*Disclaimer* I am not an attorney, accountant or tax expert, please consult a professional when making this decision. The below information may not be current, as tax laws change daily.
Alright, so it’s not an elephant, but it’s the closest that’s been in our photo booth, Lloyd the lion, our church’s Sunday school mascot.
I think someone famous said that in life we can be certain of two things, death and taxes. Let’s be honest, this is a topic that separates the professional photo booth companies from the hobbyists. Don’t let this topic paralyze your progress. Learn what is required, become compliant and move on with life.
Does your photo booth business need to charge sales tax? In short, probably. The photo booth business walks a peculiar line between goods and services, as does photography in general. Though we are in the service business, our service also results in goods or products which are photo strips, flash drives, CDs, albums, scrapbooks, etc. So with the exception of the five states that do not charge sales tax (and even that is a misnomer, since there are some local sales tax laws to contend with) you will have to apply sales tax to any photo booth services.
States with no sales tax (Local sales tax laws may apply):
There are two types of states in regards to sales tax; origin-based states, which require you to tax based on the origin of the service (where your business resides) and destination-based states, which require you to charge sales tax based on the destination of the service (where the event is). So again, even if the state you are going to be working in does not apply sale tax, if you are from an origin based state, you must apply the sales tax of your state of origin. Let’s consider an example.
Suppose that you are working out of Virginia. The retail sales tax rate in Virginia is 5.3%. A client from Delaware has hired you for their wedding. Even though Delaware is a state that does not charge sales tax, Virginia is an origin based state, and you will therefore be required to charge your Delaware client the Virginia sales tax of 5.3%. The opposite is true however, if you are based in New York. Because New York is a destination based sales tax state, you must charge the tax rate applicable to Delaware, which in some areas will not apply, and in other areas may be a specific local tax rate. Suffice to say, it will be very important to do your homework.
Origin Based States:
**California’s tax laws are so complex I’m sure there are exceptions.
Destination Based States:
District of Columbia
Here in New York, we do have to remit sales tax to the state. My state like many others, considers a photo strip, USB drive, CD, photo album, etc., a tangible product and therefore sales tax must be collected. It is my understanding that the only way I wouldn’t have to collect sales tax here in New York, is if the product remained completely digital….forever. However, this isn’t a reality for our business, as our customers love the novelty and nostalgia of having the actual photo strips printed, that’s kind of the whole point. We collect sales tax on the deposits we receive, as well as the final payments. New York considers any payments received that lead up to the production or fabrication of a tangible product as taxable. Do some research in your state and check with your accountant or tax expert. Photo booths won’t likely be specifically mentioned in the tax law, but do search for tax law that applies to photographers, because we are a type of photographer. My accountant actually set up our sales tax account at no charge and we are able to make quarterly payments completely online.
If you discover that you are required to collect sales tax, figure it out early! The last thing you want is the tax department auditing your business, discovering that you owe back taxes and late payment penalties. The next question becomes how to structure the tax into your pricing, whether to make it inclusive or exclusive of your price. I don’t believe there is any concrete answer on this. If you decide to make your prices a flat rate, with the tax included, be sure that your prices are high enough to accommodate for the 7-8 percent that will be remitted to the tax department. If you decide to make the sales tax exclusive of the price, be sure that you make it clear to your customers. When you respond to inquiries and are giving price quotes, make sure you include a phrase like “plus sales tax” or “not including sales tax”. You don’t want your customers to be surprised by any “extra” fees. We often use PayPal invoices and they make it really simple to calculate the sales tax and choosing whether to make it inclusive or exclusive. We keep the sales tax payments in our business savings account, that way it is not going to be touched and is ready to send off to the state every quarter.
Do not let this sales tax be a wet blanket on your spirit for your new photo booth business. Learn what is required, become compliant and move on with life.
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