Since I am not a tax specialist, I asked Carl York, Tax Specialist with the Kansas Department of Revenue to review this article for me before publication and would like to thank him for sharing his expertise.
How exciting to start selling one’s original artworks … that is, until one starts thinking about taxes!
Amongst our SBDC clients, we count painters, graphic artists, photographers, drone operators, videographers, and art gallery owners. So we are used to thinking about art from the business side, as well, I would like to think, as having an appreciation for the intrinsic value of artworks.
A topic that frequently concerns photographers and artists once they start selling their work, especially once they decide to treat their art as a business, is that of how to handle sales tax: How do I know what products or services I need to charge sales tax on? How do I get set up to collect and remit sales tax? Do I need a sales tax exempt certificate and if so what do I do with it? These questions are a great place to start for understanding sales tax for art-related professionals. The answers, however, are not always perfectly straight forward. Sometimes one needs to go through twists and turns to arrive at the correct answer.
First, let us look at sales tax on sales by artists and photographers.
The following statement is from the Kansas Department of Revenue’s Division of Taxation webpage on sales tax for retailers.
“Kansas imposes a 6.5 percent (effective July 1, 2015) percent state retailers’ sales tax, plus applicable local taxes[i] on the:
- Retail sale, rental or lease of tangible personal property;
- Labor services to install, apply, repair, service, alter, or maintain tangible personal property, and
- Admissions to entertainment, amusement, or recreation places in Kansas.
Cities and counties in Kansas may also levy a local sales tax. Each retailer reports and remits the total of the state and local retailers’ sales tax collected to the Department of Revenue.”
Works of art, photographs, films and the like are generally considered tangible personal property and so all sales (or leasing) of artworks and fees associated with their creation and maintenance are taxable. Therefore, the rule is that artists must charge sales tax on them and remit the sales tax to the Kansas Department of Revenue unless the product or service is specifically exempt (see exemptions below), the purchaser is sales tax exempt[ii], or the purchaser does not take possession of the artwork in the state of Kansas because it is delivered to the purchaser out of state.[iii] (If the purchaser is in-state, but has the item shipped as a gift to someone out of state, the purchaser is the end user and so sales tax is still due.)
To offer examples, the following are taxable sales.[iv]
- 3-D or 2-D artworks (e.g. a piece of pottery, a painting, a printed photograph)
- Images of photography or artwork on CD’s
- DVD’s, videotapes, or films
- Fees to paint a mural on a wall or building
- Sitting fees
- Photo-editing fees
- Videography or film-editing fees.
However, the following types of sales are exempt from sales tax.
- Web-based delivery of digital images (e.g., artwork or greeting cards), photographs, videos, or music
- Fees for accessing a remote database of images or music
- Developing or printing services for another photographer of images that are for resale
That is, even if there are charges for these things, at this time, they are not taxable sales. The artist, photofinisher, gallery or vendor should not collect sales tax on these from customers. (Taxes codes regarding digital or web-based services may change in the future, though. So, this is an area on which to keep an eye.)
The other side of the story is sales tax on purchases for the business.
Photographers and artists do not need to pay sales tax on the following types of purchases that they may make[v]:
- Items that are purchased for resale (e.g., a frame that will go on a painting that an artist is selling). Use a Resale Exemption Certificate.
- Items that are purchased for creating the artwork that become a part of the artwork (e.g., pieces of glass out of which a stained glass panel is made, the paints used in producing a painting, or the paper on which a photograph is printed). Use an Ingredient or Component Part Exemption Certificate.
- Items that are consumed during the process of developing film (e.g., chemicals for developing film). Use an Ingredient or Component Part Exemption Certificate
- Items that become a physical part of a sale (e.g. a CD on which photographic images are stored, a box in which a set of printed note cards is held, or the packing materials used in shipping a painting). Use an Ingredient or Component Part Exemption Certificate.
In order not to pay sales tax on these items, one should present the appropriate sales tax exemption certificate to the seller and pay for the purchase out of a business account, not a personal account.[vi]
There is no requirement that a photographer or artist use sales tax exemption certificates when making purchases– unlike the requirement to collect and remit taxes on sales. However, it makes business sense to reduce unnecessary expenses, especially if one is trying to make a living off one’s art.
Not all business-related purchases are exempt from sales tax, however.[vii] Just like a tradesperson, a photographer or artist does pay sales tax on tools of the trade (e.g., a camera, an easel or a potter’s wheel) and on items that are a just a cost of being in business (e.g., paper for printing invoices and computer equipment). The exception to this is software developed and customized for a single end-user, because for tax purposes, this is not considered to be tangible personal property.
Tax codes can be confusing and are subject to change. Fortunately, there resources for getting information and assistance are available.
References and Useful Links for Further Information
- Information for Photographers from the Kansas Department of Revenue
- Information for Art Galleries and Dealers from the Kansas Department of Revenue
- When in doubt, contact the Kansas Department of Revenue.
- One can register online to set up an account for business taxes and also pay those taxes online.
- Applicable taxes can be looked up by address and zip code
- Information about applying for, using, and accepting sales tax exemption certificates can be found in the booklet Kansas Exemption Certifications available in pdf form online.
- Link to Resale Exemption Certificate
- Information about Ingredient or Component Part Exemptions
- Link to Ingredient or Component Part Exemption Certificate
- Information about sales tax nexuses generally can be found at the Sales Tax Institute
- taxjar.com lets you look up what constitutes a sales nexus according to each state’s tax codes
- Information about compensating use tax in can be found at through the Kansas Department of Revenue Division of Taxation
[i] Sales tax rates are sourced (i.e. determined) on a destination-basis not an origination-basis. That means, for example, that if an artist sells a painting out of her studio in Manhattan to someone who picks it up and takes it home to Lawrence, the artist charges the applicable sales taxes for where her studio is based in Manhattan. However, if the artist sells the painting to the same buyer and delivers the painting to the buyer’s home in Lawrence, she charges the applicable sales for the buyer’s Lawrence address.
[ii] If the purchaser is sales tax exempt, the artist should obtain and keep on file a copy of the purchaser’s sales tax exempt certificate and the purchaser should pay directly using an account of the sales tax exempt entity. For example, if someone is purchasing a painting for the office of a non-profit organization and presents a tax exempt certificate at the time of purchase, that person must pay for the purchase with a credit card or check from the organization and not with a personal credit card or check.
[iii] However, the qualification to this exception is that the other state might require that sales tax be collected if a sales tax nexus has been created. A nexus can be created, for example, by the artist using his or her own vehicle to deliver the artwork across state lines.
[iv] Some artists do not charge for these. If you do not charge for these, there is no sale on which for you to collect and remit tax.
[v] Just to make things more complicated, there may be purchases on which the photographer or artist has not paid sales tax that the state of Kansas nevertheless wants to collect sales tax. This is called a compensating use tax and is due, for example on purchases made over the internet without sales tax.
[vi] This is easy to do if one has set up a studio as an LLC or a separate legal entity. Many artists, however, are DBA’s (i.e., doing- business- as themselves, i.e. there is no separation between them and the business). In this latter case, the artist is the business and may not have separate business accounts. It will, nevertheless, be important to have bookkeeping methods that track business income and expenses.
[vii] They should be tracked, however, for income tax purposes and for understanding one’s costs of being in business.
At the WU Kansas SBDC, we provide advising to help small business owners from a wide array of businesses understand issues of importance for their businesses.
Laurie Pieper, Ph.D.