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My wife is having an art opening shortly, and we expect to sell quite a few of her paintings. The gallery she's opening at has asked us to deal with the sales tax. What's the easiest way to deal with this? Do we need to apply for a resale license? Also, we've already bought a bunch of frames for the paintings and have paid sales tax on those. Can we avoid paying sales tax twice since we'll be including the frames with the paintings. Any advice would be appreciated.
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First, the gallery should be dealing with sales tax. After all, they have to deal with sales from many artists, right?
If you want to treat this like a business, and remember, businesses should make money, then she can declare her artwork a sole proprietor business. Track income, expenses, and talk to an accountant.
I'd ignore the business issues unless she's moving amounts of money that the IRS can't ignore.
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This is a new gallery and this is their first big show, so they don't have much experience with the sales tax thing, and have asked us to deal with it. For other shows she's done (non-solo), the gallery did take care of sales tax, but it's pretty much a no go for this one...we're just glad that she's going to be the featured artist for their debut. It's very likely that she'll move enough money to attract the attention of the IRS, so we definitely have to do this as a sole proprietorship. I have experience with that as a consultant, but I've never had to deal with selling things that have sales tax attached.
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[quote davester]It's very likely that she'll move enough money to attract the attention of the IRS, so we definitely have to do this as a sole proprietorship.
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.
As far as CA sales tax goes, wish I could help you more. CA is quite a mess when it comes to sales tax. My suggestion would be to find an accountant in you area as local sales taxes also come into play. It might be too late to avoid tax on the frames. I know in WA the sales tax laws are more simple, but I still wouldn't want to deal with them on my own. For example, although I don't have to pay sales tax (~9.5%) on stuff I use in the manufacture of goods, I do pay it because if I don't I have to pay B&O tax which is an 8% tax on the gross sales. So if materials cost me $100, and I sell it for $1000, I pay $9.50 instead of $80.
I've also been digging through lots of tax issues for the past few months as I'm starting another business. I'm learning lots of new stuff about taxes. My favorite is that there are a ton of taxes on the books that the state doesn't collect. But whenever there's a budget shortfall, they search the books, find those taxes and collect on the past four years plus penalties imposed. It's up to me to pay them, even if they're not collecting them.
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The following information is based on my own experience, but I have retired so you should check everything I say to make sure it is current.
Based on my experience in California, whoever collects the money for the sale should include the sales tax (on the total sale). You are not paying the sales tax twice, only once on the total of the painting and the frame.
You must get a CA State resale # if you are going to collect tax. If you don't have time to do this before the opening, you should increase your prices by the percentage of the sales tax in your area and tell your customers that you will pay the tax for them. This makes the price seem better to the customer and since it's a blind item the included tax shouldn't make a difference to your customer. Keep a record of your sales and report the amount of sales tax you've collected when it is due.
If you are paying a commission to the gallery, THEIR PERCENTAGE SHOULD BE ONLY ON THE PRICE BEFORE THE TAX WAS ADDED.
If you usually will have a reseller (gallery) collect from the customers and they include the tax, you should tell the Board of Equalization that the bulk of your sales will be wholesale. If you convince them of this you shouldn't have to pay a deposit against the taxes you'd be expected to collect if you were retailing. This will still give you a resale number and allow you to collect and pay in the taxes you collect.
How about some pictures of your art work?
Have a great success!
As I always say, "that's just my opinion, I could be wrong." 
GeneL
BTW, as far as sales tax, don't make it too complicated. Know what the percentage is, collect it, keep track of it and MAKE SURE YOU PAY IT TO THE STATE! It's really simple.
Oh yes, if you sell to a wholesaler or agent, make sure you get their resale# or you will have to pay the sales tax on those sales. Keep good records of everything because one day you may have to prove to the State what you actually sold and whether it was taxable or not, Another thought is that once you have a resale number you should be able to find wholesale sources for your supplies and you won't have to pay sales tax on anything the goes into your art work and what is used to produce it should be deductible.
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Thanks GeneL, that's very useful (after I figure it out). Here's one of her paintings (though I gotta say, they don't look near as good on the web as in real life): 
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[quote davester]This is a new gallery and this is their first big show, so they don't have much experience with the sales tax thing......
You are "cruisin for a bruisin" here. If they haven't got the sale tax thing worked out they shouldn't be in business. While I won't go so far as to suggest you are going to get scammed, it sounds more like clueless enthusiastic amateurs, the art business is full of difficulties for artists and even more so for women artists. Assuming these are people that you want to work with, why not try and point them to getting a decent tax advisor.
Once you get associated with sales tax from a particular gallery (the gallery is doing the selling), then who knows but the tax man might come after you for all the gallery's outstanding sales tax... Heed ALL the warnings above especially the commission one.
(my wife's been in art for 25-30 years)
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Just charge patrons for your labor and give the painting to them for free.
=D
No sales tax on labor in most states.
=D
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>>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.
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You've gotten some excellent advice, but I would add "step far, far away until this is resolved properly."
You live in New York, but the sales will occur in California, right? Who are the checks going to be made out to? The gallery? If so, it becomes their responsibility, not yours. The tracking of sales tax is tied with in their license to do business. Certainly there are variations among states in terms of how this all works, but there are a few consistencies, too. One of them is that the entity making the sale is the one who will be ultimately responsible for a whole lot of business-related costs, of which sales tax is just one.
Granted, I have no idea how the art business works, but there is something really fishy sounding here, as simonm has already pointed out very clearly. Heed his warning.
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