HB250 By Representative Todd RFD Ways and Means Education Rd 1 11-MAR-15

SYNOPSIS: Under existing law, commercial photographers are required to collect and remit state sales taxes.

This bill would provide certain state sales tax exemptions to commercial photographers and other photographers.

This bill would allow the Alabama Department of Revenue to promulgate rules.

A BILL TO BE ENTITLED AN ACT

Relating to taxation; to provide state sales tax exemptions to certain commercial photographers and other photographers; and to allow the Alabama Department of Revenue to promulgate rules.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. This act shall be known and may be cited as the “Creative Professionals Small Business Tax Protection Act."

Section 2. The Legislature makes the following findings:

(1) Photographers and photography studios have recently been targeted by the Alabama Department of Revenue, Sales and Use Tax Division, which takes the position that the gross receipts of all photographers engaging in business in Alabama should be the subject of sales tax with limited exclusions.

(2) The taxes of gross receipts by the Alabama Department of Revenue is excessively burdensome on commercial photographers, who have traditionally viewed their line of business as a provider of non-taxable photography services as opposed to a retail provider of tangible products.

(3) Until the recent flurry of tax audits by the department, commercial photographers had not previously been required by the department to collect and remit sales tax.

(4) Most commercial photographers in this state are small businesses that will be negatively impacted if the current position of the department is maintained.

(5) The new position of the department that commercial photographers should collect and pay sales tax has substantially no basis in existing case law of this state which has primarily dealt with retail photography, as opposed to commercial photography services. Therefore, we believe that a distinction needs to be made between the sales tax treatment of commercial photography services versus non-commercial photography products, and to clarify the proper application of the existing case law regarding advertising agencies and commercial videographers to equally apply to commercial photographers as well as there should be uniformity in the sales tax treatment of very similar if not identical types of commercial services.

(6) Commercial photography is primarily an image production service provided to business entities, including magazine publishers and advertising agencies, for use for commercial purposes.

(7) The commercial photography industry, including the business of a commercial advertising production, is virtually identical to the business of commercial video production, which has been held to be a non-taxable service by the Administrative Law Division of the Department of Revenue in Auvid Production International, Inc. v. State of Alabama, S 97-475 (Adm. Law Div. O.P.O. 11/14/00) and Bramblett v. State of Alabama, S 05-1067 (0.P.O. 7/25/06).

(8) The only difference between commercial photography and commercial video production being the production of still and video images rather than only video images which should be immaterial for sales tax purposes.

(9) Commercial photography is part of the creative process found to be nontaxable when performed by advertising agencies, Alabama Administrative Code §810-6-1-.02 and State v. Harrison, 386 So. 2d 460 (Ala. Civ. App. 1980).

(10) Commercial photographers are often hired by advertising agencies to provide a part of a larger creative product and the fact that an advertising agency chooses to outsource a portion of its work, which the regulations recognize as a non-taxable service, to a commercial photographer does not transform that non-taxable service into a delivery of a taxable tangible product.

(11) This act is intended to give commercial photographers the fair treatment they are entitled to under the laws of this state by providing commercial photographers with the same protections from being required to collect and remit sales tax on non-taxable services that have already been granted to advertising agencies and commercial videographers.

(12) Furthermore, this act is intended to clarify the law with respect to the sales tax treatment of non-commercial photographers who are also being targeted for audit by the department, providing statutory certainty in an area that is less than clear in the existing revenue rules and case law.

Section 3. For purposes of this act, the following terms shall have the following meanings:

(1) ADVERTISING AGENCIES. Advertising agencies which design and implement advertising campaigns for purposes of advertising the goods, services, or ideas of their clients which, as part of that primary function, provide their clients with services such as consultation, consumer research, media planning and placement, public relations, and other marketing activities, and provide tangible personal property such as print advertisements, finished art, and video and audio productions.

(2) COMMERCIAL ARTISTS. Artists who:

a. Characterize themselves as commercial graphic artists, commercial illustrators, commercial videographers, commercial photographers, or commercial designers, provide services and tangible personal property to their clients for use in the advertising campaigns of their clients, or other commercial uses of their clients; very similar to the services provided by advertising agencies.

b. Provide services to their clients that often include creative consultation, such as the creation and development of ideas, concepts, looks, or messages, producing, directing, managing the creative project, writing scripts, casting talent, scouting locations, and image, video processing, retouching, or editing.

c. Provide to a client image, artwork, or video for promotion, publicity, marketing, publishing, advertising, corporate communications such as directories, websites, annual reports, brochures, packaging, news reporting, product development, merchandising, commercial display whether in print or in digital form which the client intends to use for commercial use. The types of clients who commission photographs, art, design services, and videos for commercial use may include businesses such as advertising agencies, corporations, publishers, news organizations, nonprofit organizations, governmental agencies, or anyone selling a product or service. Services of commercial artists include, but are not limited to, the creation of preliminary art and finished work product for commercial uses of the client.

(3) FINISHED WORK PRODUCT. The final tangible product created as a result of the services provided by a commercial artist or advertising agency includes, but is not limited to, the electronic artwork, illustrations, such as drawings, diagrams, paintings, or images, video, and photographic images.

(4) NON-COMMERCIAL ARTISTS. Artists that characterize themselves as portrait painters, fine art painters, sculptors, portrait photographers for personal use, wedding photographers, wedding videographers, and other photographers that create works primarily for non-commercial uses, such as for sale at retail or for the client’s own personal non-commercial use. Examples of products for personal uses may include wedding photographs, albums, school photographs, personal portraits, three dimensional sculptures, fine art paintings, or prints for personal use.

(5) PRELIMINARY ART. Tangible property which is prepared solely for the purpose of demonstrating an idea or message for acceptance by the client before a contract is entered into, or before approval is given, for preparation of finished work product, provided neither title to, nor permanent possession of, such tangible personal property passes to the client. Examples include roughs, visualizations, layouts, comprehensives, and proofs.

(6) SERVICES. Services performed by a commercial artist to convey ideas, concepts, looks, or messages to a client are nontaxable, even if the services may result in a transfer, enhancement, or revision of electronic artwork, hard copies of electronic artwork, copies of manually prepared artwork, or copies of videos.

(7) TANGIBLE PRODUCTS. The transfer of preliminary art or finished work product from an advertising agency or commercial artist to a commercial client which is only incidental to the non-taxable services.

Section 4. The following and similar fees and commissions incurred or charged by an advertising agency, commercial artist, or non-commercial photographer are not taxable:

(1) Media commissions or fees received for placement of advertising whether paid by the medium, by another advertising agency, commercial artist, or a client of the agency or the artist.

(2) Consultation and concept development fees related to client discussion, development of ideas, and other services paid by an advertising agency or commercial artist for the transfer of the tangible personal property of the client produced as a result of these services if the transfer is incidental to the providing of the service and is not a sale of that tangible personal property where the advertising agency or commercial artist is the consumer of tangible personal property transferred to the client incidental to the providing of the service.

(3) Fees for research or account planning that entail consumer research and the application of that research to the client's business or industry.

(4) Fees for quality control supervision that entails the proofing and review of printing and other products provided by outside suppliers.

(5) Charges for the formulation and writing of copy.

(6) Service fees charged by talent, models, hair stylists, make-up artists, wardrobe stylists, prop stylists, sound recordists, technical assistants, lighting directors, location scouts/managers, tradesmen, editors, etc. and paid for by an advertising agency or commercial artist, whether or not the client is separately invoiced for these fees, as the advertising agency or commercial artist is the consumer of these services.

(7) Transfer of tangible materials whether it be via tape, film, optical disc, hard drive, or electronic delivery.

(8) Tangible personal property or services used or consumed by an advertising agency or commercial artist in the operation of its business unless the property is sold to a third party.

(9) A fixed rate fee charged by a non-commercial photographer for services or labor that is not based on or contingent on the subsequent sale of tangible property is not taxable such as fixed rate fee which includes a non-commercial photographer's fixed charges for attending and taking photographs at an event, such as a wedding, portrait session, etc., when the charges are not contingent upon the subsequent purchase of photographs by the client, and when the fees do not vary depending upon the number of photographs the client may later purchase, even if the photographs are subsequently separately purchased by the client.

Section 5. If a non-commercial photographer charges a lump sum to its client which covers fees for services and the sale of tangible products and the fees for services are not separately stated nor are they expressly non-contingent upon the purchase of photographs, then the presumption will be that the entire lump sum paid by the client is taxable, unless the non-commercial photographer can document that the service fees should properly be treated as non-taxable.

Section 6. Each advertising agency, commercial artist, and non-commercial photographer shall keep sufficient records to document the basis for the reported measure of tax, including documents to evidence the applicability of this act.

Section 7. The department shall promulgate any rules necessary to implement and administer this act.

Section 8. This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law.

Taxation

Sales and Use Tax

Commercial Photographers

Revenue Department

Popular Names

Exemptions