Sales Tax percentage on Smugmug?

PixNW · December 1, 2009

The state that I live in, Washington, is extremely aggressive about sales tax. When I order something for a business from a supplier such as B&H that doesn't charge WA sales tax, I have to fill out a form and pay the state sales tax on the purchase amount. During a recent audit (not photo related company) they checked to make sure that sales tax was indeed paid on things ordered from outside the state.

I need to charge sales tax on photo's purchased, even though they are fulfilled by an out of state lab. Saying that sales tax is built in doesn't work for WA, they require it to be listed as a separate line item. I have posted events at Candid Color Systems and they have a provision to enter a sales tax rate and have it applied to purchases.

I have searched and searched the help lists and have not been able to find a way to have this added at checkout. Have I missed something, or is there truly no way to add this? I am hoping that there is as I have an upcoming event that I would like to host at my smugmug page and have fulfilled through smugmug.

Andy · December 1, 2009

More states are getting this way. We're working on addressing this issue, but it's not fully baked yet. When it's done, we'll announce it in release notes - and so you'll want to subscribe to our Release Notes blog, so that you don't miss a single update from SmugMug

http://blogs.smugmug.com/release-notes/ at the bottom, there's a link for Entries (RSS) - put that in your favorite feed reader.

mercphoto · December 1, 2009

PixNW wrote:

The state that I live in, Washington, is extremely aggressive about sales tax. When I order something for a business from a supplier such as B&H that doesn't charge WA sales tax, I have to fill out a form and pay the state sales tax on the purchase amount. During a recent audit (not photo related company) they checked to make sure that sales tax was indeed paid on things ordered from outside the state.

I need to charge sales tax on photo's purchased, even though they are fulfilled by an out of state lab. Saying that sales tax is built in doesn't work for WA, they require it to be listed as a separate line item. I have posted events at Candid Color Systems and they have a provision to enter a sales tax rate and have it applied to purchases.

I have searched and searched the help lists and have not been able to find a way to have this added at checkout. Have I missed something, or is there truly no way to add this? I am hoping that there is as I have an upcoming event that I would like to host at my smugmug page and have fulfilled through smugmug.

I think you're out of luck. I think at Exposure Manager you might be able to fudge this by making all your products self-fulfill, because the self-fulfill option includes the ability to set a sales tax rate and a shipping charge. And then for stuff you want their lab to fulfill anyway you can always re-direct the order to the EM lab after the customer places the order.

I can easily see a back-lash in the online world due to how difficult the States make the collection of sales tax. And frankly I don't know why one state should be able to tax something sold in a different state anyway. The states are getting desperate for revenue.

PixNW · December 1, 2009

Thanks Andy, glad to know it's in the works.

Merc, I agree that it's an obvious revenue grab. Washington's take on it is that even though the images are printed out of state, and may even be delivered to another state, the biz is located in Washington and revenue comes back here.

I am a developer and builder, the photo biz is a passion and a sideline. When we purchase things like light plants and large generators from out of state we have to fill out a form and pay sales tax on those items. When we were audited they looked at our federal income taxes and saw items that we were either writing off or adding to a depreciation schedule. They checked every single thing to make sure sales tax was paid. I could not believe how thorough they were, even on small items. With some companies like Staples for office supplies it's easy since they have stores in WA they have to charge the sales tax and do. Other times it's much more of a hassle. I can go south to Oregon and buy furniture and personal stuff and not pay sales tax, but they don't let a biz operate the same way. Money grubbing beaurarats.

tlphotos · December 1, 2009

Check with the state, they are pretty responsive
I also live in WA state although my photo biz situation may be a bit different than yours. When I started a few years ago, I wrote to WA Dept. of Rev and inquired about my state tax responsibility; below is what they sent (my photo biz has really grown from my description below, but their response still applies). If you have state tax questions, go to their website and submit your questions, they are very good at responding since they want everyone to be compliant - it should also hold a lot of weight when audited by the state.
The gist of their response for my responsibility is to resgister my business with them and pay B&O tax.
Their response to me-

Question:
I am thinking of selling photographs from an online photo processing site (like Smugmug or Zenfolio) and wonder what my tax responsibilities/requirements would be with the state of Washington. Essentially, I would take pictures at kids sporting events (with parental okay) and send the photo files to Smugmug, who makes the photos available for sale to the parents. Most parents purchasing photos are in Washington and Smugmug is in California.
I give the photos to Smugmug who takes the orders, processes the pictures, and mails them to parents. I would get to set the cost of the pictures sold on their site and I would get a set commission from the sale. I get no payout other than what Smugmug would send after they sell a photo. What would my tax responsibility be to Washington State? Also, this would be VERY part time, just a few games a year. What is the criterion of being a business or just a guy who gets a few dollars from online sales of pictures?
Response:
Sales of photos to Washington residents are subject to retail sales tax. Generally, the seller collects sales tax on the gross selling price, including the photos and any additional amount for items such as a handling fee or shipping or delivery charge.
In your example, both you and the online photo processor are required to register your business with the state of Washington.
The out-of-state seller collecting payment must be registered with the state of Washington to collect sales tax from Washington residents and remit it to the Department of Revenue. They would have nexus based on your referring customers to their website to purchase the photos from the online seller.
In your case, your commission income would be reported under the business and occupation tax classification service and other activities.
If Smugmug or Zenfolio have questions about their Washington tax obligations, including the collection and remittance of our sales tax, contact us directly via this same portal. Or, have them write to Taxpayer Information and Education, PO Box 47478, Olympia WA 98054-7478.
If you have additional questions, please write again.
State of Washington
DEPARTMENT OF REVENUE

PixNW · December 2, 2009

tlphotos wrote:

I also live in WA state although my photo biz situation may be a bit different than yours. When I started a few years ago, I wrote to WA Dept. of Rev and inquired about my state tax responsibility; below is what they sent (my photo biz has really grown from my description below, but their response still applies). If you have state tax questions, go to their website and submit your questions, they are very good at responding since they want everyone to be compliant - it should also hold a lot of weight when audited by the state.
The gist of their response for my responsibility is to resgister my business with them and pay B&O tax.
Their response to me-

Question:
I am thinking of selling photographs from an online photo processing site (like Smugmug or Zenfolio) and wonder what my tax responsibilities/requirements would be with the state of Washington. Essentially, I would take pictures at kids sporting events (with parental okay) and send the photo files to Smugmug, who makes the photos available for sale to the parents. Most parents purchasing photos are in Washington and Smugmug is in California.
I give the photos to Smugmug who takes the orders, processes the pictures, and mails them to parents. I would get to set the cost of the pictures sold on their site and I would get a set commission from the sale. I get no payout other than what Smugmug would send after they sell a photo. What would my tax responsibility be to Washington State? Also, this would be VERY part time, just a few games a year. What is the criterion of being a business or just a guy who gets a few dollars from online sales of pictures?
Response:
Sales of photos to Washington residents are subject to retail sales tax. Generally, the seller collects sales tax on the gross selling price, including the photos and any additional amount for items such as a handling fee or shipping or delivery charge.
In your example, both you and the online photo processor are required to register your business with the state of Washington.
The out-of-state seller collecting payment must be registered with the state of Washington to collect sales tax from Washington residents and remit it to the Department of Revenue. They would have nexus based on your referring customers to their website to purchase the photos from the online seller.
In your case, your commission income would be reported under the business and occupation tax classification service and other activities.
If Smugmug or Zenfolio have questions about their Washington tax obligations, including the collection and remittance of our sales tax, contact us directly via this same portal. Or, have them write to Taxpayer Information and Education, PO Box 47478, Olympia WA 98054-7478.
If you have additional questions, please write again.
State of Washington
DEPARTMENT OF REVENUE

Their reply is actually in error. The onlilne seller isn't required to collect retail sales tax in Washington unless they have a physical presence in Washington, such as a retail location here. That is why when you order form someplace in another state you some times don't get charged sales tax. If you order something online to be shipped to a WA address from someplace like Staples or Amazon that have a physical presence in this state, you pay sales tax. Think about it, do you think that every online seller is registered in every state that they could potentially sell in? In WA, as you know, the sales tax rate varies from county to county.

You were smart to keep the correspondence, and I would suggest hanging on to it. Even from the way the letter is written, it doesn't say that you don't need to pay B&O tax and the applicable sales tax on the gross amount. If the online seller had already collected it it would indeed be a different matter. It's a somewhat unique situation and I am guessing you might get several different answers if you spoke with several different people.

My primary business does 50mil+ per year business in WA on average. We get audited by the Dept. of Revenue fairly frequently, along with L&I. The Dept. of Revenue people are extremely thorough. Last year we had two auditors at our main office every day for a week. In our case they have always been somewhat specialized in the development and construction business and knew what they were doing.

scwalter · December 2, 2009

PixNW wrote:

Their reply is actually in error. The onlilne seller isn't required to collect retail sales tax in Washington unless they have a physical presence in Washington, such as a retail location here.

I think the state would claim that the photographer is the "physical presence" in the state, working as an agent for Smugmug.

-Scott

PS. I'm not a lawyer or tax person...

PixNW · December 3, 2009

scwalter wrote:

I think the state would claim that the photographer is the "physical presence" in the state, working as an agent for Smugmug.

-Scott

PS. I'm not a lawyer or tax person...

The photographer isn't an employee of the photo lab though, and the photo lab has no responsibility to collect the tax is they don't have a physical presence in the state themselves. It is my understanding that if money is coming back to the photographer from say a lab for their part of the orders, the photog is responsible for collecting sales tax and remitting it to the state when they fill out their sales tax returns.

When you live in Washington and order equipment from someplace like B&H , B&H does not collect sales tax because they do not have a business located in washington, no kind of business presense. As far as Washington in concerned though, if you order something for your business from someplace like B&H, if you are writing off the item(s), or depreciating them, you need to pay sales tax to the state based on the total purchase price. If you order something like say inkjet paper that will be used to produce a product that will later be sold and taxed, you do not have to pay sales tax on that. It gets relatively complicated and I mostly know about it due to being in the land development and construction business. Some raw materials are different. We pay sales tax on everything purchased for a spec home, lumber, appliances, everything. We pay sales tax on subcontractors labor for construction of a spec home. When the house is sold there isn't sales tax paid on the sales price of the home, but there is a real estate excise tax in Washington (money grubbers). When we build a house for someone, on property that they own, sales tax isn't paid on supplies and sub labor, it is charged on the entire contract amount (less amounts for some things like building permits that can be charged for separately and not subject to sales tax). Washingtons sales tax rules can be sort of tricky. If you're doing any volume of business at all it's wise to get the advice of a good attorney and CPA>

timk519 · December 3, 2009

Being from Canada, I asked my accountant about this, and his response was to put something on the invoice wherein the customer is responsible for self-assessing the sales tax and remit accordingly.

tlphotos · December 3, 2009

PixNW wrote:

Their reply is actually in error. The onlilne seller isn't required to collect retail sales tax in Washington unless they have a physical presence in Washington, such as a retail location here. That is why when you order form someplace in another state you some times don't get charged sales tax. If you order something online to be shipped to a WA address from someplace like Staples or Amazon that have a physical presence in this state, you pay sales tax. Think about it, do you think that every online seller is registered in every state that they could potentially sell in? In WA, as you know, the sales tax rate varies from county to county.

You were smart to keep the correspondence, and I would suggest hanging on to it. Even from the way the letter is written, it doesn't say that you don't need to pay B&O tax and the applicable sales tax on the gross amount. If the online seller had already collected it it would indeed be a different matter. It's a somewhat unique situation and I am guessing you might get several different answers if you spoke with several different people.

My primary business does 50mil+ per year business in WA on average. We get audited by the Dept. of Revenue fairly frequently, along with L&I. The Dept. of Revenue people are extremely thorough. Last year we had two auditors at our main office every day for a week. In our case they have always been somewhat specialized in the development and construction business and knew what they were doing.

My main point was to talk to WA DOR because they are usuallu very helpful since they want you to be compliant - and it appears that you have a wonderful relationship with them already. Your arguments are correct, especially that tax is supposed to be paid sometime, the question is where in the process.
Since Smugmug totally fullfills any orders from my site and I never touch it, then I do not have a sales tax responsibility - of all goffiness, the customer who ordered the prints is supposed to remit the use tax to WA DOR.
If Smugmug fulfilled the order and sent it to me to even deliver to the customer, but especially if I "improved it in anyway," then I think I would be responsible for remitting sales tax to the DOR.
Right ot wrong, I am going with the direction I received from the DOR. I do, however, think they are still correct, any business including ones without a state presence is expected by the WA DOR to collect and remit sales tax to WA - but since the issue is muddled like when I in WA buy something for parents in CA from a company in NY - companies claim they can not keep track and WA DOR does not go after all of these out of state companies because it is a mess and not cost effective for them or nonjurisdictional (or they would do it).
Like you pointed out, however, they can get they tax in the end because you the WA resident and/or business owner is expected to pay the use tax and you are easier for them to audit. Residents are expected by the WA DOR to remit any sales taxes they have not paid from out of state purchases used within the state - people just don't do it.

If you are still worried about collecting sales tax, try marking up your prices by your required tax remittance rate and advertise to your customers that your prices include WA state tax.

cabbey · December 4, 2009

mercphoto wrote:

I can easily see a back-lash in the online world due to how difficult the States make the collection of sales tax. And frankly I don't know why one state should be able to tax something sold in a different state anyway. The states are getting desperate for revenue.

There was a huge one actually when states first started to try to collect sales (and use) taxes across state lines (think mail order and phone catalogs), ended up in a supreme court case. (1992, Quill v North Dakota) The justices basically said "this is too @^#& hard for the companies, they can do it if they want, but you the states need to get your acts together and make it easy for them if you really want that money. And oh, btw, that's something for congress to do."

There are a couple different approaches that came out of that. The streamlined sales and use tax agreement (SSUTA) approach seems to be the most common so far. But it's still a quagmire of special cases for every participating state. (see the difference in the various forms at http://www.streamlinedsalestax.org/index.php?page=state-info to see what I mean).

Then there are states that are taking their own unique approach to trying to make it 'easy' instead of common. TX for example. When you stop and think about it, it's enough to scare some folks away from even selling online.

PixNW · December 4, 2009

tlphotos wrote:

My main point was to talk to WA DOR because they are usuallu very helpful since they want you to be compliant - and it appears that you have a wonderful relationship with them already. Your arguments are correct, especially that tax is supposed to be paid sometime, the question is where in the process.
Since Smugmug totally fullfills any orders from my site and I never touch it, then I do not have a sales tax responsibility - of all goffiness, the customer who ordered the prints is supposed to remit the use tax to WA DOR.
If Smugmug fulfilled the order and sent it to me to even deliver to the customer, but especially if I "improved it in anyway," then I think I would be responsible for remitting sales tax to the DOR.
Right ot wrong, I am going with the direction I received from the DOR. I do, however, think they are still correct, any business including ones without a state presence is expected by the WA DOR to collect and remit sales tax to WA - but since the issue is muddled like when I in WA buy something for parents in CA from a company in NY - companies claim they can not keep track and WA DOR does not go after all of these out of state companies because it is a mess and not cost effective for them or nonjurisdictional (or they would do it).
Like you pointed out, however, they can get they tax in the end because you the WA resident and/or business owner is expected to pay the use tax and you are easier for them to audit. Residents are expected by the WA DOR to remit any sales taxes they have not paid from out of state purchases used within the state - people just don't do it.

If you are still worried about collecting sales tax, try marking up your prices by your required tax remittance rate and advertise to your customers that your prices include WA state tax.

We ran into the issue of sales tax being "built in" during an audit a couple of years ago. A subcontractor had billed us with sales tax figured into the total shown on the invoice. The auditor found the invoice, discovered it was for a spec home, and told us we owned sales tax on the amount. What is crazy is that it's the sub's responsibility to charge for sales tax in such an instance, but they go after the general contractor for it if it isn't paid. Likewise, if we didn't pay because it wasn't required, they check with the sub to make sure they had a valid resale certificate on file. That is changing now as the resale certificate is now going a different route. In the case of the sub, we had to go to the sub, get copies of previous invoices that showed the sales tax broken out, and that the amount was the same as the one with it built into the final amount for the same type of job. That satisfied the DOR auditor, but they made it clear that the sales tax amount needs to be a separate line item and clearly spelled out on invoices, including the percentage and total tax. Not being one to always believe employees of our governement, and having a wife with a law degree, we checked in to that. It turns out the auditor was correct. The sales tax amount and percentage are supposed to be listed. You would think that as long as they are getting their money they wouldn't both hassling folks trying to compy, but they're pretty stickly about it. If you have a license to do biz in WA you have commited to following their rules. For smugmug and other online folks that don't have such a license I think it's a much more grey area.

I have a friend that owns an auto dealership. He recently came accross a car he new that I would be interested in. It turns out I was, and was able to get it for far below book value because of the economy, especially in the area where he found the car. I bought the car for about 20k less than wholesale book value. It was a real hassle when I went to the local privately owned licensing office. I had a bill of sale and even a copy of the cashiers check used to pay for the car. They argued that the value of the car was more than I paid and I was subject to paying sales tax on the actual value of the car. I called our attorney and it sounds like the laws governing that are pretty muddled. After a little bit of expense and hassle I ended up paying sales tax on the actual purchase price though. I know the state of WA is worried about citizens claiming they paid less for vehicles and such just to save sales tax, but they go way too far some times. And I can tell you the folks from DOR that do the audits are no real bag of laughs. The chance of a small photo biz getting audited are probably really slim. I think they tend to stick to the higher volume businesses in industries that they know they have a high likliehood of finding more money owed.

SmugShooter · December 4, 2009

Andy wrote:

More states are getting this way. We're working on addressing this issue, but it's not fully baked yet. When it's done, we'll announce it in release notes - and so you'll want to subscribe to our Release Notes blog, so that you don't miss a single update from SmugMug http://blogs.smugmug.com/release-notes/ at the bottom, there's a link for Entries (RSS) - put that in your favorite feed reader.

Andy, this is very very good news. I also live in one of those states -- Texas -- that has recently changes its sales tax law so that in state photographers have to collect & remit state sales tax on Internet photo sales to in state residents -- both prints and downloads -- even when the processing and internet services are out of state. I've had to move my photo business to a site other than SmugMug because you don't have sales tax ability, but I will move back in a heartbeat if & when you can handle state sales tax for all products , including digital downloads. Oh, one other thing. Our sales tax law requires that the customer be explicitly informed that the sales tax is being collected and that such notification must be included on the written receipt given to the customer. This is why it's currently not possible to work around the sales tax collection by just including it in the price of the products, because there's no way of indicating this has been done on the customer's receipt. On the other hand, if we had the ability to put a custom message on the customer's receipt then I could add something such as "prices include state sales tax" and I could return to SmugMug right away. Thanks.

PixNW · December 4, 2009

SmugShooter wrote:

Andy, this is very very good news. I also live in one of those states -- Texas -- that has recently changes its sales tax law so that in state photographers have to collect & remit state sales tax on Internet photo sales to in state residents -- both prints and downloads -- even when the processing and internet services are out of state. I've had to move my photo business to a site other than SmugMug because you don't have sales tax ability, but I will move back in a heartbeat if & when you can handle state sales tax for all products , including digital downloads. Oh, one other thing. Our sales tax law requires that the customer be explicitly informed that the sales tax is being collected and that such notification must be included on the written receipt given to the customer. This is why it's currently not possible to work around the sales tax collection by just including it in the price of the products, because there's no way of indicating this has been done on the customer's receipt. On the other hand, if we had the ability to put a custom message on the customer's receipt then I could add something such as "prices include state sales tax" and I could return to SmugMug right away. Thanks.

This is exactly the way the WA DOR explained it to me. I believe the other poster was misinformed. The state of WA expects sales tax on all sales made to residents by WA licensed businesses. He was smart to save the message from DOR as it may save him in the unlikely event that he is audited.

I can vouch for Candid Color Systems having the ability to allow you to charge sales tax. In general I've been pretty happy with Candid on all fronts.

Andy · February 5, 2010

Andy wrote:

More states are getting this way. We're working on addressing this issue, but it's not fully baked yet. When it's done, we'll announce it in release notes - and so you'll want to subscribe to our Release Notes blog, so that you don't miss a single update from SmugMug http://blogs.smugmug.com/release-notes/ at the bottom, there's a link for Entries (RSS) - put that in your favorite feed reader.

Released into the wild last night

http://blogs.smugmug.com/release-notes/2010/02/05/sales-tax-tool-flexible-payment-handling-bug-fixes/

timk519 · February 5, 2010

Andy wrote:

Released into the wild last night

http://blogs.smugmug.com/release-notes/2010/02/05/sales-tax-tool-flexible-payment-handling-bug-fixes/

Will SM be maintaining the current tax rates for the various states?

Andy · February 5, 2010

timk519 wrote:

Will SM be maintaining the current tax rates for the various states?

Hi Tim, no. Each pro would determine what tax he or she wants to input. Questions about rates or even if this applies to you? Contact your state or local taxing authority. Thanks!

SamirD · February 6, 2010

This is an interesting discussion on taxes and remittance. In one of my previous businesses in the state of Alabama, not only did I have to collect tax for the state, but each county and each city! It took me over 12 hours to fill out all the forms the first time, and I had to design a spreadsheet to assist me. When we closed the business, I was filling out over 40 forms a month. This is waaaay too much paperwork burden on a small business. There were only two partners and no staff. And sales didn't even break a million.

Everyone wants their cut--cities, counties, states, federal. But they have to make it much easier than this. The burden for proper tax collection and remittance should NOT fall on the business owner.

Now, this being said, I found out later that that most companies didn't even know about their tax obligations until an audit, and it was cheaper to just pay the taxes then plus any interest and penalty than try to do it right in the first place.

Don't even get me started on business licenses--that was another state, county, city nightmare...

And from what I remember from high school civics class, one of the roles of the federal government is to "regulate interstate commerce". Shouldn't tax collection be a part of this?

timk519 · February 10, 2010

timk519 wrote:

Will SM be maintaining the current tax rates for the various states?

I got a reference to this company on another forum - they track and help with remitting sales taxes:

[FONT=arial,sans-serif]http://www.vertexinc.com/[/FONT]

Something to consider if remitting sales taxes becomes a real concern.

daylightimages · February 10, 2010

Here's where I'm confused, so help me out.

The way I look at it, SmugMug in all instances is the seller to the final consumer. SmugMug purchases photos from us (the photographers) for a price we set (reflected as our mark-up) -- basically buying resale rights. SmugMug purchases these rights when they sell one of my photos and sends me my money. When I sell photos to magazines, book publishers, etc., I receive a 1099 to pay income taxes on the proceeds. This is no different than SmugMug giving me a 1099 for photos they purchased from me to sell (which is what all this basically is). Therefore, all I'm responsible for is the amount SmugMug is paying me for my photos (my 1099). SmugMug, as the final seller, would be responsible for any sales tax.

Where is my logic wrong?

SamirD · February 11, 2010

daylightimages wrote:

Here's where I'm confused, so help me out.

The way I look at it, SmugMug in all instances is the seller to the final consumer. SmugMug purchases photos from us (the photographers) for a price we set (reflected as our mark-up) -- basically buying resale rights. SmugMug purchases these rights when they sell one of my photos and sends me my money. When I sell photos to magazines, book publishers, etc., I receive a 1099 to pay income taxes on the proceeds. This is no different than SmugMug giving me a 1099 for photos they purchased from me to sell (which is what all this basically is). Therefore, all I'm responsible for is the amount SmugMug is paying me for my photos (my 1099). SmugMug, as the final seller, would be responsible for any sales tax.

Where is my logic wrong?

I see it the same way, but imagine the tax burden on SM and the back taxes. It would be enormous to say the least and will end up making our fees higher. But then there's the question of enforcement, which a lot of states don't pursue for one reason or another (probably because there's nothing they can really do to prevent an out-of-state company from doing business). So instead they target any local affiliation with the out-of-state company.

The franchisor 1-800-Radiator has been doing this for years, shipping parts out of California to Alabama and only paying state sales taxes. They've never paid (as far as I know) any city, county, or other local taxes or held a valid business license to do business in the city, county, or other local municipality. When I became a franchisee for this company, the burden was quite apparent--and on my head. Since I'm no longer a franchisee, these burdens should pass back to the California company, but I'm quite sure they still don't pay. Who's going to bust them? (Since they cheated me about $60k, I should make that call.

)

bham · February 14, 2010

That it what it comes down to, if they can scare and threaten someone in there jurisdiction, then they will. If they can't they are SOL on collecting it, because individuals aren't gonna do that. This is just encouraging me to change to all upfront fee and then free files, which I have been contemplating doing for a few other reasons. That will eliminate this headache.

pmaland · February 23, 2010

Here's my exchange with the WA DOR:

Thank you for your e-mail inquiry dated February 5, 2010, regarding the taxability of your business activities.

Question:
I have a part time portrait photography business and have a question about print sales and taxes. Currently I don't sell any photo prints. I charge a flat rate, provide a CD of the photos and charge sales tax on the flat rate. Going forward I am considering using an online photo sharing site (SmugMug.com located in California) which will allow me to set prices for photo prints, and I would be charged 15% of any markup over their actual cost. My question is this: Since SmugMug is taking the order, charging the customer, printing the photos and delivering them directly to the customer, how is it possible for me to calculate and charge a destination based sales tax? The only part of the process I am involved in is receiving a monthly direct deposit of the remaining 85% of the markup on any sales. They just implemented a flat tax rate option, so I could apply a single tax rate to every order, but that would fail the destination based sales tax rule.

Answer:
Please note that a review of the contract between you and SmugMug.com would allow us to give a more definitive answer on your specific reporting requirements.
Based on information received in similar inquiries, it appears that you may be operating on a consignment basis. In this case, you are considered the seller of the photography to SmugMug.com and you are taxable under the wholesaling classification of the B&O tax for the portion you receive. In this case, SmugMug.com would be selling the prints in their own name, and they would be responsible for collecting and remitting the retail sales tax. It would be their responsibility to ensure that they are collecting the appropriate amount of retail sales tax from each customer.
If SmugMug.com makes a sale in your name (i.e. as your agent), you would then be responsible for remitting the retail sales tax collected directly to the Department. In addition, you would be responsible for retailing B&O tax.
If you are responsible for the collection of the retail sales tax, you could charge each customer a single rate. However, you will need to reconcile your records before completing your Excise Tax Return in order to ensure that you are allocating the retail sales tax to the appropriate locations. For more information, see our online article under Information on transitioning to Destination-based Sales Tax for Online Sellers using Shopping Carts. The issues are quite similar.
Please note that a flat fee for shooting images and providing the consumer with a CD or electronic images is classified as retail sale, subject to sales tax. In addition, your gross income is subject to the Retailing classification of the B&O tax. For example, if you are hired for a flat fee to shoot wedding photos and the customer receives a CD of the images, then your total charge is subject to sales tax and your income reported under the retailing B&O tax.
If you have additional questions, please do not hesitate to write.

timk519 · February 23, 2010

pmaland wrote:

In addition, your gross income is subject to the Retailing classification of the B&O tax. For example, if you are hired for a flat fee to shoot wedding photos and the customer receives a CD of the images, then your total charge is subject to sales tax and your income reported under the retailing B&O tax.

oi....

SamirD · February 24, 2010

pmaland wrote:

Based on information received in similar inquiries, it appears that you may be operating on a consignment basis. In this case, you are considered the seller of the photography to SmugMug.com and you are taxable under the wholesaling classification of the B&O tax for the portion you receive. In this case, SmugMug.com would be selling the prints in their own name, and they would be responsible for collecting and remitting the retail sales tax. It would be their responsibility to ensure that they are collecting the appropriate amount of retail sales tax from each customer.

If SmugMug.com makes a sale in your name (i.e. as your agent), you would then be responsible for remitting the retail sales tax collected directly to the Department. In addition, you would be responsible for retailing B&O tax.
If you are responsible for the collection of the retail sales tax, you could charge each customer a single rate. However, you will need to reconcile your records before completing your Excise Tax Return in order to ensure that you are allocating the retail sales tax to the appropriate locations.

Very interesting, and very complicated. This is going to get worse before it gets better...

JoeyBowman · March 3, 2010

I have a question about the new feature.

First of all, I am glad that Smugmug is adding this feature to "add" sales tax to purchases.

Is there a way to make it selective though. My example is this, if a client purchased a certain package with us they receive a print credit towards their gallery, when they purchase that gallery from us, they already pay the sales tax. So I would not and should not "charge" tax again when they use their print credit code with their proof gallery.

But a random aunt or grandma buying prints will need to have the tax added at the check out.

Does my question make sense? Any time I post on here I am always worried that my question will not make sense or be worded correctly.

Andy · March 3, 2010

JoeyBowman wrote:

I have a question about the new feature.

First of all, I am glad that Smugmug is adding this feature to "add" sales tax to purchases.

Is there a way to make it selective though. My example is this, if a client purchased a certain package with us they receive a print credit towards their gallery, when they purchase that gallery from us, they already pay the sales tax. So I would not and should not "charge" tax again when they use their print credit code with their proof gallery.

But a random aunt or grandma buying prints will need to have the tax added at the check out.

Does my question make sense? Any time I post on here I am always worried that my question will not make sense or be worded correctly.

it is not selective, I'm sorry

JoeyBowman · March 3, 2010

Andy wrote:

it is not selective, I'm sorry

Thanks for the reply Andy. Is this something that may be a possible feature or addition for the future? I would find it hard to imagine that I would be the only one that would find a "need" for this.

racystcy27 · March 8, 2010

Sales Tax
First time I have written anything here, so hope I am doing it all correctly.

I have called my Texas State tax office 2 times during the past two days, staying on the phone at least a half hour each time. Both times I was informed by them that I am not liable for sales tax of any of my works sold via Smugmug because I do not have a cash exchange with the customer. They told me if Smugmug was in Texas, smugmug would be subject to charging for sales tax and paying the state, but since they are not here, they are not liable for the sales tax in Texas. They said that my customers who reside in Texas are actually liable to pay the sales tax to Texas direclty for the untaxed merchandise they purchased. I told them I was the owner of the images, I have the copyrights, and that Smugmug says they are providing a service for us. Both tax people kept telling me not to worry about it, that it was not my responsibility. They said I could always have something on my website telling all Texas residents that purchase from my site that they should pay the State directly, but that I am not obliged to. And I doubt too many people are going to voluntarily send the state tax office 80 cents for a $10 print they just bought.

They both told me that I am only responsible for sales tax on actual shooting charges, and any merchandise that I may actually physically deliver to them and receive money.

pmaland wrote:

Here's my exchange with the WA DOR:

Thank you for your e-mail inquiry dated February 5, 2010, regarding the taxability of your business activities.

Question:
I have a part time portrait photography business and have a question about print sales and taxes. Currently I don't sell any photo prints. I charge a flat rate, provide a CD of the photos and charge sales tax on the flat rate. Going forward I am considering using an online photo sharing site (SmugMug.com located in California) which will allow me to set prices for photo prints, and I would be charged 15% of any markup over their actual cost. My question is this: Since SmugMug is taking the order, charging the customer, printing the photos and delivering them directly to the customer, how is it possible for me to calculate and charge a destination based sales tax? The only part of the process I am involved in is receiving a monthly direct deposit of the remaining 85% of the markup on any sales. They just implemented a flat tax rate option, so I could apply a single tax rate to every order, but that would fail the destination based sales tax rule.

Answer:
Please note that a review of the contract between you and SmugMug.com would allow us to give a more definitive answer on your specific reporting requirements.
Based on information received in similar inquiries, it appears that you may be operating on a consignment basis. In this case, you are considered the seller of the photography to SmugMug.com and you are taxable under the wholesaling classification of the B&O tax for the portion you receive. In this case, SmugMug.com would be selling the prints in their own name, and they would be responsible for collecting and remitting the retail sales tax. It would be their responsibility to ensure that they are collecting the appropriate amount of retail sales tax from each customer.
If SmugMug.com makes a sale in your name (i.e. as your agent), you would then be responsible for remitting the retail sales tax collected directly to the Department. In addition, you would be responsible for retailing B&O tax.
If you are responsible for the collection of the retail sales tax, you could charge each customer a single rate. However, you will need to reconcile your records before completing your Excise Tax Return in order to ensure that you are allocating the retail sales tax to the appropriate locations. For more information, see our online article under Information on transitioning to Destination-based Sales Tax for Online Sellers using Shopping Carts. The issues are quite similar.
Please note that a flat fee for shooting images and providing the consumer with a CD or electronic images is classified as retail sale, subject to sales tax. In addition, your gross income is subject to the Retailing classification of the B&O tax. For example, if you are hired for a flat fee to shoot wedding photos and the customer receives a CD of the images, then your total charge is subject to sales tax and your income reported under the retailing B&O tax.
If you have additional questions, please do not hesitate to write.

mercphoto · March 9, 2010

SamirD wrote:

Very interesting, and very complicated. This is going to get worse before it gets better...

You're talking about taxes here. Things are going to get worse before they get absolutely horrible.

SamirD · March 9, 2010

racystcy27 wrote:

They both told me that I am only responsible for sales tax on actual shooting charges, and any merchandise that I may actually physically deliver to them and receive money.

I've had similar experiences with the State of Alabama. One of the best ways to make sure is to talk to an auditor. They are the ones that actually enforce the law, whatever it may be. If they tell you it's okay, it's okay.

Sales Tax percentage on Smugmug?

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