Oregon pros...what do I really need to do?

Elaine

I'm in Oregon and considering starting a very small photog business...mostly location portraits with a Smugmug pro account. I've spent a lot of today reading stuff here, reading stuff on the IRS site, reading city regulations for businesses out of the home, etc... And now I'm quite confused!

It sounds like a sole proprietorship can just file a Schedule C when it comes to tax time. Is it that simple? I have heard a number of times, and read here, that if you profit less than X amount, you don't have to worry about considering yourself a real business or reporting your income. I can find no evidence of that info in what I've read today. My city regulations state I must have a city business licence, but the state of Oregon does not require a state licence for photographers, as much as I can tell.

Can anyone in Oregon tell me what I really need to do? I don't want to do something wrong or illegal, but I also don't want to pay unnecessary fees.

sirsloop

You are not actually the one making these sales, so your state doesn't get a cut of any of the Smugmug money. Smugmug will report your income to the IRS and send you a 1099MISC form at the end of the year. You add that income in as a personal business and get taxes taken out of it as you would any other income. Because you are reporting it as a personal business, you also have the opportunity to deduct for things like equiptment purchases, business related travel, studio, etc. I won't get into it too deep, but because Smugmug is actually collecting the money, its considered an internet sale and only CA state sales taxes need to be collected.

dragon300zx

sirsloop wrote:

.....but because Smugmug is actually collecting the money, its considered an internet sale .....

This is where everyone goes wrong and gets screwed by their states. It is not a internet sale. Lets go over this one more time. If you sell items on the internet, and someone buys them from you and they are in your home state, then you have to collect and pay sales tax on them.

The smugmug model is that of an artist and a gallery, or distributor and retailer.

You are the artist or distributor. Distributors only sell to retailers who have sales licenses and sell to the public. Thus they don't need to collect sales tax as their items are not retail. Artists sell work to galleries (or allow galleries to display and sell for them, pay for space in galleries, etc) with the sole intent for the gallery (and handle all the money, customer service, and other crap) to sell the piece and then take their commision and provide the rest to the artist. The artist is distributing their work to retailers, they themselves are not making sales. Thus the artist isn't responsible for collecting sales tax. The gallery is the retailer and they are the ones on the line for sales tax.

Smugmug provides the gallery space, they sell the prints to the client, they collect all applicable fee's from the client. They touch the clients money, you never do. Smug is the retailer/gallery.

Unless you are the one selling directly to the end user, unless you (or your cmpany) are the one taking the money directly from the consumer you are not a retailer.

Internet sales or not. If you sell on the internet and process payments yourself, collect money yourself, you are on the hook for sales tax.

Canon doesn't pay sales tax on items you buy from B&H, why should you have to pay sales tax on something someone else buys from Smugmug. A company seperate from your own.

As far as oregon specific laws, I am sorry I can't help. But it is very important that you understand the business model that you are using when you sell items on smugmug and when you sell items directly yourself. Otherwise you will get screwed somewhere.

quark

This is good clarification on the smugmug end, but if you do plan to charge a sitting fee or any money beyond the prints then you need to deal with the tax questions.

In WA, life is simple (mostly) as long as you don't have employees. For national taxes start tracking how much you spend on lenses, etc now rather than trying to figure out the deductions at the end of the year.

dragon300zx

quark wrote:

This is good clarification on the smugmug end, but if you do plan to charge a sitting fee or any money beyond the prints then you need to deal with the tax questions.

Keep in mind that this is my own opinion and fact as I have researched it per my state. Although my stance does echo smugmug's stance, I am a voulanteer here and cannot speak for smugmug.


As far as fee's other than cost of prints....
In my state and most as I understand it, a sitting fee doesn't require sales tax be paid as it is a service, unless you tie it into selling the prints, etc. If you clearly keep the service of taking photographs, seperate from the products sold by smugmug, you will prolly be ok depending on the state you are in. Research this very well though.

Elaine

OK...this may be dumb, but when you talk about collecting "sales tax" I get confused because Oregon does not have a sales tax...the tax you pay on things you purchase...we don't have that. So am I off the hook for that, or are you referring to something else that I'm confusing with what I know to be sales tax? We do have a state income tax, so we file taxes with the IRS and with the state of Oregon. Any income I collect would have to be reported to both places, of that I'm sure. But I don't believe I would have to do anything different for the state taxes than I would the federal. I'm still not sure if I need to get a city business licence...still need to do some research.

Thanks for all the replies! I appreciate hearing all the thoughts on this subject.

LiquidAir

In terms of income taxes, read over schedule C and start keeping records of everthing on it. Fill it out at the end of the year and you're set. For the most part, cameras and lenses are capital expenses and should be depreciated rather than expensed; but don't take my word on that, talk to someone who knows taxes.

In California, businesses need to be registered at the county seat and there is nomial tax you pay every year. Also, if you are working under a name other than your own, you typically need to file a DBA (doing business as) or a Ficticious Name Statement with the county. Oregon is probably similar; you should check with your county (their web site may have the info) to see what all you need to do. If the staff is at the county office is at all helpful, they will point you in the right direction.

Elaine

LiquidAir wrote:

In terms of income taxes, read over schedule C and start keeping records of everthing on it. Fill it out at the end of the year and you're set. For the most part, cameras and lenses are capital expenses and should be depreciated rather than expensed; but don't take my word on that, talk to someone who knows taxes.

In California, businesses need to be registered at the county seat and there is nomial tax you pay every year. Also, if you are working under a name other than your own, you typically need to file a DBA (doing business as) or a Ficticious Name Statement with the county. Oregon is probably similar; you should check with your county (their web site may have the info) to see what all you need to do. If the staff is at the county office is at all helpful, they will point you in the right direction.

Yes, I have looked into the name of the business thing...as long as my legal name is included in the business name, I don't need to register a name with the state. It does sound like I need to get a city business license, as well as a (free) home occupation permit. Good grief! I didn't know I would need to jump through these hoops! I will definitely look at the Schedule C and start keeping track of things. I don't want to be audited, but if that were to ever happen, I'd rather have done too much than too little!

Thanks again!

sirsloop

So you are telling me that all sales in CA are taxed by CA, and all sales that are in my home state are ALSO taxed even though I didn't actually sell anything?? No no no!! Things I collected money are taxed but not SM purchases.


Smugmug collects CA state sales tax during checkout on CA buyers

I pay income tax on the revenue via a 1099MISC form.

dragon300zx

sirsloop wrote:

So you are telling me that all sales in CA are taxed by CA, and all sales that are in my home state are ALSO taxed even though I didn't actually sell anything??

Huh, what are you talking about here?

sirsloop wrote:

Things I collected money are taxed but not SM purchases.

Smugmug collects CA state sales tax during checkout on CA buyers

I pay income tax on the revenue via a 1099MISC form.

Correct.

sirsloop

ok, so there is no need for local state tax collection unless you are selling things off smugmug. They are going to pop you on the income tax side of things...

mattmcc

dragon300zx wrote:

This is where everyone goes wrong and gets screwed by their states. It is not a internet sale. Lets go over this one more time. If you sell items on the internet, and someone buys them from you and they are in your home state, then you have to collect and pay sales tax on them.

The smugmug model is that of an artist and a gallery, or distributor and retailer.

You are the artist or distributor. Distributors only sell to retailers who have sales licenses and sell to the public. Thus they don't need to collect sales tax as their items are not retail. Artists sell work to galleries (or allow galleries to display and sell for them, pay for space in galleries, etc) with the sole intent for the gallery (and handle all the money, customer service, and other crap) to sell the piece and then take their commision and provide the rest to the artist. The artist is distributing their work to retailers, they themselves are not making sales. Thus the artist isn't responsible for collecting sales tax. The gallery is the retailer and they are the ones on the line for sales tax.

Smugmug provides the gallery space, they sell the prints to the client, they collect all applicable fee's from the client. They touch the clients money, you never do. Smug is the retailer/gallery.

Unless you are the one selling directly to the end user, unless you (or your cmpany) are the one taking the money directly from the consumer you are not a retailer.

Internet sales or not. If you sell on the internet and process payments yourself, collect money yourself, you are on the hook for sales tax.

Canon doesn't pay sales tax on items you buy from B&H, why should you have to pay sales tax on something someone else buys from Smugmug. A company seperate from your own.

As far as oregon specific laws, I am sorry I can't help. But it is very important that you understand the business model that you are using when you sell items on smugmug and when you sell items directly yourself. Otherwise you will get screwed somewhere.

This is what I agree with and what makes sense to me, however at least in Texas it isn't this clear. We're discussing that in the Smugpug Pro forum currently, but it appears by the way the tax code is written that at least in the case of photographers, they want us to collect sales tax from smugmug's sales, even though we never touch the money. It's complicated and I don't see how it could work that way because it means the customer has the potential to essentially be taxed twice the state and local sales taxes. I've just started selling prints online, and I don't plan to report or pay any sales tax from prints smugmug sells for me, as such transactions are between smugmug and the customer, not me. As for sitting fees, that's also clear as mud. In some states services aren't charged sales tax, but here in Texas, session fees require sales tax if 'negatives or prints' are provided. Smugmug is simply an online gallery one may elect to buy prints from, so I think I'm off the hook here as well. Nevertheless, I have a sales tax license and will report 0 taxable sales each year just to stay golden (and am meeting with a CPA to confirm this soon). I'd recommend meeting with a local CPA for authorative answers.

Matt

sirsloop

mattmcc wrote:

I'd recommend meeting with a local CPA for authorative answers. Matt

I'll second this one, and while you are there ask about tax deductions that you are eligible for as a business owner. This forum is a good resource to find out what other people are doing, but it may not be the 100% legal way of doing things, especially when laws vary from place to place.

dragon300zx

mattmcc wrote:

but here in Texas, session fees require sales tax if 'negatives or prints' are provided. Smugmug is simply an online gallery one may elect to buy prints from

Keep in mind here that the way that is normally read is that if you provide negatives or prints......

When they order anything from smugmug, they aren't ordering from you, you aren't providing anything.

mattmcc

dragon300zx wrote:

Keep in mind here that the way that is normally read is that if you provide negatives or prints......

When they order anything from smugmug, they aren't ordering from you, you aren't providing anything.

It's incredibly backwards in Texas. Here's the actual code regarding that:

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.

So essentially, you have to charge sales tax for what the customer might hypothetically buy, and can refund tax if they don't buy it. As for sitting fees when using smugmug, it's a huge grey area. Are we selling to smugmug? I don't think that's the case as we pay to use their services in return for the ability to make a comission on sales. The law doesn't cover gallery sales for photographers, however, so how one interprets this can vary wildly.




Matt

Vizhon

As a fellow Oregonian, I'll try to give you relavent answers and not completely unrelated sales tax replies... For those of you out of Oregon, we don't even have Sales Tax.

1.) If you are going to be setting up your business as a sole-prop. you don't need a state 'license' for the business, and unless you are setting up an actual site for the business (a retail shop, permanent studio, etc.) I'm not sure you'd even need a city license. Unless you are going to be naming the company after yourself (like -your name- photography), you do need to file a DBA with the state, though. I have my limited photography business under 2 DBAs - JustLikeFilm.com and Vizhon Design Studio.

2.) As far as the tax questions go, I'm not an accountant and the whole tax issue confuses me, but I can assure you that since we are talking income tax and not sales tax, anything you get out of business counts. As far as the details of how you compute it, what forms to fill out, etc, talk to a tax pro, or start researching. Sorry I can't give any clearer answer than that. I'm also sorry that I have to point out there is even another wrinkle in the idea you may not have considered. If you plan to be running it as a Sole-Proprietarship and won't be taking on employess, you may also have to pay self-employment taxes on the income - at the federal level - but this IS a place where you have to earn a minimal amount before it counts.

3.) Yes, there is a level in doing a business as a hobby at which you don't have to report it as an income, but the number is pretty darned low. Last I heard (several years back) it was only around $600 a year you need to earn on a hobby before it is legally an income.

jdryan3

One thing I haven't seen anyone discuss is zoning. In the community I live in, they are fairly stringent on what kind of business you can run out of your home. Home office, no problem. Having people come to your house where you are doing the work, well....

I'm not saying people don't do it (meet clients, have small studios, etc), but technically it is a no-no. Yeah, it is a suburb of a major metro area, but they take it seriously. Mainly it is the traffic they try and keep down. One person coming over once a week, I doubt would draw any attention. Just don't irritate a neighbor who knows what is going on. A simple public service announcement if it pertains to you.