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CBS Billing Issue
We recently did several jobs for CBS that required hiring crew and gear.
I sent the bill in as usual …… When the bill was paid it was processed as payroll with W2 taxes deducted.
When I questioned the payment method, the producer forwarded the following note from the CBS tax department.
CBS Tax Department Policy for Technician Equipment:
To confirm in writing what we previously spoke about by phone related to the camera equipment rental policy (referred by some as “box” or “kit” rentals), it’s the tax department’s advice we follow the same policy that’s been in place over the past six or seven years.
After reviewing current law, we don’t believe anything has changed in the view the IRS would likely take when paying kit rentals to non-corporate persons. To state the policy more specifically, in a situation where a camera person is hired to provide service, and when an invoice for camera rental is provided by a corporate form (both subchapter “C” and subchapter “S” corporations), then the rental can be processed through accounts payable and the payment won’t be subject to tax withholding. However, in the same situation, if the invoice for the rental is presented by any other person or entity, the rental should be subject to tax withholding. This includes invoices provided by a limited liability company (“LLC”) (whether it’s owned fully or partially by the camera person), or any other non-corporate statutory form.
Consistent with past policy, if an individual provides evidence from an unrelated company that the camera person paid out of pocket expenses to rent the equipment, then seeks reimbursement for those expenses, that situation should be treated in the same manner, and the reimbursement processed through TREX would not be subject to tax withholding.
If we become aware that a person is making inconsistent statements about who owns the equipment, or provides rental expense receipts that we know are false in an attempt to avoid withholding, obviously we shouldn’t knowingly help them avoid the withholding, but instead process the rental subject to withholding.
I’ve provided services on a regular basis to just about every network out there over the last 20 years and have never seen this. The worst case scenario is usually having the crew processed via payroll and gear paid via 1099.January 1, 2011 I’ll be changing my business structure to a S-Corp to avoid this issue, but in the mean time I’m working with the folks at CBS to get this sorted out.
Has anyone else encountered this issue with CBS?
Bill Paris
Producer/Director of Photography
Crew Hawaii Television
http://www.crewhawaii.com -
12 Replies
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Doesn’t it feel good knowing that CBS has loaned the government your money for free? Unfortunately I’ve seen this too often in recent years. It’s not right, but are you gonna risk incurring the wrath of CBS to argue the point?
The IRS has made life very difficult and expensive for businesses that hire independent contractors in recent years, because some many contractors have indeed abused the system. So, rather than face potential audits and penalties, many businesses have simply adopted policies that put the entire burden on contractors to prove to the government that they’ve overpaid in order to get a refund.
It costs a little interest and certainly delays your spending options, but you should look at it as “forced savings.”
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Have you heard about the new 1099 rule? When it goes into effect, businesses will need to send a 1099 form to any vendor it has purchased good from – office paper, blank media, coffee supplies, etc. It was added to the health care reform bill (has little to do with health care) as a way to earn money from vendors who normally do not declare sales tax, or something to that effect. Critics say it will introduce a lot of extra paperwork and labor to comply, especially for a small business.
So expect more tax forms in the future.
Mike Cohen
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Just to clarify, are you an LLC now or do you operate as a freelancer off your SSN? The biggest reason to incorporate I found was to avoid hassles like this.
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That 1099 rule sounds awful. Am I the only who wants to just make enough to survive for a while? Operating a mildly successful business seems like it just makes you a target for punitive tax policy these days.
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Honestly, I think it makes sense for them to handle it this way.
While this may be related to taxes as well, I think the main reason has to be avoiding injury lawsuits.
If you are working as a small subcontractor and get hurt, you can sue them and that’s big no no for their liability insurance. They would also have to constantly check for subcontractor insurance coverage. When going through payroll, you automatically go under workmans comp, problem solved.
Vince Becquiot
Kaptis Studios
San Francisco – Bay Area -
Vince,
I totally disagree with your statement. I am a freelance “computer tech” or “video tech” or video engineer, or whatever our business calls it these days. I have worked for every major corporation, including NASA, Lockheed Martin, all the networks, etc. And only in 2010, did Universal Studios tell me that I could not work for them unless I had a liability insurance policy for my company, even though I have worked for Universal down here since 2000. Their recent fear that I may get “hurt” on the job, and sue them – well, it’s just incredible to me. I am not a painter on a ladder, painting one of the rides. But they want to treat all vendors, well, like vendors – all the same.Changing times.
Bob Zelin
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Bob,
Unfortunately, it’s the reality of things. Ultimately, in large corporations lawyers make the decisions on liability issues.
The biggest issue is the grey area that separates an employee from a sub. On the IRS side, that raises flags, no one wants that. On the other, I’ve heard many times of insurance companies refusing to pay for injuries, claiming that the so called subcontractor should be considered as an employee.
Vince Becquiot
Kaptis Studios
San Francisco – Bay Area -
A corporation, that provides a service, that provides their “own tools”, that works “independently, without direction from the employer”, is not an employee. When you hire a plumber to fix your toilet, he is not your employee. I literally told Universal “when you have a toilet leak, do you wait 4 weeks to create contracts, before you can stop the water flooding on the floor”. They were not amused, but they don’t give me that much work, so I didnt’ care.
Bob Zelin
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So they actually wanted to pay you as a corporation through payroll?
I’d tell them that I just gave myself a 50% wage increase…
Vince Becquiot
Kaptis Studios
San Francisco – Bay Area -
Another problem with this policy is that, the employer (CBS) is telling me (The Employee) that as part of my “job Description” I need to invest in and bring to work over $250,000 in equipment. I have to pay for it, maintain it and write off the salvage value when it’s out dated in a few years. How do I depreciate the gear when all my income from the equipment is being payed to (The Employee) and not my business? Last I checked there’s no way to “Depreciate” equipment on your standard income tax form. I can’t show the income from the gear on my Schedule C because then I’ll be double taxed. My “Gear Rental Income” has already paid out Federal, State, Social Security, Etc…. via W2 deductions.
Every other network and production company I work with either:
1. Pays the invoice price for gear and crew and reports the income paid to my company via 1099s.2. Payrolls the crew for all the reasons mentioned above by others (Workman’s comp, liability, etc) and pays the gear as rental (even from a sole proprietor or LLC) and reports that payment to the IRS via a 1099.
Bottom line: CBS is making their own rules….. If you want to work for them, this is the way it’s done at CBS.
Bill Paris
Producer/Director of Photography
Crew Hawaii Television
http://www.crewhawaii.com
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