sales taxes 2
March 10, 2008 – 5:00 amWho collects and pays the sales taxes?
Here’s an important point: when something is subject to sales tax it is only taxed once and only the final person receiving the good or service pays the sales tax. I think of every sales transaction as a train and every step along the way is a car on the train. The end user is the caboose, the end of the line, and they pay sales tax to the car just in front of them.
Let’s take photography out of the tax equation for a moment and pretend we’re making mufflers. Here’s the sales tax train:
* the first step: a muffler company buys raw steel (no sales tax)
* a distributor buys the muffler from the muffler maker (no sales tax)
* an auto parts store buys the muffler from the distributor (no sales tax)
* a local service station buys the muffler from the auto parts store (no sales tax)
* the service station installs the muffler on your car. You are the end user of the muffler, the train stops with you, so you pay the sales tax on the new, tangible product. But it is the responsibility of the local service station to collect those sales taxes from you and to pay them to the state. Make sense?
So, in commercial photography, say we shoot food photographs for an ad agency. If we send the bill for our services to the ad agency then they are going to resell our services to the restaurant (the end user). The ad agency will be collecting and charging the sales taxes and we don’t mess with it. But if the agency tells us to bill the restaurant directly, cutting the agency out of the loop, then we are liable for collecting and submitting the sales taxes on the transaction. If we are doing commercial work and have any doubt about whether the client should be charged sales taxes or not then we simply ask their accounting department for the answer.
There you go, that’s the primer. Now it’s time to check with your state’s department of taxation for more details (or start with a tax advisor or accountant familiar with local laws). The first thing they will have you do is file for a vendor’s license with your county auditor so you can get everything set up. In our state we have to file a sales tax report even if we haven’t had any taxable sales that quarter. There are penalties for not filing on time.
I’ll stick this in here, also: I recommend registering your business name and distinctive logo with your state so it’s protected. If you register as “Superstar Portraits” in your state then others will be prevented from stealing your name. You can also register nationally but do so in your state, at minimum. If the name of your business is “Your Name Photography” then having it stolen or duplicated is probably less likely.
As I said in the beginning, see if local trade schools or the public library have classes on starting a small business. Getting everything set up when you start out will help prevent unwanted surprises down the road.
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