One question you might face when starting your own photography business is whether you need to charge sales tax. Although running your own photography business may be a dream come true, it comes with many responsibilities, including understanding sales tax.
Should Photographers Charge Sales Tax? Yes, photographers should charge sales tax. Unless they live in one of the five states where there is no sales tax, photographers are expected to pay taxes on their income. If they’re expected to pay taxes on their income, they must collect this sales tax from their clients.
Taxes are important to understand, and almost everyone who sells something has to pay them. But that doesn’t mean they’re easy to understand. Let's jump into it.
What is Sales Tax?
Sales tax is a tax set by state and local governments on products and services. The business owner is required to pay it to those government entities, so they need to collect it from their clients.
How Sales Tax Works in a Photography-to-Client Transaction
Here’s a look at the simple facts of sales tax and how the transaction will work:
- Photographers charge sales tax
- Clients pay sales tax
- Photographers collect sales tax
- Photographers pay sales tax to the appropriate government entity
Generally, you’ll pay the sales tax you collected to the appropriate agency at set intervals. These intervals are determined by your income but are generally either monthly, quarterly, or annually. You should find out when your sales tax is due when you sign up for any business licenses.
Your best resource for figuring out sales tax guidelines for your state is to contact the local agency responsible for governing sales tax. This is normally your state’s Department of Revenue but if you’re not sure, just search your state’s name plus “sales tax” in a search engine.
For example, let's pick Virginia. It's not my home but I frequently visit. So, I would search for “Virginia sales tax.” After this search, I can see that I would contact the Department of Taxation in Virginia.
Determining Taxable Services and Products
Understanding sales tax is the easy part. Figuring out what products or services you should apply sales tax to is a whole other story.
In the past, what photographers do and provide has always fallen into two categories:
Photographers provide a service by taking photos. In relation to the service, they may charge sitting fees.
The photographer delivers the photos through physical prints, a CD, or even a USB drive or other physical media. These are tangible, physical products, and is therefore taxable.
This has changed in the times of digital photos. Many times, no physical product actually exchanges hands between a photographer and client. The photographer simply emails the client digital photos or puts them on an online site where the client can access them.
What About Digital?
The digital era blurs the lines a bit and leaves people wondering what needs to be taxed. Many states have taken matters into their own hands and started outlining requirements for taxing digital goods.
In fact, 27 states now have requirements to tax digital products. The tax ranges from 1% to 7%. You’ll have to check to see if your state is one of them.
If your state does tax digital products, the definition still varies from state to state. States usually fall into one of 3 categories:
- States use their own definition of digital goods
- States don’t define digital goods specifically and you may not need to charge sales tax on digital photos
- States use a standard definition of digital goods found on the Streamlined Sales Tax Governing Board’s website
The Streamlined Sales Tax Governing Board was created because state sales tax systems are so complicated. The goal of the board is to find solutions to make sales tax complexities easier to understand. The board defines digital goods as:
“Any product that is transferred electronically to the customer.”
Take a look at which category the various states fall in:
|Own Definition||Not Defined Specifically||Standard Definition|
With the changes in how photographers operate (i.e. sometimes there is no longer an exchange of a physical product), many photographers are finding that they have to charge sales tax on everything. That’s because it falls under the definition of “fabrication services.”
Take a look at the definition of fabrication services from the earlier Virginia example:
“…any operation which results in the creation, production or manufacture of an article of tangible personal property or is a step in a process or series of operations resulting in the creation or production of such an article.”– law.lis.virginia.gov
Under this definition, many states consider the actual taking of the pictures to be a taxable service. This is because the labor of taking the pictures is so closely related to the final product (the images) that the labor is taxable.
Are you as confused as I was when I first found this information? Before you call your local tax agency, a quick internet search can give you some clarification.
An Example of a State That Doesn’t Tax Digital Files
If you searched “sales tax on digital photographs in Virginia” and found the following information on which services or products photographers should charge sales tax on, you would find a comprehensive and specific answer.
Sticking with the Virginia example, the tax applies to sales of:
- Slides from camera film
- Camera Film
The tax does not apply to:
- Charges for developing film, photos or videos
- Expenses for coloring or tinting photographs
What Amount of the Client’s Bill Gets Taxed?
According to the administrative code on Virginia's government website:
“The tax is applicable to the total charge to the customer for a photograph, slide, etc., including, but not limited to, charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated.”
So, it appears that a photographer in Virginia should charge tax on any prints as well as the actual service of shooting the pictures. I don’t see any mention of charging tax for CDs, USBs, or online galleries of pictures.
This makes sense because if I check back on my list of which states tax digital goods, I see that Virginia falls under the category of “not defined specifically.”
An Example of a State That Does Tax Digital Files
To get an idea of what happens in a state that does tax digital goods, let's look at Texas.
The explanation on the website of the Texas comptroller (person in charge of taxes) gave stated that the following must be taxed:
“All expenses directly related to the production and sale of photographs and billed to the customer are subject to tax regardless of whether the photographer bills lump sum, at an hourly rate, or by itemizing each expense.”
In Texas, the following photography business-related costs are subject to sales tax:
- Travel and lodging
- Props and models
- Any “professional service” in the photoshoot
And then, of course, the digital clause. In Texas, it is specifically outlined that the sales of the photographs themselves are also taxable, whether the photos are made from film (negatives) or digital electronic files. It details just about every medium too:
- Or by any other medium
You can see some states mean business. They expect every step in the photography process, as well as every potential output of that process, to be taxed. And they expect to collect that tax from the photographer or photography business.
You’ll also notice both Virginia and Texas mentioned tax regardless of whether the photographer bills in a lump sum or separates each expense.
Some photographers try to break the fees down and only charge sales tax on fees they think are a tangible product. This is a big no-no and can get you in trouble.
Hopefully, this clarification on the items or services you need to charge sales tax helps. As always, be sure to always with your local tax agency for the official, most up-to-date stance.
How Much Sales Tax Do I Charge?
Now that you know the basics of sales tax and what items you should charge sales tax on; you’re probably wondering how much sales tax you should charge. That isn’t an easy question to answer because it varies greatly, not just between states but even between cities within states.
Take a look at the following tax situations that may exist depending on where you live:
- The state doesn’t charge sales tax, but the city or county does
- City or county doesn’t charge sales tax, but the state does
- State and local governments charge sales tax
- Certain items are exempt from sales tax while others are not
Forty-five states charge sales tax, and within the 45 states, there are 8,000 cities, towns, school districts, counties, and other special tax districts that charge sales tax. That shows you how complicated it can be to figure out your sales tax.
Which States Don’t Charge Sales Tax?
You might have noticed that I said 45 states charges sales tax. That means that there are actually five states that don’t. Here’s a look at those states:
- New Hampshire
Just because these states don’t charge sales tax doesn’t mean you’re not liable for something, so it’s important to check with your local tax agency.
What If Your Shooting Photos Out of Your Hometown or State?
It also becomes more complicated if you’re shooting outside of the city where you hold your license. If you travel to another state or even another city, you have to charge the sales tax for the area where you performed the photography. This means you have to register, collect, and turn in the sales tax you collected for that area.
Most state tax websites have charts that show the tax rate for each city or county in the state. If you can’t find it there, there are a couple of websites you can check for location-based sales tax info:
Just remember that your local tax agency is your most reliable source when it comes to determining the sales tax you should charge.
What Happens if I Don’t Pay Sales Tax?
As we’ve discussed, sales tax laws vary between different locations and they can change, so it’s important to stay up to date on what the tax laws are in your state.
Figuring out the sales tax laws in your state may seem confusing and too overwhelming to tackle, but you really don’t have a choice. “I didn’t know I had those tax obligations,” is not an acceptable excuse if you get audited.
If You Don’t Collect Taxes at All
If you’re ever under suspicion for not collecting or paying the appropriate taxes, your local tax agency can order a full audit of your company. This means they will look at every one of your business records to ensure you’re charging the appropriate taxes.
If You Collected Taxes Incorrectly
If you didn’t collect the appropriate taxes, you are now responsible for paying them. You won’t just pay the taxes you should have collected either; you’ll also pay penalties and interest. It’s pretty unlikely you’ll be able to go back to your client and collect the tax after the fact. Not only does this look bad, but there's not guarantee you can collect the extra amount post deal. If someone did this to me, I would tell them to take a hike and plan better in the future… nicely, of course.
How to Protect Yourself in Case of an Audit
There are some steps you should take in your day-to-day business to protect you in case you’re ever audited. Take a look at those steps:
- Save receipts.
- Keep a journal of expenses including date of purchase, exact amount, and type of gear.
- Get a separate bank account or credit card exclusively for business.
- Keep a gas/mileage log in your vehicle if you plan to write off mileage
- Keep everything organized.
If you are required to charge sales tax in your location, it’s important to find out if you need a sales tax permit or license. This allows you to legally collect the tax and not get into any trouble.
Getting a Sales Tax Permit
If this is all news to you, you probably need to double-check you have a sales tax permit. You need to legally be allowed to collect sales tax before you actually start charging it, so that means you need to get a sales tax permit. This is also sometimes known as a sales tax license or seller’s permits.
You need to get a sales tax permit in the state where you have nexus. You’ll hear the word “nexus” mentioned a lot when it comes to taxes. Nexus is generally the location where your business has a physical presence.
Some states allow for nexus to be established by economic activity in a state, but that’s more complicated and less likely, so we’ll stick with the physical presence for now.
If your business is in one of the 5 states that don’t charge sales tax, you won’t need a sales tax permit. If it’s one of the other 45 states, you’ll need to follow the steps below.
Hot to Get a Sales Tax Permit
- Gather any identifying information for your photography business, including your employee identification number or EIN, business location, and your social security number.
- Head to the website of the agency that handles taxes in your state.
- Find and select the section of the website titled “Sales and Use Tax,” or something similar.
- Click the link to register your business and follow the steps.
Just like with all the other variations when it comes to taxes, the amount you’ll pay for your permit and the length of time it will take to process depends on where you live.
Once you receive your permit, check to see when it expires. This also varies. Some are good for the entire time you own your business; others expire after a period of time.
Benefits of Registering Your Business and Charging Sales Tax
You may be wondering with all this figuring out of taxes and registering for a sales tax permit if there’s any benefit to running your own photography business.
I have good news for you! Properly registering your business and filing taxes at the end of the year allows you to save some money through the wonderful world of tax deductions.
As a business owner, there are quite a few things you can deduct when it comes to filing your taxes. Just like when it comes to charging sales tax, though, you need to make sure you do everything by the book and keep meticulous records.
Take a look at some of the expenses you can deduct at the end of the year:
- Studio and venue costs
- Training and education costs
- Travel expenses
- Home office deductions
Be sure to seek professional help from an accountant or tax lawyer before you get too deep in this.
You can deduct any equipment you’ll use for more than a year one of two ways: annually through depreciation or a one-time deduction.
Studio and Venue Costs
If you have your studio in a separate space you rent or own, you can deduct the cost of that space, as well as any other costs associated with it such as electricity, phone, internet service, and insurance.
Training and Educational Costs
You may know that you can get education tax credits for post-secondary education, but you can also deduct training that keeps you current in your career. You can include tuition, travel, and lodging in that deduction.
Photographers can deduct travel expenses associated with their work. This includes mileage, a portion of car insurance, auto repairs, and maintenance. Just keep in mind, you can’t usually deduct the whole amount. You need to figure out a percentage amount that actually applies to your business.
Home Office Deductions
If you do your work at home and keep equipment at home, you can deduct a portion of some expenses including rent, mortgage interest, renters or homeowner’s insurance, and utilities.
Get Your Sales Tax on the Right Track
Hopefully, this post has offered some clarification for you not only on whether photographers should charge sales tax but also on some other tax information related to your business as well.
Be sure to seek professional help as necessary and get to know your local tax authority resources well.