It’s the time of year again, not the most wonderful time, but rather, tax season. One of the most daunting elements of starting a small business like Bennett Creative video production and marketing, and before that Andrew Bennett Photography, has been taxes. Knowing how to make money and do it without the IRS coming after you for something you had no idea about, such as sales tax for photography or video production. This is afterall, a business in which the client receives a tangible product, even if said products are digital.
For photographers and video producers in Texas, understanding sales tax regulations is vital for running a successful and legally compliant business. Taxes are typically the biggest expense for video production and photography companies such as Bennett Creative, which makes understanding sales taxes incredibly important. Sales tax laws can be complex, especially when it comes to services, equipment rentals, and client charges.
In this blog post, we'll deep dive into the intricacies of sales tax in Austin, Texas, exploring whether sales tax applies to equipment and rentals, the differences between photography and video production sales tax on equipment and how to incorporate sales tax into your client charges effectively.
Sales Tax Basics in Texas:
In Texas, sales tax is governed by the Texas Comptroller of Public Accounts. The state imposes a 6.25% sales tax on most goods and some services. However, the total sales tax rate can vary depending on local jurisdictions, with some areas adding additional taxes, such as city or county sales taxes. For instance, in Houston and Dallas, the total sales tax rate is 8.25%, while we lucky Austinites are still sitting at 6.25%.
Sales Tax on Services, Charge for Photo, not Video Production:
Photography is generally subject to sales tax in Texas. Whether you're capturing weddings, events, or commercial projects, you're required to collect sales tax from your clients for the services rendered. However, it's essential to note that certain exemptions may apply. For example, if you're hired to provide purely educational or documentary services without any tangible products, your services might be exempt from sales tax.
Commercial video production services don't require sales tax in Austin. Texas generally considers video production services to be taxable if they result in the creation of a tangible product, such as DVDs or digital copies. However, if the video production service is solely for broadcast or transmission (television commercials or live streaming), it is exempt from sales tax.
It's important to note that tax laws and regulations can change, so it's recommended to check with the Texas Comptroller of Public Accounts or consult with a tax professional for the most up-to-date and accurate information regarding sales tax obligations for video production services in Texas.
Sales Tax on Equipment and Equipment Rentals:
When it comes to equipment used in a photography and video production, Texas imposes sales tax on purchases. There is a loophole for video producers, which we’ll get into in a bit. For photographers or videographers doing weddings, projects for social media or recordings not sold to the public, cameras, lenses, lighting equipment, and other gear are all subject to sales tax when bought new. Additionally, equipment rentals are also typically subject to sales tax, although the specific tax treatment may vary depending on the rental provider and the terms of the rental agreement.
It is not uncommon for photographers and video producers to often rely on equipment rentals to meet the diverse needs of their projects. Whether it's a high-end camera, specialized lenses, or lighting gear, renting equipment can be a cost-effective solution. In Texas, the rental of equipment for photography and videography purposes is generally subject to sales tax.
It's important to note that some rental companies may include sales tax in their rental rates, while others may add it as a separate charge. Before finalizing a rental agreement, it's advisable to clarify the tax implications with the rental provider to avoid any surprises or misunderstandings.
Sales Tax Exemption for Video Producers, Hooray!
According to the Texas Film Commission, Under Texas law, a producer or production company may claim a sales or use tax exemption on items or services necessary to and used or consumed directly during the production of a project intended for commercial distribution such as a feature film, commercial, television project, or recording of live performances. Sales and use tax exemptions are not eligible for productions not sold to the public, such as wedding videos and videos shown on social media, or video games.
To get into the specifics of what is exempt and what is not, the Texas Comptroller goes into more detail outlining what Master Recordings and Live Program Broadcasts are and explains what items and services producers can buy tax free when producing these types of productions.
Before purchasing items for a video production project in Texas, make sure you fill out a Sales Tax Exemption Certificate. When paying for goods or services, the production company needs to provide the vendor with the certificate. The vendor doesn’t have to accept the certificate, but if they do, you won’t have to pay the sales tax. Items to which a video production company can use the certificate must meet the certain criteria:
1. The item is a component part of a master recording or live program broadcast
2. The item or service is necessary to and used or consumed directly in or during the production of a master recording or live program broadcast.
This includes cameras, film, film developing chemicals, lights, props, sets, teleprompters, microphones, digital equipment, special effects equipment and supplies and audio or video routing switchers in a studio. New or rented. This does not include office supplies, food and beverage, security services, parking, ect. The items must be used directly in the production of the video.
Charging Clients to Cover Sales Tax:
Most photographers in Austin don’t charge sales tax, but they absolutely should. When determining how to handle sales tax with your clients, it's essential to factor it into your pricing strategy. As a service provider, you have the flexibility to either include sales tax in your service fees or itemize it as a separate charge on your invoices. Here are two common approaches:
Inclusive Pricing:
With this approach, you incorporate the sales tax into your service fees, presenting clients with a single total price. For example, if your standard photography package is priced at $1,000 and the applicable sales tax rate is 6.25%, you would adjust your fee to $1,062.50 to cover both your service fee and the sales tax.
Separate Sales Tax Line Item:
Alternatively, you can choose to itemize sales tax as a separate line item on your invoices. This transparent approach allows clients to see exactly how much of their payment goes towards sales tax. Using the same example as above, you would charge $1,000 for your photography package and add a separate line item for sales tax, totaling $62.50.
Regardless of the approach you choose, clear communication with your clients is key. Be upfront about your pricing structure and ensure that clients understand how sales tax is incorporated into their total costs. This blog post by Maddie Ray on charging to include sales tax and navigating Texas taxes in photography has been helpful for Andrew when shooting at Bennett Creative.
Sales Tax Collection and Reporting:
As a photographer or video producer in Texas, it's your responsibility to collect sales tax from your clients and remit it to the appropriate tax authorities. To do this, you'll need to obtain a Sales and Use Tax Permit from the Texas Comptroller of Public Accounts. Once you have your permit, you'll collect sales tax from your clients at the time of sale and report and remit the tax to the state on a regular basis, typically quarterly.
Maintaining detailed records of your sales transactions, including invoices, receipts, and tax documentation, is essential for accurate reporting and compliance with state regulations. Failure to collect or remit sales tax properly can result in penalties and fines, so it's crucial to stay organized and diligent in your tax obligations. All of this can be incredibly stressful to keep up with and hiring someone to help keep track of it is a great option.
More Time to Create.
Navigating sales tax regulations as a photographer or video producer in Austin, Texas requires careful consideration and adherence to state laws. Bennett Creative has been navigating Texas taxes for photography and video production for years and has found that by understanding when and how sales tax applies to your services and equipment rentals, as well as how to incorporate it into your client charges effectively, you can ensure compliance while protecting your business's financial integrity.
As creatives, we want to focus on our craft and generating more work. Taxes can feel like such a headache and stressor, but figuring out a system to manage the tax work leaves us with more time to focus on creating and growing our businesses. With the right knowledge and proactive approach to sales tax management, you can focus on delivering exceptional photography and video production services to your clients with confidence and peace of mind.