Selling art, dealing with sales tax (CA)...any advice?

[davester]

Much as I appreciate your warnings simonm and alphadog, I don't think there's anything sinister or inappropriate going on here. My wife works with the gallery owners in other areas so we know they are trustworthy, though inexperienced in operating a gallery. The deal is that we are the ones selling the paintings, and we'll be paying the gallery owners a commission (on pre-tax sale price) in exchange for use of the gallery space and the gallery's advertising and staffing. They will be collecting sales money on our behalf. Since the gallery never buys any paintings from us, they don't own them, so I don't see how they could be responsible for the sales tax on them. GeneL's advice sounds to be right on the money, but I'll be checking with my tax accountant this week. I just wanted to get some upfront ideas as to how this worked to prep for talking to him.

[raz]

They will be collecting sales money on our behalf.

and therein lies the problem. You really need someone who knows tax law in the State of CA or you open yourself up to problems down the road - regardless of how well intentioned the gallery owners are.

[davester]

BTW, I don't know why you think I live in NY Alphadog. I live in California, about 10 minutes from the gallery in question. Strolling through the internets, it looks like we need to get a temporary seller's permit from the state board of equalization, which allows us to collect sales tax and to purchase supplies without incurring double sales tax on the supplies.

[M A V I C]

[quote mattkime]>>If she's doing more than about $30k/yr gross, she should consider a corporation and not a sole proprietorship. The tax savings will more than pay for a good accountant to do the work for you.

hm, can you explain how that works out? i was under the impression that corporate taxes + personal is greater than personal + self employment. maybe it depends when you live. i live in nyc.
The only tax, for example, an s-corp pays is payroll tax. Depending on the entity type, a corporation is taxed at a much lower rate. When I switched from a sole proprietor to s-corp, I started having to spend about $1k/yr to have my taxes done rather than about $400. Structured correctly, at $30k/yr, having an s-corp will save one (very) roughly $5k/yr. That's a $4k net savings.

Plus there's also the asset protection benefits.

Anyway, back to the sales tax issues - also find out if the county and city you'll be selling in collects sales tax.

[AlphaDog]

I don't know why I thought you lived in NY, either. I think I was reading too many posts in too short a period of time. And too early, like before the brain fully kicked into gear.

This now makes more sense, although I still don't understand all of it, and that's partly because, like M A V I C, our business was run out of Washington. Up here, buying materials without paying sales tax is not the most advantageous way to go about doing business for some people. That, of course, still leaves me confused on the "double tax" piece you mention, but that could be just the way things are phrased in the posts. As GeneL has already pointed out, it's not the business owner who actually pays the sales tax on the final product, they just collect it from the customer and transfer the money to the appropriate entities.

[Janit]

It is very important that financial matters be handled cleanly. Otherwise misunderstandings can end with unhappiness all around. This is one of the reasons why people are advised to avoid doing business with friends -- the fact that you trust each other can cause you to neglect details that really MUST be spelled out.

The best thing you can do is to show your friends how to set up to collect sales tax properly. Direct them to an accountant. Get the forms, help THEM to fill them out, and make sure THEY file them with the state. If necessary, help THEM to forward the taxes to the state. Give them this help because they are just setting up and they are your friends. However, if they continue to need this level of help for their second show, don't do further business through them until they understand what they are doing.

If the gallery owners end up collecting the money on your behalf and YOU are forwarding the sales tax to the state, then all payments by check and credit card should be made out to YOU. If you will be taking credit cards, then you will need to find a way to accept credit card payments as well. After YOU have deposited all the proceeds, you will then pay the gallery owners their commission, which you will take as a business expense. Whatever you do, make sure that your contract with them is very clear and written out.

If the payments are made out to the gallery, but YOU have the tax ID and pay the sales tax, the state will probably be unhappy with both of you.

I have dealt with products sales for my Tai Chi school for several years now. We have branches in several states, summer camps administered under joint auspices, etc, and we are all friends. Nevertheless, things can get murky very quickly unless we are careful to spell everything out.

I hope this helps.

Janit

[davester]

Thanks for the advice Janit, but these folks are not our friends...simply business acquaintances of my wife. Your second paragraph doesn't really apply to our situation, and I will not be directing them towards an accountant. The third paragraph is more like it...we will be the ones selling the paintings, and checks will be made out to us. I hadn't thought about whether we'd take credit cards...seems unlikely, though perhaps we could do something like that through Paypal.

[GeneL]

davester, I think you would be well served if you can get set up with an account that allows you to accept credit cards. It is often much easier to get people to buy an item when they can "simply" put it on their credit card.

If you ask around, I think you will find that the largest portion of purchasers used their credit cards to pay for anything over $100. I assume your art work sells for over a $100?

BTW, CA law does not allow you to charge extra for using a credit card to cover the extra bank cost, but as far as I remember, you can give a discount for cash. Again, with a blind item, you can increase your price slightly to include the credit card percentage.