Sales tax?

[Michael Fournier]

As I understand it, at least here in CT and Mass sales tax is on goods sold at retail and labor is not taxable.

It is all in how you price your work. If you pay sales tax on the the materials you use, tax was already paid on these so you do not collect sales tax again on them. If you used a tax ID when you bought them and did not pay sales tax you would then have to collect sales tax on the retail sale of those materials.

Since portrait painting is a service no sales tax should be due on that part of the sale that was labor.

Now this is how it should work... for this is how it works for all other businesses. But artists often get different treatment in tax laws than other businesses.

I know granite fabricators who sell granite counter tops price tops by the sq. foot at an installed price of $.01/sq. ft for material cost.

The install price is often a range between $59.00 and $80.00/sq. ft. depending of the type of granite. Of course they pay a different price for each type of granite but on a 50 sq. ft. top that costs $80.00/sq. ft. the amount of the sale would be $4000.50 but sales tax is due on only $.50.

This is completely legal for them so why the law would be any different for artists I don't know.

Of course I am not a lawyer and I do not even play one on TV (or the internet). I am just passing on what little I know about how it works for other service industries.

It is always best to check with a lawyer in your own state on this.

[Michael Georges]

Michael:

I asked my tax advisor about the "portraiture is a service" vs. "portraiture is a product" argument.

He came firmly down on the portait is a product side arguing that the client commissions us to produce an object, a portrait, and that portrait is a product and it is taxable as such. He said he came down that way because that is exactly how the State would interpret it. He said if I was only providing labor - like say I was the guy who came in to route the edges on your granite counter tops, then that is completely service based. But we provide an object to the customer and that seems to be subject to sales tax - at least it is here in Colorado.

[Michele Rushworth]

In the state of Washington, portraiture is also a "product", not a "service", since the client gets the painting in the end. It is thus subject to sales tax.

[Michael Fournier]

Yes, Michael G. I am not in a position to argue, I am not a tax expert. I was only bringing up a topic for light discussion, not as tax advice so please, I do not want anyone to get in trouble with the tax man because they followed my statement as advice.

I was only musing as to why one custom product is a product, but other artisans can claim it as a service and a labor charge.

As for the granite counter tops, these guys are hired to provide a product; the granite itself, as well as the fabrication of the top. But they split the materials and the labor in a such a way that the sales tax is very small.

Another part of this that seems to me to be a double standard is if we donate a painting to a charity we can only deduct the cost of materials not its sale value. Now, that is the material value minus labor which we are not allowed to deduct, according to the IRS.

So why is this labor all of a sudden taxable as a product at the time of a sale? Why? because we priced it as a product, that's why. Now, say we invoice the painting as X amount for the frame, X amount for the canvas and paint and then charge a labor charge. Then technically only the materials you purchased that you did not already pay sales tax on should be taxed, not the labor. This is how it works for all other businesses that provide custom ordered products and services.

For artists there is already a precedent that we produce a product, so we seem to be stuck. Of course we all know that except in the case of very popular artists it is very hard to sell a portrait except to the person who commissioned it, and if they do not buy it then its perceived sales value is very hard to recoup.

It would actually be a much better pricing structure for portrait painters to sell paintings as a labor charge on a custom service than as a sale of a single product. Even better, collect partial payment on our labor even if the painting was never sold. Say you spend 3 months on a painting and the person who commissioned it backs out; as we price our work now, we are stuck.

But other artisans would have some cancellation clause that the labor was not refundable after the service has been performed. It most likely would not be the full payment but it is usually a large enough amount that customers thinks twice about backing out of the sale, since they do not want to lose that money.

Oh well, I am really getting off topic. I guess it is best to just go along with the system 'as is' to be safe, even if it hardly seems fair when we really are artisans who provide a service. Gallery paintings aside, I suppose that is how the precedent was established - by gallery owners and art dealers who just sell art as a commodity.

I suppose it would be very hard to make distinctions between the sale of a painting by a gallery and the sale by an artist that produced it on commission. Not impossible, but it is easier on the tax codes to not make any distinction, I suppose.

[Debra Jones]

My tax advisor was helping me understand that I have a certifiable business as I make a profit. I have always been self-employed and partitioning my expenses is new but starting to be necessary.

The charity vs. value issue is moot as I have used my donations as advertising opportunities and the cost of a frame, stretcher bars, plaque and canvas to hang on a wall in a high profile location was much less than flyers on door handles and infinitely more useful.

BUT the initial question was about whether or not to COLLECT tax, which is above and beyond the stated cost.

When I did an outdoor show I had to buy two licenses - for city and state. The state license is for any sale of a product in a gallery, or hanging at my work or venue, or cards I make reproductions of, or giclees or inkjet prints. I can just sell them, and the state has a nifty little figure where I end up donating it out of the gross.

Collecting sales tax is a cool thing. The client pays it. PAYING sales tax is the point we seem fuzzy with. I am going with the service vs. product attitude. As most of my work in the art field lately has been freelance, as I once did in my youth, for realtors or brochure design etc, it is easy. It is taxed as my income. In those states where incomes and sales get really sticky it is a big issue. Having not sold much at all, the small sales at the show were covered in that little retroactive formula. I just gave them my gross, they decided how much it cost and I paid the difference as the taxes.

I am hoping to do more gallery SALES and that sort of thing, but as most of my work in portraits so far has been oddly, over the internet or out of state for friends or family, I think the powers that be are still of a mind that interstate internet commerce is not SALES taxable unless sold to the same state...anyone know about that one?

[Sandy Barnes]

Debra,

Maybe I can answer that. I do most of my shows in Georgia, however I live in Florida. At the point of the actual commission I am always back in FL (never had an "on the spot" commission, people need to muddle it over). I almost always ship the painting when finished, and therefore do not charge sales tax. In fact, my tax accountant never spoke to me about the issue of sales tax. I am going to begin showing more in FL, and then it will become an issue...alas, more paperwork.

As far as the customer is concerned, I think I would just up my price a bit to include the tax and just not mention it.

My main company is a diamond/jewelry appraisal service. When I write a report on a diamond, the customer walks away with that report in his hand. I am still considered a service in the state of FL and therefore charge no sales tax.

[Michele Rushworth]

Debra, you wrote:

I am going with the service vs. product attitude.

You should really check with your state tax department. Your view may not match their view as to whether you offer a service or product ... and guess who wins!

[Debra Jones]

My tax girl and I agreed. The sales part, as in finished works is covered separately. If the state feels additional tax on such work is needed it is all in the income, so I would get to deduct that also from my income... the taxes they need paid.

And like I said, most are out of state... two locally pending as we speak so I will discuss that next time with her!

[Tom Edgerton]

Please, everyone, get this clarified immediately where you live. The consequences of not collecting sales tax when applicable are dire indeed. Get your information from the state and local tax offices--your accountants may or may not know the law thoroughly when it comes to artwork.

Here in NC, the law is clear. Artworks, including portraits, are tangible products and not a service. You cannot parse out the labor from the materials just because that seems logical to you.

I had a friend in the 80's here who ran a successful illustration shop with several employees, who didn't charge sales tax. He was audited by the state tax guys, had to pay all uncollected back taxes--with huge penalties--at one time, and it very nearly put him out of business. He had to lay off everyone, and move the business to his home to even survive as a single practitioner. Other illustrator colleagues at the time used to tell me, "I never charge sales tax!" and they were proud of it.

It's totally beside the point whether you think you should have to collect sales taxes or not, and the state auditors won't care if you didn't know. Find out what you're supposed to do and do it. It's a pure disaster waiting to happen if you don't.

Sincerely--TE

[Heidi Maiers]

Debra,

As a fellow Arizonan, this is what I understood (as copied and pasted from the Arizona Department of Revenue site - Transaction Priveledge tax information)about sales tax laws for commissioned work.

Clearly it states that commissioned work is not subject to sales tax. Of course it does not apply to income tax - we pay that.
_____________________________
ARTISTS

Sales of original artwork by the artist are subject to the tax in accordance with Arizona Administrative Code R15-5-151. Exceptions in the rule are commissioned artwork or casual sale by an individual artist.

"Commissioned artwork" is defined as a custom, one-of-a kind art creation made by the individual artist pursuant to the particular requirements of a specific purchaser.

"Casual sale" is defined as an occasional transaction of an isolated nature made by a person who is not engaged in the business of selling, within or without the state the same type or character of property as that which is sold.
________________________

Other states may have similar clauses pertaining to artists.