total less than $100.00 the state is probably not interested in collecting $8.00 or less. In the illustration a backhoe and a crane add up to a substantial amount.

[Gateruner]

If you are charging cost for the item you arent making money. I would view this as more of a reimbursement of your out of pocket costs from a friend and not a sale.

However, if you are charging for the print and making money off of it, I would personally set up a small business and charge tax and send it to the state. It costs 15 bucks for a DBA and the sales tax permit is free. My theory is to always play it safe with the government and pay them what they are owed. If it is $8 bucks then that is what they get. If your friend gets the print and loves it and tells their friends and they want one then you may exceed your 3 sales in a year. Why not just set up the small business, collect the tax and send it to the state. Then you get the benefit of all the tax deductions that you can have with a small business and you are in compliance with the state. Your trip to the zoo now becomes a photoshoot and you can deduct the expenses of going there.

[ggeen]

My plan is reimbursement for the materials, about $80, and maybe a little bit for my time in post processing.

Don, in a way you are correct. If there is substantial money involved, then yes, the state wants their money. I read a court ruleing from 2001 -- I think -- where the state tried this. The state lost because the woman made one (1) sale as an interior designer under the occasional sales rule. In November she filed her DBA and tax Id. to start her business. The state wanted the money from the pre-business sale. The court ruled against the state as she made a single sale under the occasional sales rule.

The idea of filing a DBA and getting a tax id. did cross my mind. I could just wait to see if I make three sales....

Thanks for responding. Much appreciated. -G

[ADP Photography]

You didn't list a third option...

1) Hobby
2) Business
3) OBSESSION!!!!!

#3 will cost you all of your life savings, your heart & soul... you want to make money at doing what you love, but in reality doing whatever it takes just to hear the shutter and knowing you have just taken that perfect shot is all that really matters.

Good luck to you!

[ggeen]

Originally Posted by ADP Photography

You didn't list a third option...

3) OBSESSION!!!!!

#3 will cost you all of your life savings, your heart & soul... you want to make money at doing what you love, but in reality doing whatever it takes just to hear the shutter and knowing you have just taken that perfect shot is all that really matters.

Good luck to you!

OK, I did really laugh out loud when I read that. I have a real job to pay for my photography addiction...I mean obsession. My intent is not to make money at it but to create art. I have plenty of examples hanging on my wall at work and home. That is how this all got started. Someone wanted to buy my work right off the wall. Hmm.

[sldi]

Of course then after you have set up your little biz and sent the state there $8, the tax man may want to come buy and tax all your equipment that you use in your business for the tangibles tax, after all you are writing it off as business equipment.

[DoctorWu]

Also, you'll need yourself a tax id, and once you have that, you'll need to file a form on a quarterly basis whether you've made any sales or not.

[ggeen]

Originally Posted by DoctorWu

Also, you'll need yourself a tax id, and once you have that, you'll need to file a form on a quarterly basis whether you've made any sales or not.

I had a small business before and had set it up with the comptroller to file once per year. It was based on my estimate of less than $10K business in each of the first two years. I was correct. I did not make it to the third year. All my clients were lawyers. Fortunately, I kept my day job.

[Sweet Caroline]

You can register online for the tax id number, and even pay the taxes online (or file the return without payment if you didn't have any sales that quarter).

But if you are just being reimbursed for your expenses that's not a sale.