When working with students or people just starting an art business, I ask the question of how many of them have made a sale. Usually several hands are raised. I then ask them how many of them have a sales tax license and the number of raised hands is usually less. Just like any business, your art or creative business has to be in compliance with your local and state taxing authorities.
Sales and use tax compliance may get complicated especially if you sell your products or services outside of your local area. Many taxing jurisdictions require you to collect taxes on the sales of products and/or services. To make matters more complicated many taxing authorities want to tax the sales you make on the Internet as well. One thing is for certain: as local and state authorities struggle to balance their budgets and pay for services they are going to be looking for additional sources of revenue including the sales tax on your art or creative business.
The basic premise behind sales taxes is that you don’t pay sales taxes; you collect them from your customers and remit the proceeds to the taxing authority(s). There are many types of taxing authorities such as states, counties, cities as well as a whole host of special districts and taxes. Take a look at a sales receipt from your local area to give you an idea of the various taxing authorities in your area – you might be surprised!
There are also differences between sales taxing authorities on what they consider to be subject to sales tax. They may tax the sales of products including art, photographs, sculptures, crafts or other tangible items. Many taxing authorities also services such as legal and accounting to cleaning. If you provide a service in your art business such as consultation or installation these may be subject to sales tax. There are also many taxing authorities that tax both products and services. To make matters a little more complex some taxing authorities may exempt certain products or services from being taxable. In some states the sales of digital content and software is not taxable.
The challenge to figure out what sales taxes you should be collecting may seem like a daunting task but it is really not that bad and once you get the hang of it. First, you are going to need good sales records and have an adequate accounting system or use the services of a bookkeeper or accountant. Next you apply for a sales tax license from the taxing authority(s). In many instances the state may act as a clearing house for other taxing authorities but may also have to obtain a sales tax license from other taxing authorities.
Then on a periodic basis (usually monthly) you file a report to the taxing authorities and remit them the taxes you have collected. Most taxing authorities allow you to keep a small percentage of the taxes you have collected as a payment your efforts – you are now a tax collector!
Some things to consider in determining your requirements to collect sales taxes:
- Whether you sell products, services or both.
- The state, city, county or special district you are located in.
- Whether the sale is made in your state, city, county, special district or on the Internet.
- Whether the sale is made outside of your state, city, county, special district or on the Internet.
- If you have a part time art business and sell your products at festivals or fairs then you may not be required to have a sales tax license by using the festival or fair’s license. Check with the festival or fair.
- Contact your state’s department of revenue for the regulations and forms necessary to get a sales tax license.
- Discuss your requirements to collect sales taxes with your accountant. They can help you apply for the licenses you will need and make sure that you are in compliance.
The bottom line(s)…
Changes are constantly being made to the sales tax laws in many states, counties or special districts. It’s up to you to keep up with the changes that affect you or have an advisor who will do that for you. If you don’t collect the required sales tax from your customers it may be embarrassing to go back to them to collect it or expensive for you if you have to pay it yourself. You need to make sure that you are in compliance with the laws and avoid problems so that you can concentrate on what you do best – making art!
As with any article of this type I am not giving you legal or accounting advice. I expect you to seek competent legal and/or accounting advice and follow it.
If you would like to learn more about preparing your own business plan, building your art business and selling more art I invite you to check out my book – The Artist’s Business and Marketing ToolBox. Good Luck!
Neil McKenzie is the author of The Artist’s Business and Marketing ToolBox – How to Start, Run and Market a Successful Arts or Creative Business available in softcover from Barnes & Noble and Amazon and as an eBook from iTunes, Amazon and Barnes & Noble. He has developed and teaches the course “Artrepreneurship” at the Center for Innovation at Metropolitan State University of Denver, and is also a visiting professor at University College at the University of Denver where he teaches “Marketing the Arts”.
Neil has over 30 years’ experience as a management consultant and marketing executive, working with some of the world’s top brands. Neil is a frequent lecturer to artists and arts organizations, a guest columnist for Colorado Biz Magazine, where he covers the creative sector of the economy, and the author of several articles for Americans for the Arts, a national arts organization. Follow Neil on Twitter: @neilmckenzphoto