First and foremost, when dealing with the subject of state sales tax, we must acknowledge that the principles of this topic vary from state to state. Now that we've put that out in the open, let's get to the heart of the matter: does a real estate photographer charge sales tax to her/his clients?
Let's begin with the tax itself: it's a tax administered to the end-user for purchasing a good, collected by the party making the sale. The business doesn't make money on the deal, in fact, state sales tax can deter people from purchasing large-priced items.
The Sale of a Good vs Providing a Service:
The whole reason we're even talking about whether or not to charge sales tax is because there's a significant amount of grey area involving what we as photographers provide: do we provide a good or a service? See, goods are subject to state sales tax. Goods are tangible, touchable, purchasable things. You walk into the store, buy a good, and you walk out with it. Services are labor, time, and above all, intangible. This is the crux of the matter - in the digital age, we don't have to create tangible goods to make a living.
Let's go back a few years, to a time when our medium for capturing light was film. In those days, there was no point in taking pictures unless you had the intention of selling them. Quite frankly, you'd be wasting your time. The state tax laws covered everything from head to toe, the prints to the negatives - if you were a photographer, you were definitely collecting sales tax. Fast forward to today - a photographer can be create digital images, deliver them online, never produce a tangible product, and be paid for the service/time/labor. Think about it, when the medium changed, the entire business model was flipped on it's ear - even if your efforts never come to tangible fruition through your own efforts, your service is still valued.
Ok, So What if I do Produce a Tangible Product?
So like I said, each state defines who does and doesn't have to pay sales tax a little differently - so be sure to do your research. In this case, I'm going to use the most common guidelines.
If you make a DVD of the images, prints, photo albums, etc. - you're producing a good. Goods are subject to sales tax, as we've covered, but that's not all - in the field of photography, the good is recorded as a sale, and now the service/labor that went into creating the image is subject to sales tax as well as the good could not exist without the service/labor. I don't make the rules, so don't yell at me. So to be clear: no product, no sales tax. Product, sales tax on the good as well as the service (should be recorded separately as well).
Is This Just Dome Kind of Loophole or Something?
No, I personally don't think it's a loophole, I think some states view digital goods not to be taxable, while others are ‘catching up with the times’ and realizing it’s lost revenue. Try and think about it in another way - when you download software, do you pay sales tax? Most would answer no. Thats because you didn't physically acquire a product, you just transferred 1's and 0's from one place to another. If you purchased that same piece of software in the store, you would have to pay sales tax. The same is true for digital photographers who only deliver their files electronically - no product, no tax. The moment you make a product, you are now required to charge sales tax.
Define the Service in Writing:
The best way to steer clear of any confusion down the pike is to put the terms of service in writing. In your invoices, think about including a one or two-sentence statement outlining how the digital images will be delivered to the client. If you state it in writing and follow-through with it in practice, there should be no doubt of whether or not a tangible product was transferred.
Talk to the Professionals - Interpretation is Key:
This topic came about because a reader/viewer who also lived in my state, Virginia, was informed (incorrectly) by the state tax office that she should be charging sales tax on digital photography. What I did was get on the (electronic) horn and chatted with a number of tax agents, each of which gave me conflicting interpretations of the tax law. I got on the real phone the next morning and got the ‘official’ scoop (everything I just said in this article, essentially) and realized that not even the professionals have this area down to a science. After that, I talked to an accountant and they confirmed what the agent on the phone said. I would highly advise talking through the tax law with a human being and confirming that information with an accountant, it'll not only give you a better understanding of the law, but peace of mind that you are operating your business correctly.
Stay Current:
Know your state’s tax rules and stay current - if the rules change, you probably aren't going to get an email, you're going to be responsible for knowing the rule changed. Knowing and following the tax laws in your state will help your business run smoothly.