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.
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.