Texas still requires sales tax?
mattmcc
Registered Users Posts: 55 Big grins
I'm on the verge of upgrading to a pro account and was looking into the applicable laws regarding sales tax on session fees, etc.
This is what I found: http://www.window.state.tx.us/taxinfo/taxpubs/tx96_237_2_06.html#art3
The bolded part concerns me. Does this mean that I need to pay sales tax in addition to Smugmug collecting its relevant taxes?
The good news is that as I'm not the one selling photos (smugmug is) I shouldn't have to charge any taxes on session fees, which is a big weight off my shoulders. Any smugmug pro users in Texas have information?
Matt
This is what I found: http://www.window.state.tx.us/taxinfo/taxpubs/tx96_237_2_06.html#art3
Photographers - Sitting Fees
Sales of photographs are taxable. Photographs can be made from film or from digital or electronic files, and can be sold as prints or on a DVD or CD. Photographs or files delivered digitally, electronically, or by any other medium are taxable.
The entire charge, including sitting fees, is taxable when at least one photograph is sold, even if the buyer is not the person who originally hired the photographer.
Once an agreement is reached to produce and transfer photographs, all expenses, services, and other costs connected with their production must be included with the cost of raw materials to arrive at the sales price. Such expenses include travel, meals, and lodging while shooting on location, costs of acquiring props and models, and "professional services" in shooting the photograph. All of these expenses are directly related to the production and sale of the tangible photograph whether the photographer bills lump sum, at an hourly rate, or by itemizing each and every expense.
When billing a client for sitting fees, a photographer must collect sales tax on the entire amount charged for all services performed at the time the pictures are taken (including the sitting fees).
If the customer does not buy finished photographs when prints are available, the photographer can refund sales tax collected on all charges attributed directly to the sitting fee.
Photographers - Internet Sales
Orders for photographs placed over the Internet are taxable in the same manner as orders received at a physical location. Texas sales and use tax is due on sales made by Internet or catalog order if the seller is engaged in business in Texas as defined in Rule 3.286, and if the prints will be received by a customer in Texas.
Some companies host websites that allow photographers to submit pictures that are posted on the Internet for customer viewing. The website allows customers to order photographs, with payment being sent either to the hosting company or the photographer. In many cases, the company will process the Internet orders and print and ship the photographs directly to the customer.
As payment for its services, the website hosting company may receive a fee from the photographer for each picture ordered or retain a portion of the amount paid by the customers.
In this situation, the photographer, not the hosting company, is responsible for collecting Texas sales tax for photographs sold to Texas residents. Tax is due on the entire charge to a customer in Texas for finished photographs, including any charges for shipping and handling.
A charge by the web hosting company to place, store, and operate a website is subject to Texas sales and use tax as a data processing service. Twenty percent of the charge for data processing services is exempt from Texas tax. See Rule 3.330 for further information regarding data processing services.
The bolded part concerns me. Does this mean that I need to pay sales tax in addition to Smugmug collecting its relevant taxes?
The good news is that as I'm not the one selling photos (smugmug is) I shouldn't have to charge any taxes on session fees, which is a big weight off my shoulders. Any smugmug pro users in Texas have information?
Matt
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We've heard from a couple other Texas pros, and they are following this statement:
"In this situation, the photographer, not the hosting company, is responsible for collecting Texas sales tax for photographs sold to Texas residents."
And remitting the Sales Tax to the state of Texas. They "collect" it as part of their pro prices (there's not a way for SmugMug to charge sales tax for you, for a Texas sale.
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I just don't understand how I can be legally liable for collecting sales taxes between some other company (smugmug) and their clients (whom I referred to them).
Does smugmug provide a list of who buys prints so that one can establish the customers that live in state versus out of state?
--
Isn't the moral equivalent of me paying sales tax for someone else's purchase at smugmug the same as forcing Canon to pay sales tax for their products I buy at B&H?
Bah!
Matt
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That's what I was thinking. For all they know the online company could be located (or have a location in) Texas, thus requiring them to charge Texas sales tax as well!
The customer is the one required to pay sales tax for online purchases made out of state in Texas, although this might happen ~0.00001% of the time. I don't think I've ever reported to and paid the state anything I bought out of state and most people don't even know they're required to (I only recently found out).
Matt
I think the key word here is "collect". You are responsible for "collecting" not paying.
Florida has a sales tax setup similar to Texas. If a company has a brick and mortar presence in Florida than they must collect the sales tax on internet purchases (providing they offer internet sales). In the case of selling on SM a Florida photog would be required to collect sales tax on the sale of photos for which he is being compensated (pro account with prices set). I believe Florida law considers sitting fees a service and most services are tax exempt. For example, I repair computers, my hourly fees are tax exempt but for the parts and accessories that I sell my clients (at markup and purchased wholesale without paying sales tax) I must collect sales tax and forward that money to the state monthly.
That SM retains certain fees as part of the sales process is irrelevant to the state, sales tax is to be collected as a percentage of the total sale and sent to the state. Since SM can't collect the tax, the thing to do is to set prices to include the sales tax. For exampe if you are charging $10 for a photo, where I am in Florida would require a 7% sales tax of 70 cents. There is a math formula to find the exact amount of markup but it escapes me at the moment.
Additionally, Florida requires the business to be registered and have a Tax ID.
Ed
That makes sense, but simply hypothetically: If smugmug were located in Florida, this would mean that both you AND them would have to collect sales tax. Effectively paying 14% sales tax for an end product. Smugmug, of course, doesn't charge your Florida customers sales tax as they are located in California, but how is what smugmug is doing any different from a gallery? Or my Canon example? Does Canon have to mark up their products and collect their own sales tax when B&H sells their product to me in Texas? Aren't I just the supplier of the product, not the seller?
If I have to markup my prints and collect sales tax, so be it, but something seems askew when I'm not selling any products. I simply would be charging them to take pictures and publish them online. Whether they buy prints or not is between them and smugmug.
Matt
Under Florida law the final retailer is responsible for collecting the tax. Therefore, if SM were located here, they would collect the tax and I wouldn't have to worry about it - the same as if I were selling an item on consignment at a boutique or antique shop.
As to Canon, they sell to resellers, since the tax is collected by the final seller, Canon has no responsiblity even if they manufactured in Florida. However, if Canon sold direct or over the internet they would be responsible for collecting sales tax on items sold to residents of Florida.
As to B&H selling to people in Texas, neither Canon nor B&H are responsible for collecting sales tax for the state of Texas (or Florida for that matter) since they're not physically located in either state and not subject to those states laws. This is a question of interstate commerce and the law has not caught up to it yet - but every state is lobbying congress to close the loopholes that allow these tax exempt sales. So far they've been unsuccessful because business is against it. From their point of view it's just to much to expect from a business to collect sales taxes for each and every state that has them, register in each of those states, forward that money to the states and keep abreast of the contstantly changing tax laws for each state.
And yes, technically if you purchase something over the net and thereby avoid taxes you are liable to the state for that tax but I'll be darned if as a purchaser I know how to send it in.
Ed
Same here in Texas.
Exactly. How are we any different than Canon? Aren't we effectively selling to smugmug?
...Except when the business is photography and located in Texas, so it would seem...
Exactly. It should be up to the customer to report online out-of-state sales from Smugmug to the State of Texas.
It almost seems like there is an anti-loophole in Texas that singles out photography sales online.
By the way, I've contacted the state CPA help desk twice and have received two different answers, so I'm afraid I'm at a loss. I'd really like to hear from anyone with a pro account living in (and selling in, I guess...) Texas.
Matt
According to what I understand from reading (above), Texas is trying to tax Internet sales that are sold to Texas residents. Since they know they cannot go after the consumer for the sales tax, it looks like they wrote the tax code to go after the businesses (in this case photographers) that ship photos into Texas.
I wonder if Texas has different tax rates for different parts of the state as they do here in New York. If they do, how is someone to know which tax jurisdiction the consumer is in?
Hell ... even my current photo sales which gets shipped to customers within New York, I don't send them separate bill for the local sales tax.
To make things worse ... SmugMug does NOT print the photos. EZprints does the actual printing and shipping of the prints. I believe EZprints is in Georgia (but I could be wrong).
See how complicated it starts to get?
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The double whammy is how Florida would like it to be, but as you noted in your previous email, enforcement is next to impossible. Oh and Florida is like NY in that every county has it's own additional sales tax.
As for me, virtually all of my sales are fee based and therefore exempt from Fla sales tax. I gave up my tax exempt status for the above reason and just get reimbursed for the hardware at cost. A little less money but a lot less paperwork and I don't have to remember the tax rate for each different county I work in.
Ed
Hmmm...clear as mud:
http://www.window.state.tx.us/taxinfo/taxpubs/tx94_105.html
I live outside of the City of Austin but do much of my shooting (event photography) within city limits. My office is at home. What is my tax rate?
Best to get an answer to your question via mail or email that way you have some protection if 'they' come after you.
No idea. I'm in the same boat. I live in an unicorporated area of Montgomery County (The Woodlands), but part of my 'town' is under an improvement district, so if I'm shooting in that half the rates are different. In addition to that, I'm at the border of Harris County, which is one big clusterbomb of random taxing districts.
David, do you collect and report sales tax on your prints? If you charge an event fee or day rate, do you collect sales tax on that?
Matt
Is it true that legally we are independant contractor-employees for smugmug? If so, this should alleviate any tax-liabilty at all for us, prints and sitting fees alike.
Matt
I don't provide prints...yet, from SM. When a local gallery sells a print of mine I have sold then a good at wholesale. They mark it up and collect the sales tax. I 1099 some work but it is as a contracted service providing images for editorial use. If the paper sells a picture then they have to collect the tax. When I start selling services where I am the final provider of the goods to the consumer then I'll have to figure it out. As I see it, my tax rate would be 7.75% but I would send some snail-mail letters so I would have a written response back to determine what the correct thing to do is.
All you have to do if your a photographer is collect your taxes and same to you buyers pay your share of taxes, to do this send me a check make it payable to C.A.S.H. and I will handel it from there. See it's that easy!!!:encore
They will look for out of state purchases of equipment like from B&H and you will have to pay tax (and penalty) on these purchases. There is a place on your regular sales tax report you send in that they want it reported.
They got me for many thousands of dollars of equipment purchases from B&H. Not fun.
So take your chances if you want to but if you're audited they will get you.
They also frown on including tax in sales price, they want to see sales tax as line item.
Since I'm new to SmugMug, I plan to call the Florida Sales tax office and get a ruling in writing about internet SmugMug type sales because it doesn't matter what we think should be taxed, or what someone told you.
They don't care and will collect tax and penalty come audit time if they think otherwise.
They are not a fun bunch to spend time with. Didn't laugh at any of my jokes.
Mick
Their conclusion is that I am reponsible for sales tax for Texas customers.
How is this even possible? Smugmug doesn't provide customer addresses, so I would have no idea where they live.
Additionally, the Texas tax code specifically states that sales tax cannot be assumed to be included in the product price- it must be seperately listed. I can't do this with smugmug.
I've sent them a clarification request citing these two facts and have yet to hear back.
It appears, however, that Texas Photographers can't do business via smugmug if they wish to stay on top of the tax code.
Texas also requires I pay a usage tax on 80% of the cost of the webhosting service.
Yes, you pay Texas sales tax on the final "sales price" and don't get to deduct the "cost", just the same as when you buy from any retail store.
SmugMug needs to either give Texas and Florida photographers a way to specify what tax rate they want collected, or they need to remove the "TAX: $0.00" line item that the customer seems when buying the photos. The big issue right now is that the customer doesn't think any sales tax has been collected or paid -- per the sales receipt -- even if the photographer is including it in his price and paying it anyway.
BTW, how do you account for SM income? I don't want to put it under "Revenue from Products Sold", because I collect taxes on items in that line. I don't want it under "Revenue from Services" for the same reason, plus prints are not services. So where do you put SM income?
David
From http://www.window.state.tx.us/taxinfo/sales/faq_collect.html#collect4
"4. Am I required to separately state the sales tax amount to my customers?<dl><dd>Yes. You must separately state the sales tax amount on your invoice or receipt unless you provide a written statement on the invoice or receipt that the sales price includes sales tax."</dd></dl>
This creates another major issue for SmugMug shooters because the invoice/receipt says "TAX $0.00" but in TX that line should not be there, but it should say instead that Sales Tax is included in the price of purchase.
What all this means is that a Texas photographer cannot legally use SmugMug to sell photos to people in Texas because it's not possible with SmugMug to satisify all the requirements of the Texas tax law.
The way I see it today is, I do business with SM, and my customers also do business with SM. It still makes me nervous.
Dear Mr. Manning:
Your questions concerning the taxability of professional photography services performed in this State, as set forth in your e-mail below, has been referred to me for response. GR-10 specifically provides that photography of all kinds is subject to Arkansas sales and use tax. A copy of that Rule is attached for your convenient review.
The fact that the company paying you is in California will not change this fact. Sales tax will be due for all such services just like any other photographer doing the same thing. Otherwise, it would be unfair to in-state photographers who are doing the correct thing and collecting, reporting and remitting the applicable sales tax.
Further, by hiring you to do this business in this State, the California company may very well have established “nexus” with this State. It is at least arguable that you will have become their representative or agent, which would establish nexus with this State and then the California company would be subject to all the laws of this State, which would include our sales tax laws, as well as income tax laws.
I do acknowledge that the situation that is being contemplated is a unique set-up. Accordingly, you may wish to seek a Revenue Legal Counsel Written Legal Opinion Letter if you disagree with my analysis above. How to obtain such an Opinion is set forth below. I wish you the best in this new endeavor.
In my business it is possible to be as I am in the state of California and sell in Texas. If the product is shipped from a state other than Texas to my customer in Texas, I am not required to add sales tax to the invoice. Now, if I have a sales rep in Texas and they sell to a client in Texas I am required to collect and remit the appropriate sales tax. Even if I don't collect as in the first example the buyer is required to declare the purchase. The sales rep in Texas establishes that nexus.
It is possible that I also purchase from suppliers in Texas and ship to those same clients. Up to approximately a year and half ago, those suppliers did not require that the tax be paid by me on that transaction. At that year and half ago, Texas revenue decided that they would audit and I mean audit those suppliers in Texas that shipped to Texas but did not collect the necessary tax from out of state distributors. Needless to say, they collected quite a bit of back taxes from these suppliers.
Bottom line is that if you are in Texas and sell in Texas, you should be collecting and remitting to the state. This was a big deal in my industry.
Again, I am not an accountant, but have a lot of experience in, interstate sales.
So is anyone from SmugMug reading these post that can respond? Seems we have at least three states (Texas, Arkansas, and Florida) where we should be collecting and paying sales tax if we are shooting and selling in the same state. And we have at least one state -- TX, which affects me -- where we cannot include/bundle the sales tax into the price of the product without saying "Sales Tax Included" on the written invoice/receipt.
The historical arguments that this is like mail/catalog orders do not apply because the states have updated their tax code to close the loopholes.
Does SmugMug have any correspondence with these respective states that we can hold up when the auditors show up on our doorsteps? Or do we all just need to go and find a service that can properly handle our sales tax?
This is what I sent to Smugmug:
Texas has recently updated the sales tax policies for photographers using online hosting companies. I am attaching a link to the pdf from the Texas Comptroller.
It states "the photographer, not the hosting company, is responsible for collecting Texas sales tax for photographs sold to Texas residents." and "However, if the hosting company receives the copyright to pictures sold on its Web site, then the hosting company is considered the seller of the photographs."
Unless I am mistaken this means that I am responsible for sales tax on purchases made by anyone living in the state of Texas. Texas also requires that the price of shipping is taxed. Does SmugMug have any plans to add a feature so I can set a sales tax rate on print sales for purchasers in Texas?
The information regarding internet sales in on page 3 of this pdf. www.window.state.tx.us/taxinfo/taxpubs/tx94_176.pdf
Thank you
-Patsy-
This is what Smugmug sent back to me:
Hi Patsy,
Thanks for contacting SmugMug.
We don't receive the copyright to your images, the copyright is retained by you. So you would need to be responsible for collecting sales tax.
We don't have any way to charge for the sales tax, you'll have to build that extra cost into your profits. I will forward your message to our Feature Request crew to see if there's something we can do about this. Currently, we only charge sales tax to customers that live in California, as that's where our Headquarters is located.
If you need anything else, please let us know.
Take care,
Wendee
Support Hero
This may not be the answer any of us want to hear, but it is the answer. Texas has stipulations on how it has to be noted and recorded when including the sales tax in the purchase price. That may make it hard to keep proper records while selling images through smugmug.
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Gonna be something we'll have to look into. I'm sorry the answer for now is what our Hero Wendee gave you. Stay tuned.
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I would think that if, for example, I have a Cal resale number and sent it to to SM that, that would be enough for me to avoid SM collecting the sales tax and allowing me to include it in my selling price. Sales tax is tricky and if you're running a side business selling photos, maybe it's worth it to have SM do it. But if you really expect to make income, maybe a SM site is not a good place to sell from.
/Just saying and I'm certainly not a lawyer or accountant nor play one on TV.