?s for the California Photographers that sell on site

I have joined forces with a fantastic graphics designer who is currently redesigning my site. We decided that we would sell photos and screensavers that can be downloaded right away to the buyer. They could be used for desktop wallpaper, to be printed, whatever.

Does anyone have experience with this?

Any recommendations for not getting in trouble with the State of California?

I did some research, but I am now confused. I believe that I need to get a sellers permit. Is that correct?

Any other input would be appreciated. Thank you so much in advance.

No. Not if you don't have a significant business going on. Getting a business license means that you'll have to prove that you are making decent money with profit after a few years otherwise you will get in trouble with the IRS for claiming deductions for a "hobby". Have a permit though does allow you to buy supplies for wholesale pricing if that is of relevance to your business.

I don't think automated downloads is really a priority for you at this point. It's better to get a grasp of what is market value for your images first and deal with the clients individually. Once you get a reliable client base then the automated stuff could be of value to you. Even then, I think most folks like to talk or email with a real person especially when selling over the web.

Based on my knowledge, if you reside in California and sell to someone within the state you are required to collect sales tax. For this reason alone you'll need to get a seller's permit (Note that a seller's permit is not the same as a business licence). When I went to obtain a seller's permit I was told that filing a sales tax return is mandatory even if my sales don't result in a net profit.

Anil is correct about the sales tax issue. You have to get a seller's permit through the State Board of Equalization, if you want to fly above the radar. You are then required to collect the sales tax on every in-state sale. It is irrelevant whether you are making a profit with your business for sales tax. It is not considered part of your revenue. You collect it on behalf of the state and pass it along to them.

Business licenses are generally governed locally and each municipality could have different rules.

First, I want to thank all of you for your input. It has been very helpful. Second, I have also contacted an attorney, I want to make sure my butt is covered!!! I have filled out the Seller's Permit Application [that was the easy part as well as very cheap - free!] and the attorney suggested that I do a Fictitious Business Name Statement as well. Is that what you mean by a business license?

Sharon,

I'll second Harley's and Anils' thoughts regarding a seller's permit.

If you plan to sell images for download, keep in mind that they will be large files that would thwart those on dial-up. Secondly, you would have to use a password protected protected ftp site from which customers would download the files. Also, you would have no control over the end user's printing of your work. Your prints should be made by you or by someone who will make them to your speciifications: It's your work, not the end user's.

With regard to a business license: Some municipalities require them so that they can collect unsecured property taxes from you, even if you do the business out of your home. You should research this in your city or county (if you live in an unincorporated area).

I agree with Richard that you need to establish a fair market price for your work and establish a client base through personal contact. E-Mail marketing to an 'opt in' mail list is one way to do this. A second way is to have showings of your work and build a list of potential customers. Marketing will take a lot of time and effort. Once you build a base, you can then look at other means of 'order fulfillment', like downloads.

I wish you the best in your endeavors!

-PB

Yep....I have a resale permit, collect sales tax on CA transactions. Once a year I fill out a form and send in the tax money. I did get a ficticious busniness name statement and also have a city business license.

If you plan on doing any art shows, they usually require a resale permit...might as well have one. I have even had to purchase a temporary city business lic. when doing shows in other cities. Everbody wants their cut

Don't have any experience with the instant download thing.

Best of luck to you.

Sharon,

You may also want to post this in the "Marketing" forum and get a broader audience.

In a nutshell, and to be "above board" as has been mentioned... if you sell something and collecte revenue, you should be collecting taxes... and passing them along to our friendly state government. Thus, technically you should have a permit.

Having said that..... it's my opinion that you would only get "caught" if you filed your tax returns and filed your returns claiming business losses (or gains.) What's that, a schedule C?

Here's my little story. I got a seller's permit and business license about 10 or so years ago to make a legitimate business. I was attempting, and sold some photography. I was writing off my film, business expenses, website expenses, etc. I continue to do this to this day, but I let my license/permits expire because I wasn't selling much. Well several years have gone by and just recently I received a notice from my CITY government requiring that I obtain a business license to operate within the city. My first thought was, how the frick does my local city government know that I've been filing state/federal returns claiming business loss/gains? I'm a little perterbed that my personal filings are being provided to my local city government. But that's a whole nuther story...

In the end... if I intend to operate a business AND claim business losses and expenses, I should operate under the law and obtain the proper licences and permits. I don't care to go to court... so I will renew my permits.

Lon

Sharon, it is a good idea if revenues look like they could be there, more then a couple hundred dollars a year, you should pursue all required items mentioned in previous comments. I have had to do this routine for most of my adult life. I spent 20 years drag racing and "earning" money on the weekends doing that away from my full time job. As the winning money was paid in check and SSN's were collected, we had no choice. So, if the government wants to see those earnings, they sure the heck are going to see the losses too IMO. I think you can file for loss 5 years out of 7 with two showing a profit as I recall. A side note to how I had to obtain a local city permit came many years ago when I put a business card for my photo sales up at a car wash. I received a call from the city within days asking me for my permit number. I told them if I needed a permit I would not sell. They said fine. Don't you know a week later someone called and wanted to buy photos. I thought it awful suspicious at the time. So, I said I could not sell direct any longer in town. The person then pushed and asked why not and who cares about the city and so on. I know it was a setup. I never received another call like that again. It was a few years later when I finally got internet sales going that I got all the permits and file taxes on.

Sounds like some hard lessons were learned here. I am so glad that I asked. Looks like I have a lot of paperwork and more research ahead of me. Thank you again so much.

If you pay sales tax to the Board of Equalization, you must complete an IRS Schedule C (Profit or Loss From a Business) and file it with your federal income tax even if your total gross sales were less than $600.

Be aware that deducting meals and lodging as expenses on the Schedule C are 'red flags' to the IRS, so keep these amounts to a minimum, or don't claim them at all. Also, if you deduct mileage or maintenance on your vehicle, you must keep very accurate records of your actual business miles and expenditures. These are a 'red flag, as well. Legally, if you are (say) going to the frame shop to have some frames made, and you stop to pick your tuxedo for sister Mary's wedding, you cannot deduct the mileage for that part of your trip as a business expense. It can get very complicated if you use your vehicle for business and personal use. For myself, I never deduct for food, lodging or mileage; I don't want to get hit with an audit.

I encourage anyone who wishes to start a small business to meet with an accountant who is familiar with the issues/legalities affecting small businesses. It may cost you some dollars, but it will be dollars well spent in the long run.

-PB