I’ve gotten a lot of interesting off-list responses on this and have
also asked around locally. I certainly intend on talking to an tax
attorney who specializes in the arts, but I would also like to note
the following.
First, there’s a huge difference between income tax and sales
tax–even in California! My “other business” is doing a kind of
therapy (guided imagery) and, while I of course must declare and pay
income tax on this business, it is not “taxable labor” in the sense
that I must pay sales tax. Neither is any other form of
"professional" labor. If somebody comes to me with a couple of
strands of beads and asks me to string a necklace for her, I am
performing a service and there is no way that the state can claim
that I’m liable for sales tax.
Second, what disturbs me is the idea that, because an artist uses
materials in her work, she is no longer a professional. It disturbed
a lot of local artists too. In fact, the “artist’s town” in which I
live once decided that, in order to participate in Open Studios,
everyone would have to obtain both a town business license and a
resale license. 90% of the artists said they would boycott Open
Studios and the town backed down. I doubt that most artists even
declare private sales, never mind pay sales tax on them. I wonder how
many of the “studio jewelers” on this list pay sales tax on private
sales (no, I don’t expect an answer to that question, it’s
rhetorical).
I don’t do craft shows (and I hope I never have to), so, as I
pointed out, the real issue is “commissions” or “custom” work. What
if the “client” (which is actually, given my other profession, the
term I tend to use) provides part, but not all, of the materials?
What if somebody falls in love with a necklace I’m wearing on line at
the grocery store and wants to buy it off my body? What if I make a
"talisman" for one of my imagery clients, as a “service”? Isn’t sales
tax really designed for “storefronts”–whether permanent or temporary
(e.g. craft shows)?
One of my off-list respondents says he’s studied the California law
very carefully and that you cannot be required to obtain a resale
license. If you do, you are forever bound by their rules and you
become an unpaid state employee for life. Just so that you can buy
wholesale… I’m definitely going to check this out with a
professional, but it makes sense to me.
Lisa, I am not familiar with California’s tax laws but you are trying
to make excuses all over the place in order to explain away your lack
of desire to collect and pay a sales tax. First of all a sales tax
is a tax on sales. That means that if you are selling a product, as a
business, to anyone–via any means, regardless of whether or not you
have a storefront–you need to collect a sales tax from that person
and pay it to the state. The fact of the matter is that even a large
number of services today are obligated to charge sales tax. If you
are declaring your sales to individuals as taxable income on your
federal and state income taxes than you are most likely obligated to
collect and pay the sales tax. Please note that while restringing
something for someone may or may not fall under the taxable laws (for
this you would need to talk to a local tax attorney), creating a new
piece out of someone’s existing metals or properties is almost
certainly taxable. The fact that you are not adding materials is
irrelevant. This would be like me saying when I sell a product out
of my store, well only $100 of it is gold so I only have to charge
sales tax on that part, and not the $500 I am charging over and above
that to create the piece since that is labor and other overhead
costs. The fact that you don’t have a storefront is also irrelevant.
If you are making and selling a product to the general public, you
are in business and obligated to collect appropriate sales taxes. I
am sure you can continue on the way you have been, however, if the
tax people do catch up with you the taxes you were obligated to
collect are going to come out of your own pocket, instead of out of
your customer’s pockets where they should come from.
As an addenda to this conversation, I would like to point out that
we keep a separate money market account that all of our collected
sales taxes, and all accumulated payroll taxes, are deposited into on
a weekly basis until they come due. That way there is never a real
mingling of these monies and there is no temptation to use them to
pay some other bills until they come due.
Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000 @spirersomes www.spirersomes.com
I doubt that most artists even
declare private sales, never mind pay sales tax on them. I
wonder how many of the “studio jewelers” on this list pay sales tax
on private sales (no, I don’t expect an answer to that question,
it’s rhetorical).
Hi Lisa, I don’t have any legal answers to your questions, but I
think that coming at this from a different perspective might help
you understad why this is a non-issue for those of us who do file
state sales taxes. The sales tax, if you reside in a state in which
there is one, is charged for goods and services to the end user.
As such, I don’t pay a dime of sales tax. I charge sales tax on
items sold in-state which the buyer pays (and expects to pay, I might
add). I take that money right off the top and put it into an
interest-bearing savings account. At the end of the year, every dime
I have collected for the state is sitting right there, with a little
bit of interest for my troubles. In Kentucky (my state), we even get
to keep a tiny percentage of that money if we file early. Some
states are now starting to tax professional services (think salon
services, etc.). So even that may not be long exempt. But I have
never had a person balk at me (and I will charge my friends and
relatives if they are in-state) about paying a sales tax. And as
I stated, I have never taken a dime out of my own pocket to pay sales
tax - I simply pass along what the customer pays. Thus, I’m having
a hard time relating to the idea that I’m an “unpaid state employee.”
I actually do get a small compensation when I file early, plus any
interest I’ve collected on the money through the year. I just view
it as one of the things I have to do to be in business legitamately
for myself.
And review your state’s laws and regulations regarding sales tax. I
think you will find that retail sales are (with a few very specific
exceptions) taxable, and that it is the seller’s responsibility to
collect the sales tax. The only exception which may apply in your
case is if you are an occasional seller, defined as one making less
than three sales in a twelve-month period. Fabrication labor and
assembly labor are specifically listed as taxable, because they
result in the creation of a piece of tangible personal property.
Your therapy transactions are not subject to retail sales tax
because you are not, when engaging in guided imagery, selling
tangible personal property. It has nothing to do with the State of
California deeming jewelers to be other than professional.
Whether or not you choose to issue resale certificates to your
suppliers and purchase your materials tax-free is up to you. Your
obligation to collect and pay taxes on retail sales, however, is not
a matter of choice or preference, but rather a legal obligation of
a seller in the State of California. Don’t take my word for it,
though-- check the California government websites, and if you are
still unsure, submit a written inquiry to the Board of Equalization.
Hi Lisa; Just another 2 cents worth. It seems from out here like you
are going to more effort to NOT deal with sales taxes than you would
to just fill out the dang forms and deal with it. I hate it as much
as the next guy. Because I make almost no direct retail sales
locally, my tax burden runs around $25 per quarter, and most of that
is use tax on tools and supplies I purchase by mail, not actual
sales. Another thought is that you are really limiting yourself over
a rather minor annoyance. Perhaps you can stay legal if you are
careful enough of who you sell to. I don’t know CA laws. Logic,
though, tells me that you are either going to have to be very careful
of who you sell to,what you sell, how and where and when…
One slipup puts you into the tax scofflaw category, and eventually it
is likely to catch up with you. Then you still pay the tax, plus
interests and penalties that will greatly exceed the tax, and enjoy
the much closer scrutiny of the taxman. It stinks, but it is
reality. For your own sake, join the rest of us in the real world
on this subject. Jim
I am also in Kentucky. One aspect of this thread that has had only
a few mentions is the issue of “Use Tax”. I have worked in Texas
and Louisiana. and Use Tax is paid in those states also. Use tax is
paid at the same rate as sales tax (6 percent in Kentucky) for all
the materials you buy that are necessary for your work and the
operation of the business, but that are not sold to the customer.
This includes tools, cleaning agents, abrasives, buffs, books, sales
invoices, computer supplies, office supplies, etc. Sales tax is
collected only on the materials used in repair jobs, but must be
listed separately from labor. A piece made new from raw materials,
or a piece that has had a major modification requires that sales tax
be charged on the selling price, which includes labor and materials
as well as mark-up. Re-tipping, re-pronging, re-sizing and
re-setting a stone, etc. require sales tax to be paid only on the
material used if any. The labor must be clearly listed separately as
labor and sales tax is not charged on that. You don’t pay taxes on
materials purchased which are intended for sales unless you use it
for personal use in some way. All this, of course, requires some
carefully maintained records with invoices, etc. It took me quite a
while to come to grips with the Use Tax concept. Use tax must be
paid no matter which state you buy the materials from. If you did
not pay local sales tax when you bought the material then you must
pay the tax as a use tax on your sales/use tax report. However, you
do not collect sales tax on work shipped out of state. You must
have good records of the shipment showing the out of state
destination, the shipper, etc.
Captain Blood
"Marlinespike Seamanship in Precious Metals" @Alden_Glenda_Blood
The assumption that most of us on this list are cheating on
our taxes is disrespectful and demeaning.
I have to agree with Lee Einer on this one. I would comment that my
experience has been that the majority of our colleagues are
professionals, with long term involvements in the gem and jewelry
trade. We collect taxes when appropriate, if and when required by our
state and municipality, or any other applicable government agencies.
There might be some individuals who do not report sales or collect
the transactional taxes, but I certainly wouldn’t assume that their
lack of ethical or honest behavior is in any way reflective of self
employed artists as a group.
I doubt that any of us are entirely happy about paying taxes on the
goods we purchase, but that is part and parcel of doing business,
regardless of on which side of the counter we happen to be. Most
states do require a sales tax on retail sales, and it is one of the
responsibilities of a business owner to report the sales and collect
the tax (and remit it to the proper agency).
In my own defense, I want to say that I am not anti-tax per se.
Sales tax is by it’s very nature a regressive tax. If people who can
afford to own property in California, as well as corporations, were
paying “progressive” taxes, we wouldn’t be in the fiscal mess we’re
in and we wouldn’t need to collect taxes from some woman who’s buying
a pair of earrings to cheer herself up because she just lost her
social service job (courtesy of Enron, etc.).
Lisa, Apples to Oranges. Progressive taxes? How? Many could afford
property (their residence) when they bought. Taxes increase as the
property value increases. Many could not now buy the home they live
in, nor comfortably handle the taxes on the inflated value. How much
more progressive are you suggesting.
Persons paying their fair share of taxes as they legally and morally
should do, puts needed money into the state treasury.
I think this subject has been clearly discussed and is now
exhausted. There is no excuse to evading taxes. It was well pointed
out, it is only passing through your hands. Earrings to cheer up a
person who has lost her job for whatever reason, would make a great
discussion on Dr. Phil. Teresa
Lisa, While I agree with you that sales tax is a regressive tax, that
fact alone does not, in and of itself, mean that you are not
obligated to collect and pay the tax. Most states now use a variety
of sales, income, and property taxes as well as fees to collect the
money that is necessary for your schools to run, your roads to be
paved, your social services to be funded etc. You do have an
obligation as 1) a businessperson and 2) a resident of your state
where someday you may find yourself in need of some services to
collect and pay all the applicable taxes.
Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000 @spirersomes www.spirersomes.com
Lisa, You know I just wanted to leave this alone…Buuuuut I couldn’t
stand this line of crap… You seem to a person that could rationalize
just about anything to fit your outlook…Pay the taxes. all of us in
business pay taxes… I pay property taxes on my house and business
property plus countless others, I paid taxes when I was still looking
for the pot to ____ in just like your customer. You want to put the
burden on those who work hard… gee lets lode them up with some more
taxes so that poor unemployed lady can’t get a job… Sorry for my
outburst… Karel
Hi Lisa. It is beginning to sound like you want to make sales tax
into a social/political issue, which it probably is. The point I
think ther rest of the Orchid community is trying to make is that you
are playing with fire in your attitude toward collecting and paying
in sales taxes, and you attitude toward having a resale number. As
others have said, none of us much likes to pay taxes, especially when
we see how much of that tax $ is squandered. The fact remains,
though, that it is the law. Different states, different laws. But,
it would be in your own best interests to learn exactly what you can
and cannot do, and abide by those rules. There are more effective
ways to make a social statement than getting yourself into legal
trouble and owing a heap of money in back taxes, penalties and
interest. If this is the way you want to operate, so be it. But I
don’t think you will find much sympathy or agreement amongst those
who grit their teeth and live with the rules. Jim
Jenny, I agree with everything you said. It can be hard to stand out
in a field under a temporary shelter and stand up to a pushy customer
who questions my collecting sales tax from them, but I don’t mind.
They owe it to the state, it’s the law, so I collect it.
Besides, if I hid cash sales, how would I ever know how I am doing
in my business? It would be hard to track expenses V.S. income if I
did not accurately record my income! What would you do, keep double
books? Noooo, don’t go there! I like to know how my business is
doing, how this year’s sales are comparing to last year’s, what
percentage of sales I am paying for show expenses, and so on.
Some crafter friends of ours, who for years talked about their big
declared expenses, got audited a couple of years ago. All of a
sudden the advice of their smart accountant to pad their expenses
every way possible in order to get the biggest deductions did not
seem like such a good idea any more. The IRS got them big time, going
back several years, and charging penalties. Their story made me so
glad that I do things right. Besides, I like good roads and schools
in my state! – M’lou Brubaker, Jeweler Goodland, MN