Sales tax?
 

Should I be charging sales tax? Is portrait painting considered a service or a retail product?

I imagine the answer might vary from state to state and a tax accountant could give me a definitive answer, but I'm just wondering what other people on this Forum do.

Thanks!

You only need pay/collect sales tax if you have registered your business with your state and have obtained a sales tax license. The license is handy as it will allow you to buy things wholesale from some suppliers and you don't have to pay sales tax on what you buy, but the quarterly paperwork you have to file is kind of a pain - don't do it until you get a benefit from it.

Hi Michele,

You absolutely have to check on your city and state jurisdictions. At least in Arizona, the paperwork is minimal.

With all due respect, Michael, I would advise you, Michele, not to break the law. It will not worth the trouble further down the road.

Did I mention breaking any laws? I don't think so, nor did I mean to imply that anyone should. There is a time when painting goes from a hobby to a business - until it does, you are not breaking any laws by selling and not collecting sales tax. If however, you register for a tax ID and then don't collect or pay, then yes, you are in voilation. My point is, wait until it is worth the effort for you to get a license.

Oh, dear. Michael, I didn't think you were advocating breaking the law. My point, obviously not made as well I meant, is this: check your own city and state. I'm sure the specifics, as well as the reporting requirements, vary from state to state.

In Arizona, the fact that something is a hobby doesn't necessarily exclude it from sales taxes. There are also instances where the sale of an item is subject to city tax, but not state tax. The art fairs, craft shows, etc. that I am aware of here let you know in your application that tax licenses are required. Many city jurisdictions offer a short term license to accommodate just this type of activity. It would be an unhappy situtaion to find out some years down the road that you have a tax bill in arrears!

Good luck.

Chris: No worries. I heard that you are signed up for Bill's workshop. It will be great to meet you and paint together! :)

As I understand it, at least in NJ, if you sell it here then the state gets a cut. Enforcement officials occasionally do sweeps of art and craft shows to make certain that the law is being adhered to, even by out-of-state participants. I file quarterly and it's no big deal here. It takes me about five minutes to send off the check. And I think when you collect sales tax it makes it clear to your clients that you take your profession seriously enough to consider yourself a business.

A tax number also enables you to buy materials without paying sales tax on them, since the presumption is that it will all come right when you collect sales tax from your customers or clients for the product. And being businesslike allows you to depreciate large ticket items like studios, and to write off computer and camera repairs and other art-related expenses. I also have a separate business account at the bank at my accountant's recommendation, and I try to pay all art-related expenses out of that account. I provide my accountant with records detailing expenses and receipts at tax time and it makes it all pretty easy.

HTH.

Thanks, everyone, for your advice!

I find it interesting that one has to pay sales tax on artwork. In the state of Florida, goods are supposed to be taxable, but labor is not. So, if the better part of a piece of art is labor, why is the whole piece of art taxed?

And, sales tax has to be paid on a piece of art (including the labor), but if you do something for a specific client and they don't pay for it, and you can't sell it to anyone else because it's custom, you're then not allowed to deduct your labor (that you had to collect sales tax on) as a bad debt?

Am I missing something or does this seem illogical?

In addition, if you donate painting to a charity, you can only deduct the cost of the materials. But if you sell the same painting to another person, and they donate it, THEIR deduction is based on what they paid.

Perhaps we should notify the IRS. I'm sure it would be terribly upsetting to them to realize something in the tax laws is unfair.