Sales tax?

[Michael Georges]

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.

LOL!!

[Cynthia Daniel]

I would guess that if this affected the lawmakers themselves they would pay attention to fixing it.

[Leslie Ficcaglia]

LOL, Chris!

I can see the logic of not taxing labor when it involves installing a part in a car or fixing a boiler (although I'm not positive that this is the case in NJ.) But when your labor results in a product, such as a wooden cabinet or a stained glass window or a decoy or a painting, the idea of charging only for the materials doesn't make sense.

I have also heard that when an artist has a proven track record - a history of sales at a certain price level - it's permissable to claim a donation for the full value of the piece rather than the materials. However, since I'm not a tax lawyer and don't even remember where that came from, I can't be sure of this.

[Tom Edgerton]

Here in North Carolina, the law is clear. Artwork is a tangible product, not a service, and is subject to sales tax, regardless of your professional status.

When I was a commercial illustrator here, the barroom debate among all of us was whether to charge sales taxes. A lot of the illustrators didn't, and lived to regret it. If audited by the state revenue guys, you became liable for sales taxes uncollected through your entire work history, and applicable tax penalties. One guy I knew was driven out of business after an audit. A heavy price to pay just because he "didn't want to mess with it."

Also, the seeming advantage of a tax exempt number for purchases for your business is offset, in my opinion, by the added paperwork it entails. For example, if I buy goods or services that go into the production of my product and don't pay the sales taxes under the exemption provision, I am then supposed to collect these additional sales taxes from my client and report and pay them to the state. I have enough hassle keeping up with and collecting the taxes on my portraits. So I always pay sales taxes on purchases for my work, and then bill them to my client as incurred.

[Michele Rushworth]

Since I posted my question I have learned a lot about sales tax. I registered my business with the state and have remitted sales tax for my whole year's production. Every invoice I now create has sales tax on it. (It's 8.8% around here so it's an "ouch" for my clients, but it does remind them that I am running a professional business.)

Taking business deductions for art expenses on my federal taxes made it essential that I also become a registered business with the state and do the sales taxes. There wasn't an option to wait it out until there was a financial advantage in terms of sales tax I might save on my paint and canvas purchases.

It was a pain in the neck to go back over my records and factor sales tax in, but going forward I think it will be fairly simple to track the paperwork. One advantage (aside from reducing the concerns of an audit!) is that filing quarterly forces me to review my business' financial position four times a year instead of just annually as I had been doing.

Seeing where I am each quarter reminds me that I maybe shouldn't go out and buy all those cool studio gadgets I see on various websites, or at least not 'til next quarter!

[Leslie Ficcaglia]

I've been filing quarterly since I began doing commissions in 1996, at the advice of my accountant. It's helpful, as you say, because it lets you keep track of how you're doing professionally. My basic costs are low because my studio is just across the driveway and my only expenditures are heat and electricity, plus the depreciation value of the remodeling job to turn the cottage into a workplace. But I was advised that this would be a good year for me to purchase any extra little amenities that I need for my business because I made much more money than I usually do and some of it needs to go back into the studio. It still wouldn't be enough to support me if I were dependent on that income for food on the table, but it's a nice addition. My new, refurbished website is one of my extras this year.

[Deborah Chapin]

I am glad that this topic has been opened up. I know that MD has something called reciprocal(?) sales tax for NJ, NY, VA, DC, PA, etc. but to date I really do not know how this works.

If I collect a sales tax at my independent shows and commissions which I do outside of a gallery system in these eastern corridor states how do I pay, whom do I pay? My tax sales tax form from MD does not have any line on it to pay out of state tax allowing you to enter amounts there. So, how does one find out what the sales tax is for these other states? Do I have to have a tax license for each state?

Help!

Thanks in advance,
Deborah Chapin

[Michele Rushworth]

Unless someone on this Forum happens to be from Maryland and steps up and answers this for you, perhaps the best thing to do would be to consult a local tax accountant. I know, it costs money, but that may be the only way to get the definitive answers that you need.

It sounds very complex and I wouldn't want to guess at how it's supposed to work. Better safe than sorry!

[Leslie Ficcaglia]

Deborah, my impression is that you'd need to get some sort of temporary tax certificate from the state in which you'd be selling and then report your sales to them. I have heard that state tax inspectors sometimes check venues like craft and art fairs to see whether everyone has his legal documents in line and is prepared to pay sales tax to the proper entity. Sales tax is owed to the state in which the article is sold; it's a cost of doing business there. I'm not sure how you'd deal with that sale once you got back to your home state, since you're probably already taking advantage of your professional status to buy supplies tax-free there.

Anyway, Michele is right: it's best to check with an accountant. You can always write it off!

[Steven Sweeney]

The tax folks don