We had Roger Tew gave the chapter a presentation on sales and use tax responsibilities for photographers last November. He is a former utah state tax commissioner and has generously provided us with a memo clarifing several common questions about the self audit.
MEMORANDUM
To:Stephen Pace
From: Roger O. Tew, Attorney-at-Law
Re:Photographer Self-Audit issues
Date:April 1, 2009
____________________________________________________________________
I have been forwarded several questions from members of your association regarding the current sales tax self-audit program from the Utah State Tax Commission. The following are responses to some of these questions.
First, a number of questions dealt with issues of why tax laws are currently applied to photographers in a specific manner. In responding to these questions it is important to distinguish between matters that are questions for the Utah State Legislature rather than the Utah State Tax Commission. The Commission’s responsibility is to generally apply the policies enacted by the Legislature.
Legislation Based Issues
For example, some people have asked why in photographic equipment is not considered as exempt like similar equipment used by manufacturers. The simple answer is that the legislature has exempted for nearly 30 years machinery that is used in the manufacturing process by a manufacturer. A “manufacturer” is defined as a business that is classified by the federal government as being described in SIC Code numbers 2000-3999. In most cases this classification will not apply to photographers. It will likely include large printing and copying operations however.
A related issue involves separating the creative or service process from the product development process. The objective being that the service component would not be taxable. The separation of a creative or service aspect from production is a bit problematic when the result is the creation of a tangible personal product that is clearly taxable. For example, there is a creative aspect to the production of furniture, etc as well but it would be difficult to argue for the tax exemption of some aspect of the price.
The simple answer to this question is that for over 40 years the Tax Commission has had in place a rule that clearly indicates that photographs are taxable including the production costs that go into the development of a photograph. Although aspects of the industry may have changed in that time it would require a legislative change to exempt the creative aspect of photography from taxation.
Resale
Photographers, like any other business, may buy products that they put into their inventory on a tax exempt basis. These would include such items as CD’s, frames, etc. When these items are sold to a final consumer then the appropriate sales tax is collected. The critical issue is doing the paperwork. The wholesaler who sells you the products will require an exemption certificate from you indicating that the purchase is for inventory. Likewise, if you sell something to a purchaser who claims it is for resale then you are obligated to collect and maintain the same paperwork showing that this was a resale transaction. It is possible in fact for there to be multiple resale transactions. However, every one of them must be accompanied by the appropriate exemption certificate. The individual who does not have the exemption certificate is the one responsible for the collection of the tax. Hopefully that is the sale to final consumer.
Penalty and Interest
It is not the responsibility of the Tax Commission to notify you of your sales tax liabilities. The law assumes that when you went into business that you understood and accepted the responsibility to properly collect and remit sales tax on your purchases and sales. Included in this responsibility is that you may be periodically audited. The purpose of the self-audit program is to accomplish this periodic audit without the hassle of on-site auditors going through your books, etc. It operates on the assumption that most people want to pay their taxes and when instructed on how to do so will pay the correct amount.
It is my understanding that the Tax Commission is not imposing penalties on liabilities arising out of these self-audits – although if you refuse to comply with the self-audit then penalties are a possibility. However, interest obligations are imposed on the basis of time value of money. Interest amounts are rarely waived.
