Disclaimer: This article has been made available for educational purposes only and is not meant to serve as a substitute for accounting or legal advice. A local accountant or other tax -law professional should always be consulted to ensure compliance with all applicable tax laws.
As a photographer, reading up on sales tax rules for your state is probably just about as dry as it gets, but charging sales tax properly can help you avoid problems with the IRS. We’ve been able to identify sales tax concepts which vary from state to state that will help you jump-start your own research. This article identifies state-specific variables and outlines how they factor into tax requirements. We have summarized many of these variables in the ASMP Sales Tax Summary Spreadsheet. Your research would also benefit from a conversation with a CPA to make sure your unique circumstances are being considered.
Below are some of the common terms and concepts that are relevant to the way photographers should apply tax to their products and services. Although each state handles these concepts differently, they are a component of every state’s basic tax structure.
What is Sales Tax Nexus?
Identifying whether you have sales tax nexus, or significant presence in your location is the first step. According to Avalara, Sales Tax Nexus is the connection between a seller and a state that requires the seller to collect and remit tax on sales made in that state. Each state has their own specific guidelines, but in general, if you have an office or place of business, inventory stored in a warehouse, ownership of real or personal property, delivery of merchandise in a personal vehicle, or an employee or independent contractor present in the state, you have nexus in that state. This becomes more complicated when you have clients outside of your home state.
If you do have clients in other states, you may have an obligation in the ship-to state known as remote entity nexus, due to your significant economic presence. This is a hotly debated topic and not all states refer to it by this name, but the premise is the same. States do not want to continue losing tax revenue when it comes to people selling out of state. Many states are challenging the existing law that requires businesses to have physical presence, not simply economic presence in a state. Because these rules are currently being debated, be on the lookout for the establishment of new laws in your state or ship-to states. If you are selling out of state and are not required to collect and remit sales tax, the consumer would have to pay a use tax. A use tax is designed to compensate for the price discrepancy between in-state and out-of-state goods when the seller does not have to charge sales tax.
Destination or Origin Based?
After nexus is established and you know that your business must collect sales tax, you need to know if your state is a destination or an origin-based sales tax state. A destination-based state charges sales tax based on where the buyer is located, requiring knowledge of the ship-to location. Many states do have local taxes, so if your clients live in areas with different local tax rates, you will have to keep track of the individual local tax rates. The list of destination-based sales tax states is as follows:
|District of Columbia||New Jersey|
An origin-based states charge sales tax based on where the seller located. This is much easier to manage because you are likely not changing the location of your business very frequently. The list of origin-based sales tax states is as follows:
|California (District taxes based on destination)||Pennsylvania|
One additional complicating factor in distinguishing destination-based vs. origin-based states are the rules for remote sellers. This recent article in Accounting Today talks about bracing for changes in tax laws for remote sellers due to a recent Supreme Court Ruling. This article from the Sales Tax Institute provides more information than you’ll ever want on Remote Seller Nexus.
Now the big Question…are Services Taxable?
For many photographers, the big question will be whether or not you have to collect sales tax on your services in addition to the price of the tangible goods you produce. Consult the ASMP Sales Tax Summary Spreadsheet for details on services by state.
Services on Tangible Personal Property
Google defines tangible personal property as everything other than real estate that is used in a business or rental property. Examples of tangible personal property are computers, furniture, tools, machinery, signs, equipment, leasehold improvements, supplies, and leased equipment. At first blush, services would seem to fall outside this definition, and therefore should not be subject to sales tax. However, each state has a list of services that are considered taxable. In most cases, photography shows up on that list in some form. For example, alteration of tangible personal property is a common service that is taxable, as well as the production of tangible personal property. Because photographers create tangible goods, some would argue that your services are subject to sales tax.
Another argument that many states make in support of taxing services, is that the services are necessary for the transaction to occur and are very closely linked to the resulting tangible personal property.
A minority of states have ruled that as long as services are stated separately, they are not subject to sales tax. In this situation, the way you organize your invoice determines whether or not you would be required to charge sales tax on your services.
Delivering images to your clients digitally brings about the questions of whether digital images would be considered tangible personal property.
The general rule is that if the services provided do not result in the exchange of tangible personal property, then they are not subject to sales tax. This could also mean that sitting fees and other services are generally not subject to sales tax unless the client decides to purchase the photographs. The chart below distinguishes which states tax digital images, and which do not:
|Digital Images are Taxable||Digital Images are tax Exempt|
|Connecticut (reduced rate of 1%)||Georgia|
|Idaho (when purchaser has permanent right)||Iowa|
|New Jersey||North Dakota|
|South Dakota||South Carolina|
What about shipping charges?
If you ship printed photographs to your clients, then you also have to consider whether shipping charges are taxable in your state. Some states regard shipping charges as part of the total purchase price and are therefore taxable, while others do not. We compiled a list of states in which the shipping charges are taxable and states in which they are exempt:
|Shipping Charges are Taxable||Shipping Charges are tax Exempt|
|Illinois||Maryland (handling is taxable)|
Keep in mind that there are specific provisions for each state regarding taxes on shipping charges, but for most of the states, the charges must be stated separately on the same invoice. Shipping charges are usually only taxable when the item being shipped is also taxable. If you are shipping your goods out of state, they are not subject to sales tax in your state (Missouri is an exception). They may however be subject to a use tax in the state being delivered to.
Advertising, Resale, and Additional Tools
Generally, if images are being purchased for advertising, they are not subject to sales tax. Nor are images being purchased for resale. In the case of resale images, the photographs only need to be taxed once, so the original sale would not require sales tax.
As an additional resource, state-specific photography sales tax information booklets are available for sale at TheLawTog.
Special thanks to intern, Lily Barber, for the extensive state-by-state research gathered for the ASMP Sales Tax Summary Spreadsheet and for being a major contributor to this article.