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Do video production clients expect to pay taxes?
I’ve left a message with my accountant (he’s on vacation) about the legalities of taxes for video work– that is not what I’m asking. Obviously I WILL be paying taxes on all taxable income. What I’m wondering is this: do corporate clients expect to see a tax line item on a their invoice or is it something I should be accounting for on the back-end (in my original proposal)?
I’m in Wisconsin. One near-by company said their clients receive a bill which doesn’t list any tax but it is accounted for and added to their quote/estimate so as to cover it when they pay their Sales and Use Tax. It would be much easier just to add a tax to each item taxable and leave it at that, but I would hate to be outside of standard practice and get people bent out of shape. I’m surprised at how much non-tangible work is actually taxable (“digital delivery”?!). Again, my CPA will be sure I’m charging what I need to charge but I just was curious how you invoice for this.
Does that make sense?
Thank you!
-Stephen
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4 Replies
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Are you talking about the equivalent of “sales tax”?
I’m not sure what standard practice is, but we do not charge clients any sales tax for our work (nor pay it). Your mileage may vary in your area so you are definitely doing the right thing by consulting your CPA… but our contention is that we only sell a service, not a product, which is not taxable in our particular city/county/state.
Another production house in our city that has been around a little longer than we have warned me about this many years ago, as they do charge sales tax on dubs and other deliverables. I stood my ground, contending that those tapes and discs and such were mere conveyances of the product, not the product itself, which was untaxable. This other fellow told me that I would eventually get bitten over this practice.
To cover my tracks, I always had a fine-print line printed on every DVD and tape label that said something to the effect of “This videotape remains the property of Fantastic Plastic and must be returned upon request”… thus retaining our ownership of the tape… we never sold the tape, just what was on it. The only downside to that was once a year we would get a gigantic box delivered from some rogue TV station 1000 miles away actually returning dozens of Beta dubs. Of course we expected them to just be thrown away, or recycled. Fortunately dubs are pretty much a thing of the past now (I can’t even remember the last time I turned the Beta racks on), so that’s a non-issue.
Well, a few years ago we had the luck to be triple audited all at once… city, county, and state. When posed with this whole issue, the auditor scratched his head with a “Hmmm, that’s a good question.” I was sweating it a bit, but after a couple of phone calls to the state capitol, he confirmed that, yes, we were doing things right, and should not be taxing our products.
As I said, though, it might be different where you are… if there is indeed a local tax for “digital delivery,” then yes, I would line-item it. Your CPA should know.
(FYI… in our audit we did however get hit with not paying sales tax ourselves on about a bazillion bucks worth of out-of-state purchases going back years… damn you B&H Photo! We’re vigilant about paying that now)
T2
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Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com
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Thanks Todd! I really appreciate your practical and respectful reply.
I was looking around on the Wisconsin IRS site and found a “what’s taxable” document talking about TONS of film and video specific items which they considered tangible if being stored digitally (in the cloud even). Hopefully my CPA will make sense of this for me 🙂
Still open for other thoughts as well, but than you again for your input!
-Stephen
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Not really answering your question, but years ago, and I do mean years ago, I worked at a production company that billed dubs on a different invoice. According to that state, as soon as you put dubs on the invoice, you are going beyond offering a service and actually offering a product. Therefore, the entire invoice was subject to tax.
So we invoiced the dubs separately which meant taxes on $50 – $150 as opposed to taxing $5000-$10000.
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As Todd mentioned, kudos for checking with your CPA as every state is different.
On the issue of paying sales taxes on your purchases (i.e production equipment, etc…) some state, like Florida where I am, offer film/production incentives in the form of sales tax exemptions for qualifying production companies. So being able to but gear from local firms without paying the sales tax penalty is pretty nice.
Production is fun – but lets not forget: Nobody ever died on the video table!
http://www.OmniNewMedia.com
http://www.GreenSlateStudios.com
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