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by Steve Dreiseszun
*** EDITOR'S NOTE ***
As of May, 2007 -- UPDATE: January 2008
The May, 2006 article below was prepared after the ADOR ruling in 2006 and at the beginning of our effort to achieve a Transaction Privilege Tax or "sales tax" exemption for commercial photography. That effort was unsuccessful when the Governor vetoed legislation in May, 2007 that would have provided an exemption looking forward and protection from sales tax on commercial photography looking backward.
Efforts continue to effect an understanding with the ADOR regarding our business model and of the miscommunication over the years of the rules and application of sales tax to commercial photography transactions.
Until we know differently, it is IMPERATIVE that ALL Arizona based photographers come into compliance with the current ADOR rules -- that is, sales tax MUST be charged on ALL components (the gross) of an invoice unless another already recognized exemption is applicable. All photographic services such as (but NOT limited to) assignment photography, stock photography, editorial photography, wedding and portraiture, event work, catalog, product, annual report, etc are subject to sales tax. "Creative" or "photographic" fees ARE taxable.
In general, ALL elements of the invoice are taxable, such as (but NOT limited to) props, production services, digital work/services/fees, film & processing, materials, models, travel, assistants, stylists, etc.
This are the essence of the ADOR's published ruling effective as of Feb, 2006.
Please watch this space for news and updates as they occur. You can subscribe the AZ/ASMP Newsletter and receive updates as they are distributed. You must opt-in on our Home Page if you are not yet on our mailing list.
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May 17, 2006
The rules that the Arizona Dept. of Revenue uses to determine how sales tax is to be charged and collected have changed. The new interpretation of how they view the business of photography is now in effect.
You can look here... Rules for Sales of Photography ... and scroll to the bottom to ...
Final Rules
The following Notices of Final Rulemaking contain new administrative rules for the Department that are effective upon the dates provided for in the notices. Please note that, as of the effective date for a rule, the changes to the rule that are shown within a Notice of Final Rulemaking supersede any prior language that might still appear in the main supplement of the Arizona Administrative Code.
Notice of Final Rulemaking
Click on this link...
Amendments to A.A.C. Title 15, Ch. 5 Rules for Sales of Photography and Job Printing then here...
Notices of Final Rulemaking 5453
A.A.C. 10 Department of Administration - Risk Management Section 5453
3 A.A.C. 11 Veterinary Medical Examining Board 5455
4 A.A.C. 24 Board of Physical Therapy 5465
9 A.A.C. 22 Arizona Health Care Cost Containment System - Administration 5467
9 A.A.C. 22 Arizona Health Care Cost Containment System - Administration 5480
15 A.A.C. 5 Department of Revenue - Transaction Privilege and Use Tax Section 5493 (This is us)
18 A.A.C. 2 Department of Environmental Quality - Air Pollution Control 5504
18 A.A.C. 8 Department of Environmental Quality - Waste Management 5523
19 A.A.C. 2 Arizona Racing Commission 5534
The above path will download the entire 92 pg "Final Rulemaking" document as a PDF. Photography is addressed on pages 41-52 (OR... click here for an edited PDF which has been highlighted for your convenience -- however, please read it completely).
These rules were reviewed through a process that invited commentary from the industry. The commentary received has been incorporated in the Notice and addressed in detail. The process involved the solicitation and acceptance of commentary, review and determination from the ADOR, review by the Governor's Regulatory Review Council and final adoption. These rules became effective February 6, 2006.
You'll note that the new Rules start on page 49 and appear with the edits from the old in order to see the changes. When the Rules are published (quarterly), only the new language will remain.
In reading the new Rules, it appears that the ADOR considers ALL activity of a photo project taxable. That includes fees, expenses, talent, production, etc. Exemptions for resale and out of state sales seems to still be as before with appropriate qualification and documentation.
James Busby, an attorney from Gallagher and Kennedy retained by a group of us when the ADOR started their review, doesn't agree with the ADOR determinations. He feels that there is still room to argue that we are a service business. He also feels that the "license for use" model has merit and may not be taxable. The ADOR seems to say that licensing is renting and therefore a taxable event. They make the point regarding 'sales' tax and their determination that the tax is really for "the privilege of transacting business."
Mr. Busby offers that we could fight and possibly be successful, but that it may not be a good investment and would be costly in any event. His suggestion is that we may better served to negotiate with the ADOR to use the new Rules as a clarification for the industry, accept them as is with the understanding that there will be no look back.
What Does All This Mean
If you have not been charging sales tax at all and don't have a Transaction Privilege License, you should do so now.
If you've been charging only on some expenses and not others or on expenses and not fees, that appears now to be out of step with the ADOR.
If you don't charge sales tax as you license your images...This may be a gray area still.
What's Next
We can accept the new Rules as they are now, read and interpret them as laymen and make our own decisions accordingly. That may not make the most sense as that's how misunderstandings have been perpetuated for years. What makes more sense is to get the advice of professionals.
PLEASE NOTE: The original photographer's group has decided that a meeting with Mr. Busby would best serve the photo community as a whole. This meeting will be open to all photographers and will allow clarification of the new rules, explain any options as well as facilitate any further course of action.
We appreciate the financial contributions of the original group to the legal fund. Those funds are now exhausted. Mr. Busby has indicated that fees for his prep and meeting time may amount to $1,600. We have received additional pledges from members of the original group and we appreciate their support. However, we need support from EVERY photographer who will be affected by this outcome.
Please indicate ASAP that you will make a pledge to cover this expense. Obviously, the more we have who contribute, the less of a burden it will be for everyone. We'd like to have a fresh group of contributing photographers underwrite this meeting so that the responsibility is shared appropriately.
We need your pledge ASAP in order to schedule the meeting.
We hope to be able to do so the first week of June but will advise date/time/location when schedules are confirmed and when enough pledges are received. Please respond directly to Steve Dreiseszun (steve@viewpointphoto.com) with your pledge amount. There will be no immediate need to send funds at this point, however, it is essential that we receive commitments in order to proceed.
We need your financial support to get this done. Time is critical.
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