OHIO Sales Tax Issues

[Burke]

1. Is a tax-exempt organization also exempt from sales and use taxes?

2. Photography business: finished product selected by customer is subject to sales tax. However, is the initial sitting session charge also subject to sales tax?

[Koss]

Ohio Sales Tax

1. Is a tax-exempt organization also exempt from sales and use taxes?

If you are talking about an organization that is exempt from federal tax under Section 501, the answer is yes. They probably need an exemption certificate from the state. But I'm not sure. I haven't had to deal with that one in a while.

2. Photography business: finished product selected by customer is subject to sales tax. However, is the initial sitting session charge also subject to sales tax?

I haven't had this one, either. But my answer is NO.

In general, Ohio imposes sales tax on goods--not services. There are a couple of very important, and very esoteric, exceptions, such as landscaping services, housekeeping services, and massage therapy that is not ordered by a doctor. (No, I'm not kidding.)

Photography is not one of those esoteric exceptions.

The sitting session is pure labor by the photographer. Once it is complete, the customer has no obligation to buy anything. The pick out which photos they like, and what sizes. Or they can walk away and buy nothing. And the photographer still gets paid for his services.

Now... if the photographer gives the customer a CD with all the photos on it, even if they don't buy any prints... that might change things. But photographers don't do that. That's proprietary work product. If they do it, they use a watermark on the photos so that the customer can't print them. That kind of CD is not a taxable sale. It's samples.

BMK

[Burke]

In general, Ohio imposes sales tax on goods--not services. There are a couple of very important, and very esoteric, exceptions, such as landscaping services, housekeeping services, and massage therapy that is not ordered by a doctor. (No, I'm not kidding.)

Photography is not one of those esoteric exceptions.

The sitting session is pure labor by the photographer. Once it is complete, the customer has no obligation to buy anything. The pick out which photos they like, and what sizes. Or they can walk away and buy nothing. And the photographer still gets paid for his services.
BMK

Is there a site (or cite) that I can refer the client to on this? Why would they have exceptions?

[Koss]

Ohio Sales Tax

Burke wrote:

Why would they have exceptions?

Because they can.

The Ohio Department of Taxation has a website that provides details on Ohio sales tax. The explanation begins like this:

A taxable sale includes any transaction in which title or possession of tangible personal property or the benefit of certain services is, or will be, transferred or provided for a price. All retail sales are subject to the tax unless they are specifically excepted or exempted in Ohio's sales tax law.[Emphasis supplied]

You can find this quote here:

http://tax.ohio.gov/faqs/Sales/sales_taxability.stm#A01

Then they have a laundry list of services that are subject to sales tax. As I noted above, services that are subject to sales tax in Ohio include janitorial services, landscaping services, snow removal services, health club services...

The list is here:

http://tax.ohio.gov/faqs/Sales/sales_taxability.stm#A03

Photography is not on the list.

But there is another question in the FAQ. It says:

What services are not taxable?

Professional, personal, and insurance transactions are not taxable when any transfer of tangible personal property is a small item for which no separate charge is made.

That implies that the professional services of a photographer, including the sitting session, could be construed as a taxable sale, because it is directly associated with a transaction in which personal property is also sold.

So I'm not sure the state would agree that the sitting session is completely separate from the subsequent sale of the photos.

If the customer has no obligation to buy any photos, and pays a totally separate fee for the sitting session, then I think it is arguably exempt from Ohio sales tax, because they are only paying for a service, and not for any goods.

BMK

[Koss]

Professional Services

The state of Ohio website says:

What services are not taxable?

Professional, personal, and insurance transactions are not taxable when any transfer of tangible personal property is a small item for which no separate charge is made.

This is not the text of the law, but it is an official interpretation or summary of the law, published by the Ohio Department of Taxation.

It appears that the law clearly excludes services provided by an attorney or a tax professional. I think the point here is that an attorney is not expected to charge sales tax on the preparation of a will, even though technically there is a transfer of personal property when the attorney hands the client the finished product.

The same issue arises when I deliver a completed tax return to my client, whether it is in paper form or on a disk. I am transferring a small item of personal property. But that's not what the client paid for. They paid for my services.

With a photographer, the finished product is hard goods. So the photos are definitely taxable.

The issue is whether the labor involved in producing them is also taxable...

BMK

[Koss]

Professional Photography

I checked with an accountant I know who does a lot of tax returns for professional photographers.

It appears that the State of Ohio has taken the position that the "production of still photographs" is a single, continuous process, and that it is subject to sales tax.

So I was mistaken. You can't treat the sitting fee as a nontaxable service.

Here's the citation he sent me:

http://tax.ohio.gov/divisions/legal/rules/final/5703_09/5703_9_33.stm

BMK

[Burke]

Thank you so much for your diligence on this. The client had been receiving different answers and opinions on this subject from every one that was asked. No one seemed to have a handle on it. That is why I went to the expert!! This is a very old ruling, 1976. But I suppose it still stands. Would you interpret it to mean sales tax is necessary on the "sitting fee" which is paid at the time the service is provided, even if no product is subsequently purchased? I don't see how that could be right, and the ruling doesn't seem to address that specifically. Ok, I am grasping at straws.

[Koss]

Sitting Fee

I'm going to try to seek a bit more clarification on this from the guy I know who has a lot of photographers as clients.

BMK

[Burke]

Back when that was written, there was no such thing as digital cameras, CD's, or computers and color printers where you can print your own, etc. When you went to have your photo taken, the session fee charge probably included one "free" 5 X 7, or it seems that is what I remember back in those days. And those sessions for your kid at K-Mart and Sears included a certain set of various prints -- encouraging you to buy more of course -- when you saw how cute the ones were that they weren't giving you. Nowadays photographers want to get paid for their time up front, whether you buy or not, especially when it is on location.

[MRPLOW]

My understanding and what the State of Ohio has told me verbally over the phone is that a photographer that takes pictures but does not handle any of the printing would be exempt.

The example of a wedding photographer that merely takes the pictures for a fee and then delivers the client a CD with the pictures on it would be exempt.

[Koss]

Photography

I agree that the law is outdated. Back then, someone had to develop prints--or at least negatives--in order for the customer to determine which prints they ultimately wanted.

Today, I think some photographers still do not give the customer digital images on disk. They consider that their work product, and the customer has to buy prints. If that is disclosed up front, I think it's okay. But in other contexts, it is clearly understood from the beginning that the final product will be in a digital format. For example, when a photographer shoots photos that will be used as part of a website.

Maybe the law needs to be challenged in court. It certainly needs to be revised by the Ohio legislature. Because according to the tax pro I consulted with, the Ohio Department of Taxation considers the entire sale to be taxable, including the sitting fee, even if the final product is digital and not paper. That would include, for example, a videographer at a wedding, who does not take any stills, where the only tangible, physical product delivered to the customer is a disk.

This interpretation, for me, raises the question of why the "production" of a tax return by an accountant, or the "production" of a will or trust by an attorney, is not a taxable sale. Whether the final product is paper or a disk, I'm not sure I see the difference.

With all that being said, the guy I've been talking to is a CPA who has many clients who are photographers, and his daughter is a professional photographer. He's been doing this for many years. Although I haven't asked this question, my guess is that he has seen a few sales tax audits of photographers. So I think he is correct when he says that the Ohio Department of Taxation considers the entire sale, including the sitting fee, to be taxable.

Whether this is a reasonable interpretation of the law by the state agency is a different matter.

Here's the dialog I had with him by e-mail:

Q: Are professional photography services subject to Ohio sales tax?

What if the guy charges a fee for "sitting" for a portriat, and then charges separate fees for the photos themselves?

Are the photos taxable, while the sitting is just pure nontaxable services?

Or is the whole thing taxable?

Is this an unsettled issue, or a gray area? Facts-and-circumstances specific?

A: They are subject to sales taxes, regardless whether they have a sitting fee or not - if there is a product involved. Weddings are taxable except when the wedding site is out of state.

See http://tax.ohio.gov/divisions/legal/.../5703_9_33.stm Tax rule 5703-9-33 for Ohio Sales Tax.

Q: Is the sitting fee by itself taxable?

Even if the customer ultimately decides not to buy any prints?

If the reason for the picture or setting fee is to provide them with a product, either prints or web related then yes it is taxable. The purpose for the sitting fee is to produce a product. If the customer decides not to buy then technically it could be a non taxable transaction since the ultimate decision was not to buy.

It is similar to someone who pays a deposit for a wedding then cancels the wedding. That deposit is not subject to sales taxes as there was no sale.

Burke--

If you want to talk directly with this guy from Ohio, you can e-mail me, and I'll try to put you in touch with him.

But it's pretty clear to me that in most cases, the entire sale is taxable, at least in the view of the Ohio tax agency.

BMK

[Koss]

Final Product

My understanding and what the State of Ohio has told me verbally over the phone is that a photographer that takes pictures but does not handle any of the printing would be exempt.

The example of a wedding photographer that merely takes the pictures for a fee and then delivers the client a CD with the pictures on it would be exempt.

This just confirms that the law is outdated, and that this may be an unsettled issue, notwithstanding the opinion of an experienced CPA who has years of experience doing returns for photographers.

The citation from the Ohio Department of Taxation website is as follows:

Tax Rules: Final: 5703-9

5703-9-33 Photographers

The production of still photographs or prints, motion pictures, the developing of negatives, or the mounting of transparencies in frames to create slides, for a consideration, are sales. Unless the sale is otherwise exempted by law, the entire charge is subject to the sales tax without any deduction on account of the cost of property sold, cost of materials used, labor or service cost, or any other expense.

Effective: 9-28-76 as TX-15-20

Promulgated under: 5703.14

Prior effective dates: 4-19-60

This is not the text of the Ohio Revised Code. It is a rule established by the Department of Taxation, similar to Treasury Regulations. But even if it was statutory law, the issue remains.

I have zero experience with this issue. But in my view, the entire meaning of this paragraph hinges on how you define the terms prints, motion pictures, negatives, and transparencies.

In 1976, the only way a photographer or videographer could deliver the final product was in a tangible, physical form. Today, while some customers do order prints, others take a disk. And in some cases, the photographer may simply e-mail the photos to the customer. I realize that this is not common when it comes to wedding pictures. Everyone wants prints, in an album, and they want a disk as a backup. But if I hire a professional photographer to take a dozen pictures of my restaurant, he may just e-mail me the photos. I might turn around and e-mail them to a printer, to be used in some sort of print advertising, or for the printing of menus, for example. But I might do nothing more than post the pix on my website. It is entirely possible that the photographer's final product may never exist in anything other than a digital form.

The tax law from 1976, and any associated regulations, simply couldn't countenance this kind of photography.

BMK

[MRPLOW]

I'm still sticking to my opinion and what has been told to me over the phone from the State of Ohio for the situation that I described originally would be exempt.

There are plenty of wedding photographers out there that do not provide an option for prints and only deliver to the client a cd with the photo's on it. These would generally be smaller part time photographers.

By offering an option to purchase prints directly from the photographer, this may change the tax situation of the entire fee, but in the example I gave, no option of purchasing prints is available.

[MRPLOW]

A: They are subject to sales taxes, regardless whether they have a sitting fee or not - if there is a product involved. Weddings are taxable except when the wedding site is out of state.

Note the answer that was given to you states.. "If there is a product involved"