Colorado Tax for Digital Images

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I know, I can’t believe it either but, YES, as photographers we need to collect and pay sales tax for images given to clients in Colorado! I don’t even remember how it started but I put out a question to my accountant, Jonathan White, with Allen J. White & Associates in Illinois. My email was this:

“Hey Jonathan,
I hope this finds you well. I have a question about sales tax. I’ve not thought about this until now, so I have not been charging clients a sales tax. But should I? So right now, I’m mostly shooting fitness clients that want to chronicle their body transformations through photography. I take their picture, edit them on the computer then send to them digitally.  Most clients either do nothing with them and keep them as a memento and some post to social media. As far as I know, no one ever prints them out or, at least, not through me. My questions is, will I be subject to sales tax for these transactions? I found some info on it and attached the file, but it’s confusing. Can you please clarify? It seems to be saying that I’m subject to sales tax on the actual delivering of the digital files therefore I need to put a price on that actual digital file. However, majority of my cost is the labor of taking the pictures and editing them. The “physical image” costs close to nothing because it exists on the internet. With all that in mind, how should I be invoicing my clients so that I have clear breakdowns of my cost? I hope this makes sense. Please advise.”

This is the specific documentation I found regarding this matter in Colorado.

>>Go to Colorado Government Documentation Site Here <<

Pay attention to the part where it says: “The Department has traditionally viewed digital goods, such as digital music, movies, books, and photographs as tangible personal property because they are not merely a concept or idea, but, rather, are part of the physical world. Therefore, digital photographs sold by a photographer are subject to sales tax.”

So there you have it. Who would have thought? So now what? How do you put a price on this to even determine how to collect sales tax for this? At the advice of my accountant we treated the matter very conservatively and determined a hypothetical situation since nothing was specified for us. We assumed that every digital image I sold to my client was to be printed on at least a 4×6 at about $0.30 a print at a local CVS, Walgreens or the like. Let’s say I sold 500 images in a year, we would need to calculate $0.30 x $500 = $150 total sales. We figured out General Sales tax in Colorado at 2.9% (depending current times). That ends up at $4.35 to be collected and given to the state. Don’t forget we also now have to apply for a sales tax license in order to pay this sales tax. Depending on how many images are sold it may not be that much of a financial burden but simply a total inconvenience. But hey, I did not create the law. For further advice I recommend reaching out to your accountant. There is a bunch of legal jargon they may give you but this is the gist of it.

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