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Taking Care of Business
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Old February 7th, 2006, 11:11 PM   #1
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How about this for a twist?

I was helping my wife get setup to file her sales tax with the state every month (she's a new photographer), and while I'm on the phone with the state rep I start asking questions about my business.

I quickly get transferred to an audit official for more accurate answers. Basically, I am told that I have to charge sales tax on almost everything. If I shoot a wedding and provide the client with a DVD, I have to charge sales tax on the ENTIRE amount of the sale. If I am paid to film a band and just turn over the tapes (no editing) I am also responsible for paying sales tax on the entire amount I was paid. I asked if it mattered whether or not my own cameras and tapes were used and I was told "no".

However, the same guy tells me that when I develop a website I don't need to charge any sales tax on ANY of that. The reason? I'm not providing anything tangible to the client.

I read up on Idaho state law, and according to the law, I only have to charge sales tax on transfer of tangible personal property.

I was wondering how the rest of you dealt with these issues in your respective states. It seems absurd to me that I can design a website and not have to charge ANY sales tax but if I am paid to just operate a client's camera I would still owe the state sales tax.
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Old February 7th, 2006, 11:28 PM   #2
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The way I understand it is that I have to pay sales tax on the amount I charge for production. Here in CA that is 7.0 plus percent. We charge the customer and then pay the State Board. I am not sure what you mean by 'operate the clients camera'. But if you are set up as a company offering a service I think you have to charge and collect on the total amount invoiced, not just the blank tape cost. Rental of equipment is not taxable, I've been told.
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Old February 7th, 2006, 11:38 PM   #3
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Wow. How odd. We have to charge sales tax on equipment rentals.

What I meant by 'operating the client's camera' is this:

I have a job this Saturday where I am filming a band using my cameras, tapes, etc. The audit official told me I had to charge sales tax on the full amount (which will include, camera rental, set up time, filming, tape cost). So I then asked if the situation would be any different if I just showed up and filmed the event using a camera and tapes that the client provided. I was told that there is no difference. To me, that doesn't seem right.

It also doesn't seem right to me that someone can design a website and not have to charge a penny in sales tax, while someone else has to charge sales tax even if all they are doing is showing up at an event and running a camera. It just seems to me like this audit official was off-base.
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Old February 7th, 2006, 11:51 PM   #4
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Yeah, Tax Law is pretty confusing. When I started my company about 20 years ago, we spoke with the California State Board at length and this is what we were told.

Twice a year, I tape a Tax Law Conference. A group of lawyers sit around and discuss stuff like taxing Airplanes on the runway of the Muni Airport or cables under their city sidewalks or billboards on the highway. They love this stuff. Oh, and I charge tax on the cost of production when I send them a bill. And happily mail it off to Sacramento for Arnie.
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Old February 8th, 2006, 12:01 AM   #5
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Tax law conference . . . SHUDDER . . . sounds like a riot. Probably pretty good and fairly easy money, though.

Anyone else have any remarks on how they handle sales tax where they live?
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Old February 12th, 2006, 08:01 PM   #6
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In Florida, sales tax is owed on tangible goods, but not on services. So production does not have to charge (collect) sales tax, but duplication does. If you provide a DVD (or even a couple) as incidental to the service you rprovide (production and editing) no sales tax is collected. It seems in california you might have all kinds of offsetting tax credits available for productions. Florida has a few, and some states offer as much as a 25% rebate on any production costs. Keep that in mind when funding your next project. Florida just exempts production companies from paying (not collecting, paying) sales tax (I think).
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Old February 12th, 2006, 08:08 PM   #7
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Yeah, see, that makes much more sense to me. If I produce a video that is to be sold to the public, then sales tax is charged on the video, not on the production. If I produce a wedding video, then the DVD is just what I'm providing for the couple to view it. It's not the DVD that is being sold to the couple, it's the production really. At least that's how I see. This audit official didn't seem to see it that way.

In other news, I checked with an accountant at an agency I used to work at here, and they have been audited twice. They don't charge sales tax on production. So it seems to me if they can survive a pair of audits without charging sales tax on production, then I should be fine.

Thanks for another perspective on things from a different state.
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Old February 12th, 2006, 08:22 PM   #8
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I htink the big thing is whethere your state taxes services or not. Some states do, and that would probably sweep video production into the same category. Good Luck. I suggest you try asking someone else in the tax agency, and getting/finding something in writing either form them or from your accountant. That would at least prove "reasonable efforts" and avoid penalties later if you happen to lose. Taxes are what they say they are, George Washington would roll over in his grave.
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Old February 13th, 2006, 12:20 AM   #9
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According to the tax law, services are not taxable under the sales tax stipulation. However, tangible personal property that is transferred via sale is subject to sales tax. The auditor I spoke with seemed to think that a wedding video is the result of production (service) and the DVD (tangible property). The problem I have with this is that a website designer can design a website and not charge sales tax, even though a website does exist tangibly (in the form of data files, just like video on a DVD).

I think you're right. I'm going to be consulting with an accountant and possibly asking a different person at the tax commission (except I don't know who I spoke with the first time).

Regarding GW, I hear you, sometimes taxes make me rollover, and I'm not even dead yet!
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Old February 13th, 2006, 02:57 AM   #10
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Tax laws are different for each state. Some states, like Alaska don't have sales tax, so we don't have to collect any. Some states, such as Texas, have situations that require a company to collect taxes from the very first sale while others can sale a certain amount of service without collecting any tax but if they go over a set amount of income they are charged tax on ALL the income. Example... if the company sales more than $5000 in one quarter they are required to collect sales tax on everything from the very first dollar they make.

Taking it one step further, there is also a law that states if you have a customer who orders something by mail and they do not live in the state you do business they are not required to pay sales tax. BUT if they pick up the item they are required to pay tax (like someone in New Mexico who drives to Texas to shop or pick up something).

As far as internet sales are regarded, they are considered for the most part tax exempt unless you sale a product on line to someone in your home state. If the item crosses state lines the sales are exempt.

I think what it boils down to it they like to keep all of us confused. :)
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Old February 13th, 2006, 03:26 AM   #11
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Amen, halleluah (sp?) and amen again.
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Old February 13th, 2006, 06:04 AM   #12
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Quote:
Originally Posted by Anna Schaffrina
As far as internet sales are regarded, they are considered for the most part tax exempt unless you sale a product on line to someone in your home state. If the item crosses state lines the sales are exempt.
Well I am not a tax expert in any way, which is why I hire an accountant. But I think your statement is confusing, if not wrong. Here in NJ the code makes it very clear that just because a business is not authorized to collect taxes, it doesn't mean that the purchaser doesn't have to pay taxes. This topic has come up before, and I've looked at the tax websites in other states which are also similar.

Again, just speaking for my own state, they are very clear that NJ sales tax must be paid on all items purchased from out of state unless you have already paid tax to the state where the purchase was made. I suggest that everyone familiarize themselves with their own laws, and consult their own accountants on this sort of thing.
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Old February 14th, 2006, 04:30 AM   #13
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Quote:
Originally Posted by Boyd Ostroff
Well I am not a tax expert in any way, which is why I hire an accountant. But I think your statement is confusing, if not wrong. Here in NJ the code makes it very clear that just because a business is not authorized to collect taxes, it doesn't mean that the purchaser doesn't have to pay taxes. This topic has come up before, and I've looked at the tax websites in other states which are also similar.

Again, just speaking for my own state, they are very clear that NJ sales tax must be paid on all items purchased from out of state unless you have already paid tax to the state where the purchase was made. I suggest that everyone familiarize themselves with their own laws, and consult their own accountants on this sort of thing.
I'm sure there are states out there that do have special requirements for collecting sales tax in a retail type environment, but for the most part sales tax isn't collected by online businesses, from my experience. But, I would agree, everyone should ask their Comptrollers office since it is they who govern who charges tax and who doesn't.

Not sure what you were trying to explain in your post in a couple of places. The part about a business not being "authorized" to collect tax..and people paying it anyway? Any business collecting sales tax that is not "authorized" to collect it would be charging it and never turning it in to the state Comptroller, and that is a felony in any state. I haven't, in the 25 years I have been working with taxes, run across any tax regulation that allows any company, which is not legally required to collect tax, the option of charging it. Nor have I run across a company that would want to.

I do know for a fact that Texas does require that some service businesses collect sales tax IF they exceed a certain amount of money in a quarter, and once they exceed that limit, tax is due on every single dollar gained. I know because I owned one a few years ago.

As for NJ collecting sales tax on items not sold in NJ, I think I would do some more checking into that one. Perhaps what it is they are collecting is actually an import tax for items crossing the state line, that just happens to be the same percentage rate as your sales tax. At least that would be my guess. I don't understand how they could require me, as a business in Alaska or Texas, to collect their sales tax and submit it without a Tax ID number for payment in NJ. Tax #'s are issued by the state where the business is actually located and it is to that home state that all sales tax money is normally sent.

The federal government is, however, discussing the idea of implimenting a national sales tax so that everything purchased online will be taxed and turned into a federal collection agency.
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Old February 14th, 2006, 04:17 PM   #14
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Sorry if my post was confusing, or if I used some wrong terms (that's why I'm not an accountant ;-) I was talking about sales tax from the perspective of someone who purchases items out of state. Here's the exact quote from the NJ Div of Taxation:

http://www.state.nj.us/treasury/taxa....htm~mainFrame

Quote:
Whenever you purchase taxable items or services for use in New Jersey and the seller does not collect the appropriate sales tax, you are required to pay use tax to New Jersey. For example, if you purchase taxable merchandise from a mail order house and they don’t charge New Jersey sales tax, it does not mean that tax is not due; it means that the mail order house is not authorized to collect New Jersey sales tax. You, the purchaser, must pay 6% use tax directly to the Division of Taxation.
And something similar from Ohio:

http://tax.ohio.gov/RoboHTML/Frequen..._Questions.htm

Quote:
10. Is sales or use tax due on purchases over the Internet?
If the seller is located in Ohio or the out-of-state seller has substantial nexus with Ohio, sales or use tax is due on all sales of tangible personal property and selected services to purchasers in Ohio, unless the purchaser has a statutory basis for claiming exception or exemption. NOTE: Many out-of-state sellers are registered with Ohio to collect and remit Ohio use tax on taxable sales made to Ohio consumers.

If the seller is not located in Ohio and does not have substantial nexus with Ohio, the seller cannot be required to collect and remit Ohio use tax. However, the purchaser will still owe Ohio use tax on the purchase of goods or services, unless the purchaser has a statutory basis for claiming exception or exemption.
I suspect you will find something similar in other states. It seems to be a common misconception that no sales tax is due when you order something from out of state.
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Old February 14th, 2006, 06:39 PM   #15
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Wow~~~

and here I was thinking import taxes were bad!! I'd move!!!! lol... But thank you for the research!! I haven't EVER run across a USE tax!!!

Question? How do they collect it? Do they just trust people to send it in? Do you have to pay it at the post office when you pick up packages??? This is really amazing to me. I have lived in and owned businesses in 5 states and in Mexico (!) and have done specialized tax loophole accounting for businesses in about 25 of the other states and I have never run across this... wow! learn something new everyday! Thank you for making me a smarter woman.. ;)

I guess I can cross Ohio and New Jersey off my places to move to!. :)
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