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Registered Users Posts: 14 Big grins
I'll start by saying that I tried to use the search function, but it excludes the word 'tax' because it is too small... Only one post had 'tax' as a tag (http://www.dgrin.com/showthread.php?t=199109) and that had no replies.
I've asked this question to a few other photographers I know, each of which responded with the answer of "no, I don't collect sales tax, should I?" This answer does not exactly inspire confidence.
Given that my day job working for a county government, I'd rather not end up on the wrong side of this fence.
From my reading of Colorado's 'Amazon tax law' and merging it with the single thread that had no replies, Smugmug would be responsible for collecting and remitting sales tax (to the 280+ different tax groups, good luck with that) and not me.
So specific to Colorado, should I be collecting sales tax? And if so, what rate should I collect? (since it varies from county to county, city to city, street to street, house to house and is a total train wreck for anybody doing remote sales, but that is a different topic....)
Now if it was 'simple' enough (one tax rate for all of colorado, one place to send the form and the check) I don't mind doing it.
I've asked this question to a few other photographers I know, each of which responded with the answer of "no, I don't collect sales tax, should I?" This answer does not exactly inspire confidence.
Given that my day job working for a county government, I'd rather not end up on the wrong side of this fence.
From my reading of Colorado's 'Amazon tax law' and merging it with the single thread that had no replies, Smugmug would be responsible for collecting and remitting sales tax (to the 280+ different tax groups, good luck with that) and not me.
So specific to Colorado, should I be collecting sales tax? And if so, what rate should I collect? (since it varies from county to county, city to city, street to street, house to house and is a total train wreck for anybody doing remote sales, but that is a different topic....)
Now if it was 'simple' enough (one tax rate for all of colorado, one place to send the form and the check) I don't mind doing it.
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Thanks for the link, that helped (if only the search function would, well, search for small but very important words. :~)
Just to cover my ass, I sent an email to the sales tax office in the city that I live to clarify who was responsible for collecting the tax. (One of the complicating factors of Colorado is that there are dozens of "home rule" cites that collect their own taxes. The one I live in happens to be one of those cites).
The response that I got after a few emails back and forth to clarify the setup was this: I am not responsible for collecting or remitting sales tax. However, as an associate of SmugMug, they have a substantial business presence in Colorado and thus are required to collect and remit sales tax for all shipments to Colorado.
Unlike Texas, which explicitly puts the onus on the photographer, in Colorado the burden is on the company that actually executes the sale. In this case, SmugMug.
After doing some more research, it appears that most of this is due to the passage of HB 10-1193 last year that redefined what a substantial business presence is and added a bunch of reporting requirements on companies that didn't want to do the actual collection themselves. It is also known as the 'Amazon Tax Law' and resulted in amazon instantly terminating all affiliates in the state of Colorado. The good news for SmugMug is that the law is currently at the center of an active lawsuit between the direct marketing association and the state. At the start of this year a judge issued a temporary injunction against enforcement of the law. Chances are that the entire thing will be tossed out and and colorado will become the last state to join in with the streamlined sales tax system.
The days of tax free shopping on the internet are coming to an end. I don't really care as long as I don't have to spend any time dealing with it from a business perspective. In theory the 'streamlined tax system' will give SmugMug a single path to deal with all of this and we wont have to ever deal with it again.
The good news for me is that I'm not the one responsible for it at this time, so I need to leave the sales tax setting to 0.0% and stay out of the tax game.
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I did that (I posted a response a few hours ago, but it is apparently still pending moderating since my account is still new).
Their answer was that it was not my problem. It is smugmug's responsibility since they have a business presence in the state of Colorado (the smugmug users).
I just hope now that pandora's box has been opened that SmugMug does not pull an Amazon and cancel all of the Colorado user accounts to skirt the issue.
It's a nightmare that I personally experienced as a distributor of auto parts. I was lucky in that most of my sales were wholesale, so I didn't have as many tax and license obligations, but it's a complete and utter mess.
The federal government needs to step in and do what they're supposed to do--"regulate interstate commerce". A single tax businesses remit to the federal government and then the states, counties, and cities can fight to get theirs that way. With all the computers and edi, it actually shouldn't be that hard to implement.
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Colorado has a similar problem. You have 230 different taxing authorities, dozens of collection agencies, tax boundaries that do not follow any sort of logic, different categories of products that are exempt from tax in one county but not another, etc.
In theory, the streamlined sales tax project that most states are working on will simplify some of this. One master category listing, one point of contact per state, one zip+4 db to do look-ups against and pull a unified tax rate, etc. But if you look at the national map of participating states, there is only one that is not there: Colorado.
Collecting sales tax for a single location is easy. Collecting sales tax for any arbitrary spot in the state is a nightmare. The thing that makes Colorado an edge case is that they claim SM has a business presence in the state simply because they have employees in the state. In this case, me.
I'm not opposed to having to collect sales tax, but one study showed that a company with a nexus in all 50 states would need to deal with 13000 different taxing districts and send on average 22 checks per day to meet all of the filing requirements. That is one seriously broken system.
As much as the feds have abused the 'interstate commerce' clause in the past, this is a clear cut case where they are well within the boundaries and they just need to step in and fix the system. If I had to list some of the biggest impediments to running a small business today, I'd put sales tax collection near the top of it.
Edit:
It would be nice if SM would nip this in the bud and start to use a service such as TaxCloud (www.taxcloud.com There are others offering a similar service). In theory it is free to them since the states pay for the service. For the rest of the states that don't yet participate, well, hopefully congress will fix that.
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Smugmug is not making the sales. You are. Smugmug is simply providing fulfillment and shopping cart services to you to support your sales at the pro level, and a platform to display your work at the Basic/Power levels.
It is no different than if you used a paypal button/shopping cart, and then fullfilled your photos through Bay Photo, MPix, or EZPrints directly. In those cases, you certainly would not expect Paypal or the printing labs to collect the sales tax on your behalf.
You cannot compare Smugmug with Amazon either. You are not providing content and then marketing that content as yours to sell it through Amazon(Amazon does have fulfillment services too, however).
I do not see Smugmug taking on the full tax issue, and if forced to do so, I could see them modifying their approach to go with a paypal or google checkout implementation, and then increasing our annual fees. :-(
Don't get me wrong, the sales tax issue is a mess, and quite confusing, but the responsibility is ultimately yours as the person actually making the sale.
You just have to make the best decision at the time to minimize your risk without drowning yourself with regulations and paperwork.
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It doesn't matter what the business realationship seems like, only what it is legally and on paper. Paypal is a merchant and a financial services company similar to a bank. Banks don't get charged sales tax. Smugmug is the seller, payment receiver, and customer support for the transaction. They just happen to give us 85% of the sale and allow us to price the product. Otherwise, they'd probably have to figure out a way to pay us royalties on our copyrighted works and have releases out the wazoo.
The real answer to this is in SM's accounting and tax records. How they report and categorize their income plays a big part in whether it is taxable.
This is a very complicated issue, and it may increase our costs before it's all over. But instead of trying to skirt around the issue, I think it's better to meet it head-on, resolve it in the best way possible, and adjust our individual business models to reflect the change. Because change is all there ever is in life, and business is no exception. Just ask all the photography studios that closed their doors due to all the digital equipment out there...
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I contacted our local sales tax office with the though that I would need to collect sales tax and remit it to them, I just wanted to make sure I did it right so I could stay out of trouble. Once they looked at the arrangement, the answer I got was that SM has a nexus in the state of colorado and they are responsible for collecting the tax, not me. A bit of a surprise but I'm not going to complain at this point.
Texas law is similar but different in that it explicitly places the onus on you the photographer in the event that the primary site does not collect the tax.
The kicker is that with the current SM setup, some folks could get in trouble for over-withholding sales tax. In a previous thread you mentioned that you hold back the 8.4% for all of Texas based on your local rate. In Colorado, I would have to hold back 7.4% for sales within my city, 5% for sales inside of my county but outside of my city and 2.5% for everybody else. The current SM setup does not let me do this. In theory I could overcharge folks and just charge everybody 7.4% but with Colorado's broad definition of 'nexus', I dont know what other taxing jurisdictions SM is in and I would have to withhold a potentially higher % for them and follow a different remission path.
There are two long term solutions:
1) I as a photographer setup my own site, including the payment engine. I would need to wire the payment engine into taxcloud.com or a similar service (which is free by the way, the states pay for it as part of the streamlined sales tax initiative). On the bright side I get to keep a higher percentage of the take (like 95% or more), not the 85% that SM gives us. I do lose the support and would spend a lot of time dealing with the nuts and bolts of the site rather than doing what I'm best at which is take photos. Personally I think that the 10% that SM takes is worth the effort, so I'd rather not go this route.
2) Smugmug wires in taxcloud.com (or similar) into their payment engine and does all of the sales tax collection and distribution. We as photographers don't do anything. They already deal with california and potentially would get the merchant fees for dealing with the tax from the states to offset any additional cost that they may incur. From looking at the taxcloud stuff, it would not be hard to wire into their existing payment engine since they already have hooks to calculate collect sales tax. It would may simplify their system since they would have one central db and setup rather than a different rule for every pro.
I have a feeling that SM is going to eventually go the route of collecting sales tax nation wide sooner or later as part of the 'Main Street Fairness Act.' Amazon and WalMart are both for it, so it or something like it is an inevitability at this point. (And hopefully my state will get their act together and join the bandwagon, they are the only state that has not committed to it yet.)
I think you're right that solution #2 would be the best route. Finding a company that works with SM's infrastructure will be important though to keep the costs down. SM could adopt paypal as their merchant and have compliance overnight, but I'm sure we'd see an decrease of 2-5% on our revenue percentage due to paypal taking more fees than their current merchant setup. But if other merchants wire into taxcloud, perhaps SM's current processor would be fine.
The more I read on the interstate tax issue, it's not a question of why or when, but how. Once the infrastructure to allow the taxation without a tremendous burden on the businesses, it's going to happen.
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Stripping it down to the basics, SmugMug is making the sale. You are providing materials to SmugMug and SmugMug is paying you what you ask for those materials (what we call the "markup"). As such, you are a contractor to SmugMug and getting a 1099 as a result of the work you do for SmugMug. If you were making those same sales on your own through a PayPal button you would not be getting a 1099 from anyone.
If SmugMug were simply providing fulfillment and shopping cart services (such as you would get through doing your own sales with PayPal), then the individual photographer would be making the sale and be responsible for sales tax collection and remittance. But since the photographers are SmugMug contractors, SmugMug is making the sale and doing the sales tax work (for most states such as mine). It's only the states where government has made an additional reach for revenue by attempting to tap into interstate sales that a problem has come up.
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I first thought no sales tax for photography as I don't sell a product. That's the case in some places, but it's specifically covered in Virginia and apparently they can get you at any time in your sorry life. Yikes!! No statute of limitations. I'd rather tax more than less, most customers don't even consider tax when they purchase something.
Unfortunately the laws vary from state to state. The best thing you can do is probably contact the folks who are responsible for sales tax in your area and ask them what you should be doing. For me it started as a simple email asking if I was responsible or if SM was based on the business relationship between the two of us, and if it was me if things like digital downloads and shipping were taxable.
In some states, collecting sales tax without a sales tax license will get you into trouble while in others if you are under $X/year you dont need a license. In some you can just collect at the higher rate and they will be happy but in others over collection will get you into trouble (in which case you are screwed since SM has no way of setting different rates at anything other than the state level which only works if the state only has a single sales tax level). And finally some states view you as the seller (i.e. texas) while others view SM as the seller who has a nexus in the state (like my state of colorado).
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