Nifty Knowledge Rocks

Photography business owners often get tripped up on how sales and use tax applies to entity exemptions. These exemptions are in situations where the transaction is exempt because of whom the sale is being made to, such as sales made to churches or non-profit organizations, or even to the government. Chances are that at some point you will have an “exempt entity” as a client.

This can be a tricky area because you may have a client telling you they are not subject to sales taxes and you need to confirm that to be true in order to protect your butt. Just because they are called an “Exempt Entity” doesn’t mean that they are exempt from sales and use taxes.  The key is, the purchase must be a qualifying purchase. What this means is that just because you are selling your services or items to a church, doesn’t necessarily mean that the transaction should be tax free. Again, this all depends on state law and will vary, but let’s dive in a bit deeper.

Non-profits and Religious Organizations

These types of entities will be the type that most photographers do business with. And whether or no sales to these organizations are exempt will vary from state to state, as noted. But all states will have some information available on their website, or through their taxpayer service center to answer questions as to whether or not your sales of photography services or goods should be subject to sales tax. For example, in California even though many non-profit and religious organizations are exempt from federal and state income tax, there is no similar broad exemption from California sales and use tax.

In many states if the organization meets certain qualifications, some of their purchases may be exempt from sales and use tax. These are usually purchases that will be donated or sold to help those in need such as clothing or personal need items. But sales tax would apply to items that these types of non-profits use, such as office supplies or equipment. For this reason, in most states there is generally no “special law” that would exclude a non-profit or religious organization from paying sales tax on the types of photography services generally provided by photographers.

The exemption that you might experience with these organizations is a “Sale for Resale” which will be discussed in more detail in a future blog post. 

Government Entities

No sales and use tax applies to sales made to the United States Government. Also know that the federal government is not required to present you with an exemption certificate proving they are exempt from tax. If you make a sale to the United States Government, definitely make sure that you retain adequate records and documentation to show that the sale was to the government. This could be a copy of the government check.

Sales and use tax does apply to many of the state and local governments. Again, this varies by state, but generally sales and use tax will apply. There may be some special exemptions for specific state and local government agencies, but again you should research this with your state to find out more information about these types of exempt entities.

I hear this question asked time and time again by both new photography business owners and existing owners doing business in new locations – when do I get a sales tax permit?

Starting Your Photography Business

If you are just starting your photography business, then you should get a sales tax permit for the location in which your business is located. For most people this is the location of their studio, or possibly their home. Depending on where you live this may just be a state level sales tax permit, or it could be a county and city sales tax permit as well. You are going to need a sales tax permit as soon as you start your business. This is because you may be purchasing some items that you will be using in your business tax-free over the internet, and you will possibly, depending on your state law, need to pay a use tax for those items you are consuming your business. Additionally, you need to be ready to collect sales tax from your customers when that time comes and hopefully it will come sooner rather than later. Don’t delay!

Photographers Doing Business in New States

For those photographers that already have a photography business, and who are already registered to collect sales in the location of their photography business, you may be asking this question for a different reason. Some of you may have discovered (perhaps from this blog post on Nexus or this podcast on Nexus and other sales tax pitfalls) that you are obligated to collect sales tax in other jurisdictions, in addition to the state in which your business is located. And this is because you may be a photographer who travels to other states to photograph, and has clients that reside in those other states. These activities have availed you to the obligation to collect sales tax from your customers in these states or even local jurisdictions on behalf of the the authorities in these other locations.

If this is your situation, tread cautiously. Don’t just go out and register in every state that surrounds you, because you will then have to file a zero tax return in all of those states on a quarterly, and possibly monthly basis. You don’t want to deal with that administrative hassle if you don’t have to. If you are about to have a client that resides in another state, contact that state’s Sales Tax Commission, Department of Revenue, or other similar named department that handles sales tax. Ask them if this will avail you to the duty to collect sales tax in their location. Explain to them the specifics of the transaction, and your activities as a business as it pertains to their state. The reason you need to do this is because every jurisdiction has different requirements as to what threshold you need to cross to be obligated to collect sales tax. In some states, just that ONE time of photographing a client in that state, and having a client in that state will create this obligation. In other states, it may take THREE occurrences of this situation to create the obligation.

If you find out that you have the obligation, then make sure to register with that jurisdiction to collect and remit sales tax. Basically you do not want to register until the obligation exists. But you also don’t want to wait to register until after that obligation exists because if you have failed to collect sales tax from your client, you generally have to pay it out of your own pocket to make things right. And paying it late means also paying penalties and interest, which makes the liability more than it needs to be.

I hope this information helps. I know it is quite general and that is because sales and use tax laws vary from state to state, and even from one local jurisdiction to the next. Just remember that many states and local jurisdictions try and provide resources to assist small business owners in understanding the particular requirements of doing business in that location. Use Google and look for those resources!