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Re: Advice on new business (contracts/insurance/etc)

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Todd Terry
Re: Advice on new business (contracts/insurance/etc)
on Jun 21, 2011 at 3:30:51 pm


As for taxes, that's a question best asked of a CPA in your area, as tax laws can vary wildly from state to to state.

But in general, you charge sales taxes on goods you deliver. On services you deliver, you do not. There are of course, city, county, and state sales taxes that may or may not come in to play.

Now, often businesses will bend those rules. Say, you hire a carpet cleaner to come to your home and clean the carpets. You might find "sale tax" included on your bill, when in reality since that is a service the company (depending on the laws of that area) didn't have to charge the sales tax at all. In all likelihood, they know that and are just pocketing it.

Here at my company we mostly produce television commercials, and in the days before digital delivery we sent out hundreds and hundreds of Betacam tapes every year. The question was, do we charge sales tax, and if so...on what? Do we charge tax on the $20 tape only? Or on the $15,000 production that's on the tape? Or none at all?

In the end, we have never charged one penny of sales tax. Our contention is that we are purely a service and are not selling a hard hold-it-in-your-hand product, and should not charge taxes. To cover my rear, we have always contended that we do not sell the dubs that we send out to television stations and cable companies... we only charge for the dubbing service. In fact, all of our tape labels have a tiny disclaimer line on them that says "This videotape remains the property of Fantastic Plastic and must be returned upon request." Of course, we never make that request and definitely don't want them back.

A couple of other production companies in our area do charge sales tax on things like dubs. A friend at one of them once told me, "You can say you're not selling goods and not charge taxes, but that's going to come back and bite you."

However, we went through city, county, and state tax audits a couple of years ago (nothing that we did wrong, it was just that our turn was up). In every instance the auditors completely agreed with us that we were selling services only, and should not charge nor would we be liable for sales taxes. (They did, however, stick us on tons and tons of expensive gear that we had bought out of state from places like B&H Photo where we were not charged sales taxes ourselves).

In your two examples (creating a web video for your client, and working with your equipment on someone else's shoot), neither of those would likely be taxable at all. However, again, ask a CPA in your area.


Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.

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