NOTICE: As of November 2011, this entire commentary is no longer relevant, as Indiana has finally updated this long-outdated bulletin. Among many other things, it does specify that wedding labor would be untaxed as long as it is itemized apart from tangible goods, unless they are less than 10% of the package. I have kept this post intact for "historical" reasons. You can view the updated bulletin here.
The wonderful miss Jessika Feltz and I have been discussing over the past day the issue with sales tax on labor in the great state of Indiana. And our findings are surprising (at least to us non-tax-experts). In particular I will be referencing this document. Now before I begin my discussion, I want to say that from my research, several states have simliar laws. If you're new to the industry and aren't collecting service tax, please call your state to verify the laws for your state. This conversation pertains to Indiana.
Here's the bottom line: The state of Indiana knows you are doing wedding photography to create a final, tangible product, be it a CD, some prints, or most likely an Album. They consider the labor as a requisite part of the final product. The end.
A photographer sells photographic images and other related items. A photographer may also render services such as developing, retouching, and tinting. These sales and services are subject to sales and use tax, and the photographer is responsible for collecting the tax from the customer.
Here's what that means: You need to be keeping books and collecting sales tax on just about everything. If you get audited, you will owe for everything you've ever done. What this also means is that if you haven't taken the steps to incorporate your business, you can be held personally accountable for these losses. Having an LLC protects you personally from these issues.
Now, this is where things start to get interesting. There are a few exceptions... and even a couple of those would appear open to interpretation, but good luck getting the state to side with you.
1. According to "Sales Tax Application To Photography" as referenced above, sitting fees for portrait sessions are not taxable, assuming the product and sitting fee are itemized. And while weddings are not specifically mentioned here, it appears that the state interprets weddings differently and there's no way around it. Yes, we don't really understand, but we're hearing that top-tier wedding photographers have been audited and held to this.
2. Whatever is done out of state is exempt. If you shoot a wedding in Illinois, and ship the tangible goods to Illinois, then the client is responsible for claiming the use tax on those.
Many photographers, including myself, were not aware of the extent of this. I will be going back and paying the back taxes from my weddings for 2010 out of my pocket. I will go forward with all weddings after January 1st, 2011 and apply 7% tax to my wedding package. I love what I do, and the last thing I want is to be audited in 5 years and be hit for 7% of ALL my wedding sales for six years. That would shut me down.
I will now take this time to make this plea to beginning photographers. If you want to be subject to the wonderful world of being an amateur and you hate keeping records, paying taxes, collecting taxes, etc... stay an amateur. Don't start charging for weddings and call your self a professional. It requires A LOT of planning and work. You need to be filling out a Schedule C during tax season. You need to register your business with the State. You need a resale license. You need to have studio management software and be fluent with basic accounting and the subsequent software. Please do not take it lightly.
If you have any questions and would like to discuss anything with me, message me personally on Facebook, or send an e-mail to email@example.com