Here is a general discussion of the sales tax rules affecting graphic
artists doing business in Massachusetts. As always, there are exceptions.
If you are JS+A client, we will be happy to help you refine your
procedures and policies best to reflect the rules and your business.
If you are a graphic artist doing business in Massachusetts, you may
need to collect sales tax from your clients.
WHAT SHOULD BE TAXED?
Massachusetts taxes sales of tangible personal property within the
state. Business services are NOT taxed. Therefore, hourly fees for design
work and such are NOT sales taxed. Small, unimportant amounts of property
that are sold in connection with a service do not require sales tax. For
example, if you make a design, and deliver it on a CD, you need not
charge your client sales tax for the CD. (Likewise, we, as your
accountants, will not have to charge sales tax on paper we use to print
your tax returns.)
TAKEN TO THE PRINTERS
In the past couple of years, Massachusetts has issued regulations
explaining how such transactions should be treated for sales tax purposes.
- If you have a printer bill your client directly, then you need not
charge the client sales tax. This will be the printer's job.
- If you have the client bill you, and you pay sales tax to the printer,
and you report to the client on your invoice the amount of sales tax you
paid, and you do NOT charge a markup to the client on the printing, then
you do not have to charge sales tax to the client.
- If you have the client bill you, and you do NOT pay sales tax to the
printer, and you charge the client for the printed material, then you MUST
charge sales tax on the printing to the client - unless the client is
sales tax exempt or the printed matter will be resold.
- If you do a turnkey job that includes design and printing, then you
charge sales tax on the whole job. If you break out services, you can
charge sales tax only on the printing. In any case, separately stated
reasonable shipping is NOT subject to sales tax.
While there is nothing illegal about paying sales tax to the printer,
marking up the bill, and charging the client a marked up amount plus sales
tax, it is a silly thing to do. If you do not have to pay sales tax to the
printer, and if the client is willing to pay the marked-up amount, then
you are just leaving money on the table by paying sales tax to the printer
when you do not need to.
For example:
Orc Design designs a business card for its client. Orc arranges for the
printing as well. Orc fails to give a resale certificate to the printer,
who therefore charges Orc $105 for the printing ($100 to print the cards
and $5 for sales tax). Orc marks the $105 up 25% to $131.25 and bills its
client this amount, plus $6.56 sakes tax on the marked-up amount. The
client is happy to pay the $131.25 and understands why it owes the sales
tax.
Well, Orc lost $5 on this deal. The client was happy to pay $131.25 and
would have done so whether Orc paid $100 or $105 to the printer. Orc
should give the printer a resale certificate and party on!
You can get into trouble if you charge your client for the printing,
especially with a markup, and DON'T charge sales tax. If you have done so
and are a client, let us know so we can help you correct any errors you
may have made in this regard.
You can read much more about this issue in the actual Regulation as
issued by the Massachusetts Department of Revenue
here.