Taxes
 

Hi, I am getting ready to start a video company and setting it up as an LLC. My question is have many of you have to charge state sales tax? I know it depends on the state you are in. I am in Missouri and some people tell me yes and some say no. I haven't heard of any production companies having to charge sales tax before.

Thanks,

Bryan

Call your local Certified Public Accountant. It's much cheaper than getting the incorrect advise and it doesn't cost much for them to do it for you.

Good advice from Jon. Best to talk to a CPA. In Indiana if we provide a tangible good then we have to collect State sales tax. In our case its what we charge for the DVD + 6%. We charge $20.00 per DVD.

John

Absolutely talk to a CPA. Tax laws vary from state to state, even from one city to another. In Colorado, I don't have to charge tax as long as I am performing a service ... producing a wedding video. However, once the project is complete and delivered, I will have to charge sales tax on any additional copies of the video.

When I asked my accountant this question, he called the Iowa Department of Revenue and was told that if the final product is tangible, the whole project is subject to sales tax. I wish I could charge $1 for the physical media and $(n-1) for the "service" of creating the video, with n being as large as I want, but that's not how they want it done. At least not here in Iowa - and to be honest, it makes sense to me this way. (Think of a book, sales tax applies to the total price, not just the cost of the paper.)

- Martin

Why call a CPA? Go straight to the source and call your state's department of revenue. It's a free call.

Here in Minnesota, I have to charge sales tax on the deliverable items, which pretty much is limited to DVDs. So when I complete a project for a client, I have to break the charges down into non-taxable service items (shooting and editing) and the taxable deliverable (the DVD). You have to put a price on the DVD copy, so I charge $10.

Think of a car repair, sales tax applies to the parts only, not the service of installing the part. Your comparison makes sense if you are producing an original work that will be sold (like a DVD in a store) but most of us are providing a service, a work for hire, not a finished product.

For what it's worth...

Most of my work is labor only, so here in NC, no sales tax gets charged on my labor. (however, there's talk of changing this) When I do a project that requires delivery of a product, (DVD) it's sales-taxable.

This is how it works in PA too... tax every dollar you make, not just the money spent on the tangible item. Its on the PA Dept of Rev website. I am digging a little deeper myself to try to find a loop-hole, but I'm coming up short for now. I have an appointment with a CPA though, because now that my business is growing steadily, I don't want to screw it up.

I see your point, and so does our state's revenue department. What I tried to point out (but did not explain very clearly) is that in those cases where the only objective of the service that you provide is to help create the tangible end product (like a DVD), then that service is subject to sales tax (at least here in my area). For example, wedding DVDs fall in this category, because the tangible product is the ONLY thing the bride and groom care about in the end - the service portion is just an important necessary step along the way.

If, on the other hand, a client asks for electronic delivery of a project, and then later decides that she wants a DVD with the material, then I need to collect sales tax only for the DVD.

- Martin

I agree with calling your state's sales tax department. Ask for an actual auditor. Even then it's not always clear. I had one auditor tell me I had to charge sales tax on my wedding videos, and the next day I was talking to a different auditor and he told me that I didn't. I asked how I could be getting different answers and he just said that it comes down to interpretation of the law sometimes.

I just charge sales tax at this point to avoid any potential "interpretation" issues. I haven't had a single client complain either. People are used to paying sales tax.

By the way, I was told that I couldn't get around this by just charging $10 on a separate invoice for the DVD. If the shooting/editing were paid for to produce the DVD, then you have to charge sales tax on the full amount of the work done. Just what I was told by the auditor.