Subject: RE: illustration: sales tax, specifically Calif.
A snippet from Mark's response:
"I don't, and I don't want one. Keeping in mind, this varies GREATLY based on the way you market your work"
Yes! DO check out the requirements for your state (and city or county). They are vastly different. If you can find your state's official Web site, you can probably get some basic sales tax license information.
In California, although your Seller's Permit does allow you to purchase materials at wholesale (and without paying sales tax), the biggest concern for illustrators or designers is that on many projects you are REQUIRED to *collect* sales tax from your clients. Right now, if I create an illustration for a magazine published in CA and even if that magazine is only purchasing reproduction rights to the illustration and not the original artwork, I must collect sales tax on the fee I charge. If I do an illustration for a magazine published in another state I don't have to collect tax.
Interestingly (and unfairly), the writer who wrote the article I am illustrating does not have to collect sales tax on the fee she charges the magazine, even though she, too, is only selling usage rights. To further muddy the waters, if I were to transmit the same illustration to the magazine via modem, I wouldn't have to collect sale tax.
For those of you in CA who might be interested in an attempt to rectify this unequal and mystifying treatment, visit http://www.sen.ca.gov/ for information on SB 331, a measure authored by Senator Wright. The Graphic Artists Guild is behind this bill and can really use the help of California artists and designers in encouraging their representatives' support of the bill. Check out the Northern CA chapter's Web site for more information http://www.gag.org/sanfran
And Stephanie Ann, get yourself over to the SBOE to find out about getting your permit! You can probably get some info at the California home page at http://www.state.ca.us/s/
There's evidently no statute of limitations if the SBOE decides a permitless businessperson should have been collecting sales tax but hasn't done so, according to a CPA for creatives who spoke to a group of illustrators in the Sacramento area a few years ago. If you DO have your Seller's Permit but mess up somehow in your collections, they can only go back four years. That makes a BIG difference when you consider the penalties and interest that may be involved.
Nancy, who dutifully collects and remits to the State all appropriate sales tax
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Date: Tue, 16 Mar 99 20:27:07 -0500
From: Mark Cable
Subject: Re: illustration: sales tax & income tax
"This is interesting, because here in NY, services are taxed."
Really? How about Advertising? I recall a situation in Florida several years ago where the state tried to tax ad services, and there was a huge stink. The state backed down. Remember, we're talking about SALES tax, not normal business taxes.
"Also, what do you about claiming your income tax? Don't you have to pay state and federal taxes?"
Yes, but that's a whole different situation.
"What determines if illustration is taxable? Should we all have a sales tax licenses?"
No, it depends on the type of work you do. My work is about 80% advertising and 20% publishing. None of that is subject to sales tax in Kentucky. If I sold paintings at art fairs, for example, my work would be taxable. If I sold an original illustration to an agency so they could keep it, that would be taxable, but since I work digitally that's irrelevant anymore.
"If any ONE company pays you $600 or more in a year then that company must file a 1099 with the Federal government saying that they paid you $600+."
Lainey's right, the trigger for whither you're a reportable business is the old 1099. The feds pass this info along to state and local revenue departments, which is how the everyone in the food chain finds out.
I hate all this crap, but that's why I have a rep and an accountant to handle it. Hey, if I liked numbers and rules, I wouldn't have been an artist, right?
- -mark
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Date: Wed, 17 Mar 1999 11:22:24 -0500
From: "Ali"
Subject: Re: illustration: taxes and stuff...
I've read all the posts regarding the taxes, and I have to admit, there is still a lot I'm not too sure about. For anyone else living in NY state, here is a site that may help:
http://www.tax.state.ny.us/
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Date: Wed, 17 Mar 1999 13:38:11 -0500
From: Claudia Sargent
Subject: illustration: sales tax
Tom said:
"I don't know anything about american tax laws but I have read of another person in the GAG who was caught out by this law. They were no longer entitled to their art back and they were taxed heavily for the trouble that they took. Ask Claudia. She probably recalls it or can find it or can offer advice on finding the story on the GAG site. It was not resolved in the sense that the artist was able to clear up a misunderstanding. I hope I have got my fact's right."
I think this was a question about the sale of an original piece, rather than a transfer of rights. If I remember correctly, the artist had sold (?) the original art to the client and was querying about sales tax, and Daniel Abraham posted a rather long answer about it. I'm pretty sure it was some time in January, so the thing to do would be to search the Jan. posts, if you were interested.
The Guild has guidelines re: NYS sales tax from the state. I'm not sure if it's on the website, though. General rule of thumb for NYS is-- the sale of rights does not incur state & local sales tax, but the sale of original art
does. I'm not sure if there are similar guidelines available for the other states, with the exception of California-- which is a WHOLE 'nother ball of wax. There's a very long post re: the CA sales tax situation on the I-spot, under the What's Up topic in Art Talk.
Peace & joy,
Claudia
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Date: Wed, 17 Mar 1999 21:43:27 EST
From: Kjatt@aol.com
Subject: Re: illustration: taxes: whoa-what???
In a message dated 3/18/99 1:55:53 AM, pthth@ibm.net writes:
"I am getting really confused here with all this tax stuff. Was this cartoonist not paying taxes on her income as a cartoonist, or is this a different tax? I thought all we had to do was add up all the money we made, gather our receipts for deductions and that is that. (?) This probably sounds really really dumb, but wouldn't the sales tax you charge someone be...what you pay your income tax with....?"
Trying to make this as simple as possible. If you make money, technically you have to file federal income tax forms. If you LOSE money you have to file federal income tax money. If you are involved in any kind of attempt to make money, you have to file federal income tax forms. That goes for the 14 year old babysitter that made $60 for the whole year or the CEO of a multiconglomerate whose salary was in the 8 figure range. If you are in business for yourself (illustrating and writing for this crowd) you have to file federal income tax forms. Period. Obviously the IRS is not going to go after a babysitter, but again, technically she should file.
The biggest concern here is STATE taxes. IN every state, I am certain, you must register your business with the STATE. What that entails from state to state will vary some. Contact your STATE EXCISE DEPT. Even if you are in a business that doesn't collect and pay SALES TAX, or if you live in a state that has no SALES TAX, there are other taxes, as a money making entity that you could (probably) owe. In my state I have to pay a BUSINESS & OCCUPATION TAX on my SERVICES. It is less than .17 per $10.00, but it still has to be paid. When and if I sell things WHOLESALE I have to pay less than .05 per $10.00. And if I sell things RETAIL I have to collect from my client the appropriate sales tax and pay the state on a quarterly basis what I have collected. Just to make things more complicated, you might also have to file with your city or county.
I said it before, I'll say it again . . . .If you are in business for yourself as an illustrator, writer or spatula maker, contact your states excise department and find out what your responsibilties are.
- -Kevan (No, I don't work for the state)
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Date: Tue, 16 Mar 1999 16:41:10 -0700
From: Elaine Garvin
Subject: illustration: Federal & State Tax payable
A business license gives you permission to do business in the state in which you are domiciled. It doesn't have anything to do with the tax ID #.
The tax I.D. number doesn't have anything to do with the amount of Federal or State income taxes you pay. If any ONE company pays you $600 or more in a year then that company must file a 1099 with the Federal government saying that they paid you $600+. You receive your copy of that 1099 to include with any other forms showing income (like W2s). If you don't claim that money you earned where you received a 1099 then eventually the feds will get you.
A tax I.D. number is ONLY for collecting sales tax in the state or county (or city ?) in which you live for products (or services) sold for which you collected SALES TAX which you must pay to the city/county/or state government (I can't remember it's been a lot of years since I collected sales tax! ...and that was in NYS). This tax I.D. # allows you to buy your supplies tax free. Any more info on the tax I.D # will need to come from Kevan or Lula or anyone else who sells directly to the public and collects sales tax.
Hope this clears up some of the confusion.
Lainey
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RHODA GROSSMAN'S STORY
Date: Tue, 16 Mar 1999 14:22:12 -0800
From: Chad Greene
Subject: Re: illustration: sales tax
i think this is the person tom was referring to: her name is rhoda grossman
here is her story of her dealings with the IRS (pretty scary!) she did a great job of telling her story and even illustrated it! the story can be read here:
http://www.digitalpainting.com/Pages/AAARGH.html
Rhoda's Tax fight
As "Rhoda Draws A Crowd" I have been entertaining at birthdays, bar mitzvahs and conventions for 25 years. I create a likeness of my subject in about three minutes while crowds gather to watch my "victims" squirm, marvel at my drawing speed and enjoy my wisecracks. I am paid by the hour, and sketches are available free of charge to guests who may wish to keep them.
Providers of services are exempt from sales tax, and when the primary purpose of a transaction is a service such as entertainment, there is no tax liability even if some tangible personal property is transferred. This is clearly stated in Regulation 150l. An annotation to this regulation specifically denies protection to party caricaturists.
This is an arbitrary and illogical exclusion and just one example of how sales taxes are used to burden artists unfairly.
If I lose my case all the party caricaturists in California might as well move to Arizona. Party planners will be considered wholesalers by the board and will have to get resale permits. Clowns who "manufacture" balloon animals at parties will probably be the next target.
Fighting this bureaucracy's outrageous abuse of power is very costly and time consuming. I urge Californians and others who believe in allowing creative people the opportunity to carve out a non-corporate niche for themselves to get involved:
Send money to my legal defense fund, "AAARGH" (Artists Against Arbitrary Regulations and Government Harassment). Contributors of $35 or more will get a t-shirt which says: I WENT TO A TAX AUDIT AND ALL I GOT TO KEEP WAS THIS %!*# T-SHIRT! Send to Rhoda Grossman, 216 4th Street, Sausalito CA 94965. Include your size: M, L, XL, XXL
Check out The Brad Sherman Gallery, a collection of biting and hilarious drawings by nationally syndicated cartoonists. Mr. Sherman is the BOE member most unsympathetic to artists, and these cartoons were designed to undermine his bid for a Congressional seat.
Update
On November 20, 1996 my appeal was heard (and seen) by 4 members of the board. My best evidence was a video-tape showing me in action at a Bar Mitzvah, demonstrating at MacWorld, and on a TV talk-show about party entertainers.
Yes, I wore an AAARGH t-shirt, and I did a little "courtroom" sketching while I waited two hours for my 15-minute shot at Truth, Justice and the American Way. Notably absent was Brad Sherman, who had won his
ticket to Congress.
When the Board members voted, they were deadlocked. The deciding vote was cast later by (who else?) BRAD SHERMAN, who didn't even see my video. Daryl Cagle's National Cartoonists Society Art Tax Page has the full transcript of my hearing and other horror stories.
Meanwhile, back in the BOE collections Department, demands for payment go into high gear. There was no way I could manage to pay even the interest on $30,000. So, I told them they were forcing me into bankruptcy. Did I mention that bankruptcy does not discharge tax debts (even bogus ones)? Before I was able to file bankruptcy papers, the BOE emptied my bank accounts, including the AAARGH account with gifts and donations for my legal defense fund. They even siezed my IRA retirement account, which is supposed to be protected from levy action! And the Bank of America charged me a penalty for early withdrawal! My checks started bouncing, of course. I was in danger of losing my health insurance....and my sense of humor. Fortunately I was able to find a United Way agency to pay my bills for two months. Yes, "Most Talented Girl" in my High School graduating class goes on welfare...what a system!.
Update #2
Well, it turns out that the BOE discriminates against all graphic artists routinely...It's the law! The Graphic Artists Guild (GAG) is now working to see a bill through the California legislature (SB#664 sponsored by Sen. Cathie Wright) which would eliminate the following absurdities that currently exist:
Payment for rights to reproduce a written manuscript or music are NOT taxed. Payment for rights to reproduce a photograph or an illustration IS taxed. Writers' royalties are NOT taxed, artists' royalties ARE taxed. Architectural drawings are NOT taxed. Graphic design and other art services ARE taxed UNLESS it has to do with the motion picture industry.
GAG has made a point to include language in the bill that would protect entertainment artists as well (the "Grossman ammendment" I like to call it).
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Date: Wed, 17 Mar 1999 11:22:24 -0500
From: "Ali"
Subject: Re: illustration: taxes and stuff...
I went to Rhoda's site, and her case was heard again IN HER FAVOR..
:) Hooray!
- -Ali
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