Every fall photographers around the country dive head first into what I like to call “Mini Session Mania”. There are pros and cons to hosting mini sessions, but that is a discussion best saved for another post. One thing that is critical regardless of how you run your mini sessions, is efficiency is everything. In effort to keep things quick and cost effective, even photographers who typically sell large, bundled packages, often provide a simple digital download to their mini session clients.
With that, I often get asked: What’s the deal with the taxation of digital downloads provided to clients?
Every state handles the taxing of digital goods a little differently – each with their own definitions and rules. I advise you to be familiar with your own state’s rules on the transfer of digital goods, but let me try and summarize:
The following states specifically DEFINE and TAX the transfer of digital goods(although each of their definitions is a little different). If you sell digital images in these states they are taxable regardless of how you deliver them.
Indiana, Mississippi, Nebraska, New Jersey, North Carolina, Tennessee, Vermont, Washington, Wisconsin, Wyoming
The following states don’t specifically define “digital good”, but under current interpretations of rules, digital goods are likely taxable.
Alabama, Arkansas, Arizona, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Missouri, New Mexico, South Dakota, Texas, Utah
The following states at this time do not affirmatively tax digital goods:
California, DC, Florida, Georgia, Iowa, Illinois, Kansas, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Virginia, West Virginia
Please note that if you live in a state that does not tax digital goods, but you decide to give the files to a client on a USB, it becomes a tangible sale and is therefore taxable.
If you live in a state where you must tax your digital goods, make sure you either add this on to your session fee, or build it in. Often photographers use a flat rate approach to their mini sessions so it’s easy for clients to bring payment in full to the session. If not billing for it separately, make sure you charge enough to cover the sales tax you will have to remit to the government at the end of the quarter.
And while we’re at it…..there’s still time to join me for my uniquely formatted, jam-packed business-focused workshop, Business From The Ground Up.