Do you invoice for sales tax?

dcarstens

dcarstens

Well-known member
After doing my taxes this year, I received a notice from the Los Angeles Business Tax board notifying me that I should be paying business taxes on all income. This can be somewhat complicated due to the fact that rental costs are included in my invoices, inflating my stated income on my 1099s. I spoke to a rep from the tax board, who said to me that I should be including sales tax on my service invoices, which in LA will be 9.75% come July. Is this standard practice for many of you out there?
 
No... I've never done that. I don't see how that matters really, it's selling a service, I've never been charged sales taxes on any service, only goods. And taxes are paid on income so I pay based on actual profits.

I did get a notice I am not responding to from those idiots at Los Angeles County saying they suspect that I did business last year in their city and didn't pay them taxes, so if that's true they will grant me "amnesty" and let me not pay penalties, but if not I should send them a statement saying why I don't owe them money. LOL, yeah right, take a hike you farthammers. I don't owe an explanation for why I DON'T owe money. If they were at all technologically sophisticated they would know the company was based out of Burbank, paid taxes in Burbank and for California, and is all paid up. What a bunch of retards.
 
Oh boy, here we go again..Folks, folks. Yes you need to charge tax on your invoice..I know of a company here in the Northeast that didn't for years. When he got audited, he could not come up with the thousands he owed and went out of business. I was audited a few years ago but thankfully I always charged and paid the sales tax on my invoices. They consider us "manufacturers" and therefore anything that went into the final product is taxable. So, yes your labor IS taxable, if you rent a helicopter to do the shoot, IT is taxable. The works. Here is more bad news..The Sales and USE tax. The USE tax is the part of the taxable income that is our equipment. So don't think just because you bought a piece of equipment thru the mail and didn't pay tax on it, you are in the clear...If you get audited, you will have to pay the sales tax on that..Now there are some points about this issues that I fought and won but I basically had to teach myself tax law and I am not about to get into it here.

I just wanted to say if you are not charging tax now, you should start as soon as you can to avoid any possible problems if you get audited. Just a word to the wise. I don't like it but I do it and have for the last 32 years.

Oh and BTW....Sales tax in California is going to be 9.5% HOLY SMOKES!!!!
 
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Oh, one more thing...There are exceptions. Example, a customer bought a frame from you and you charged them to put the picture in it..All taxable, including your labor..If that same customer brought you "their own frame" and just paid you the labor to frame their photo, you would not need to charge them the labor tax because you did not manufacture and sell them something, you just used their material and did not create or manufacture a product, you just preformed a service for them..

Over the years I had some clients question the sales tax. What I did was have the State's tax people send me a letter stating the policy. I made copies of that letter and occasionally provide that to the clients that ask..Usually ends the debate. I then state that it is the law, and I don't like it but have to abide by it.
 
Jokerswild said:
They consider us "manufacturers" and therefore anything that went into the final product is taxable. So, yes your labor IS taxable, if you rent a helicopter to do the shoot, IT is taxable. The works.
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Hrmm, I guess it depends on what you're doing and how you're doing it. If you are producing videos and selling them, gotta charge tax on the videos. If you're doing freelance work or providing a service, it's a service, which is not taxable. At least in California, Labor is rarely charged sales tax, only in very specific circumstances.

Jokerswild said:
Oh and BTW....Sales tax in California is going to be 9.5% HOLY SMOKES!!!!
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BTW, it varies by County.... Could be A LOT more depending on where you live.
 
It's been said before but it bears repeating. What taxes you have to collect and pay on what part of your revenue depends on where you live and where you do business. Some places require you to charge sales tax on both goods and services, other places on goods sold at retail only. Some places require you to collect and pay tax on rentals, other places don't. Some states don't even HAVE a sales tax. Here in Canada we have to deal with both Federal and Provincial sales taxes and the requirements for the two as to what is taxed and what isn't are completely different. This is not something where "what do you guys do?" can get you any meaningful answers. What someone working in Nevada has to do is completely irrelevant if you're doing business in Los Angeles, New York, or Toronto or vice versa. Heck, it can happen that what have to do is different if you're in Burbank or Culver City - I don't know anything about their laws but there could be entirely different requirements for business licenses and fees. Whatever it is, it's not an option for you to decide what you're going to pay and what you're not or whether you're going to charge it or not. The law is what it is and you have no option except to comply with all of the laws that apply to you. Complying with all the applicable laws and regulations is just as much a necessary part of running your business as is maintaining your gear. You need to consult with a tax accountant or tax attorney familiar with the industry who can advise you on the laws that apply in your jurisdiction.
 
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9.5% now huh... jesus you gotta be kidding me. I guess I heard about that, but I'm almost at the point where I am considering moving out of California, back to a smaller market where I have more connections and where my skills would be more valued, i.e. rarer, because the cost of living here in L.A. is extremely high and the taxes are also extremely high. It's a state in a horrible financial ruin. I am not saying I don't enjoy living in Los Angeles, I definitely do, but unfortunately you can't always afford to do everything you like. The amount of money I need to make to break even and basically pay the bills is very, very high. I'm just not sure I can really swing it in the future, I'm kind of getting to the point where I have to get some sort of break soon or switch gears and think about something else while doing film on the side.

It sucks...
 
Hey Jonathan. I feel your pain my friend. Everybody out here on the "other" coast are tightening their belts. It's funny though, my still photo business has gone flat where I see the video and filming end of it, on an uptick. Good luck with your decisions. I am sure it will all work out in time.
 
"farthammer" for the win! awesome.

Anyway...I work freelance for a company here and there and also book my own jobs all under the table...If I buy my gear out of state to save on sales tax, how would the fed/state know to collect use tax from me if I don't ever declare the purchase as a business expense on my tax return? I'm not claiming my gear as a business expense; why would I if I'm not declaring income for under the table jobs? Point is, how's the gov gonna find out I didn't pay tax on something to then hit me with penalties?
 
TheBoss said:
"farthammer" for the win! awesome.

Anyway...I work freelance for a company here and there and also book my own jobs all under the table...If I buy my gear out of state to save on sales tax, how would the fed/state know to collect use tax from me if I don't ever declare the purchase as a business expense on my tax return? I'm not claiming my gear as a business expense; why would I if I'm not declaring income for under the table jobs? Point is, how's the gov gonna find out I didn't pay tax on something to then hit me with penalties?
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As for working under the table, never forget it was the IRS that finally got Capone. Elliot Ness was Treasury, not FBI.

All it takes is for the person or company you're doing the job for to claim the money they paid you for your services as a business expense on THEIR tax return.

As for sales tax, where you have to "pay" it, what is really happening is that you have to CHARGE your client the tax on your fees or sales in your invoice, and then remit the taxes you collect from them to the gummint. It's your client that's paying the tax, not you. All you're doing is collecting it from them on behalf of the government and passing it on when you file.
 
Steve House said:
All it takes is for the person or company you're doing the job for to claim the money they paid you for your services as a business expense on THEIR tax return.
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Those ducks I keep in line. 1099, etc. Just claim regular income and pay the tax on it on the return. My own jobs, though, are off the books. Again, how would the gov even recognize the purchase of out-of-state gear to collect use tax on me for?
 
TheBoss said:
Those ducks I keep in line. 1099, etc. Just claim regular income and pay the tax on it on the return. My own jobs, though, are off the books. Again, how would the gov even recognize the purchase of out-of-state gear to collect use tax on me for?
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You're thinking about the sales/use tax you pay on gear you buy. That's a different thing altogether from what the OP was talking about. In some jurisdictions you're supposed to collect sales tax on your billings to your clients. Some places it's just on physical goods sold, others it's on both goods and services. Someplaces only retail services are taxable but "wholesale" services such as fees billed by a freelancer working on contract aren't. Sometimes it gets weird - in some locations, for example, a wedding shooter who delivers to his clients DVDs of the weddings he shoots is required to charge them sales tax on the retail value of the blank discs but doesn't charge tax on his fee for the shoot itself. Other places they're required to charge sales tax on the total amount of the invoice. If you charge your clients a rental fee on gear you supply and use, in some places you're supposed to collect sales tax on those charges. Other jurisdictions you don't have to collect tax on 'em. Where you do collect tax, then you pass on the tax you've collected from your clients to the government, in some cases after deducting any sales taxes you've paid on purchases for your business from them.

How are you sure your own jobs stay off the books? You don't control what your clients claim on their taxes. If you make a commercial, let's say, for someone and are paid under the table, then they claim it as an expense on their taxes at the end of the year, you're toast. Or they stiff you on your bill and you go to small claims court to collect - what was under the table suddeny is on top of it. Or you're audited and they ask - "Where'd these deposits to your chequing account come from?"
 
Steve House said:
How are you sure your own jobs stay off the books? You don't control what your clients claim on their taxes. If you make a commercial, let's say, for someone and are paid under the table, then they claim it as an expense on their taxes at the end of the year, you're toast. Or they stiff you on your bill and you go to small claims court to collect - what was under the table suddeny is on top of it.
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I've never been stiffed nor will I ever be; payment is up front...On every tiny job that I sell to friends, friends of friends, etc. Always in cash.

I realize I'm posting out-of-context from OP's initial thoughts...So the gear I'm using that has been shipped/purchased from out of state with no sales tax applied...How is the use tax possibly going to come back to bite me if I'm not claiming those purchases on my tax return as business expenses? Is the retailer reporting back all of their sales, names & addresses of purchasers, details and all, to the government? I'm broke (aren't we all?) so saving $ on sales tax could help me stay on my feet; would like to know there's no need to worry about getting hit with the use tax.
New Yorkers come to New Jersey to buy clothes where the sale of clothing isn't taxed. Are they going to pay use tax? Probably not. If any citizen traveled to Delaware where no sales tax is charged (on anything, as far as I know) to purchase, say, a refrigerator...would the new owner pay the use tax to their home state? How would these purchases possibly catch up with them?
 
TheBoss said:
I've never been stiffed nor will I ever be; payment is up front...On every tiny job that I sell to friends, friends of friends, etc. Always in cash.
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How would these purchases possibly catch up with them?
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Well as an IRS auditor who does film on the side, let me come over and show you.....

Actually I'm not but all your "under the table" you just pulled out and plunked down in public! And you wondering how they would ever find out?????

I file taxes on everything even folks who pay "under the table". If your filing as a business you have a WHOLE lot more you can expense and deduct than as an individual. You should just assume you will be audited. Very few people I know haven't been audited and the IRS is stepping up the numbers. Anyway having others expense you on their returns isn't going to get you till they get audited. Your more likely to get nailed by being audited your self, and then you have all that income to explain. If it's not much then it will probably just sort of disappear in the mix. But if a significant part of your income is "off the books" you could have a really bad time. Once they catch something they really dig in, and there is no statute of limitations on tax fraud, they can audit you back to your paper route in sixth grade. And it's not about the money (well yes big picture it is) auditors NEED to get auditing hours in so they can get there CPA and go get a better paying job. They don't care if they get those hours finding $10 you didn't pay or $50,000 that some corporation didn't pay. So they can and do spend ridiculous amounts of time auditing people they don't have a chance of getting enough out of to cover the time. A few years back Stage Managers were all getting flagged. Just about every stage manager in the Bay Area was audited that year. None of them were pulling down more than $25K - $30K, they are working in theatre for god sake. But they all got long and thoroughly audited.
 
To switch to an ON topic reply...

The OP mentions business tax. In SF that is part of the cost of your business license and it is based on your total income not profit. It's not a sales tax and it's quite small, you have to make over $100,000 (if I remember correctly) to get past the minimum which is $25. I suspect that is the kind of tax he is talking about. And you do pass it on after a fashion, it's part of your overhead.
 
When I got audited, it wasn't because they were just flipping thru the yellow pages, a client of mine got audited and of course my name was on his list of vendors...And you know what, when they went thru my list, one of my vendors got audited...They look at everything and go back several years...I am glad I did the right thing years ago..They argued a few points and I had to pay a little but but for the most part, everything I fought I won but believe me it was hours upon hours of research. My account said to consult my attorney, when I consulted my attorney, he said to consult my accountant..hahahha. That is why I just did it my self being the pit-bull that I am sometimes.
 
We were audited a few years ago. The wanted all kinds of stuff from three or four years back. Our tax guy said just deal with the year they are auditing you for. I asked him if I needed to be there and his response was "you or me, I don't do both", I said great so I never really dealt with it other than pulling up lots of papers and such. They came asking for around $15k and ended up asking (and getting) $85. I often under report things like business meals, but I keep the receipts, figuring that once they see it's going the wrong way they will stop digging.
 
when they came to my studio....it was winter...I had the heat on 55....and set em up in the studio on sawhorses and a plywood table...hahahaha, next time they came I had the heat on 78..You know...Keep em on their toes...When they first showed up two of them came. One guy had a tatoo of boxing gloves on his wrist..I thought..oh oh. They actually turned out to be ok guys but they argued everything and so did I. Only thing I was doing wrong was when client from another state picked up a job, I would tax them at their state rate and pay that state..but in reality, I should have taxed them at my state's rate because they picked up the job here..If I had shipped the job to THEIR state then I should have charged them that state's rate and then pay that state...

That probably only applied to me here because where I am, I can drive an hour and hit three nearby states.
 
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