That was my first impression
[edit for Australian folks at the end]
… when I received a letter from the Department of Revenue stating that I could owe as much as $15,000 in USE Tax. My reaction was to immediately forward all that correspondence to my accountant, Kiran. Thankfully, I did not owe that money and I could go on with my life without selling a kidney.
Later on, I decided that I should know a little bit more about this tax and, naturally, share that information with you. So here goes:
WTF is USE TAX?
Use tax is a tax on goods and services owed to your state when you haven’t paid sales tax on that item.
So, when you paid $400 for a used iPad off Craigslist- you owe the state tax on that purchase. Don’t freak out, most people don’t know about this tax. In my state, only about 5,000 people paid use tax and, if you know about business and sales, you know that that is a VERY low number. The problem is that no one is educated about Use tax and there is no incentive to pay it (ie, claim that iPad on your taxes).
Use tax is owed by both businesses and individuals. So, if you’re like me and want to go out of state to purchase a big ticket item to avoid Washington’s 10% sales tax, you still owe a tax on that purchase when you bring it home. When do you have to pay for it? The first time you use the item in your home state. The example listed on the WA DOR website is a good one. If you bought a new pair of skis in Idaho and brought them back to Washington, you’d owe taxes on said skis on the 15th of the following month.
How much do you owe?
That is figured by the value of what ever you bought and will be different for each state. (Sorry to all my foreign readers!) You should check your state’s department of revenue to learn the details. The details should be easy to find now that you know about them.
Why is this important to my art business?
Well, if you’re purchasing items for you business such as computers, photo gear, painting supplies, etc, from a source that is not charging you tax, then you are liable for paying the taxes on those items.
BUT - as artists, we do have a saving grace, at least in the state of Washington:
Exemptions—Sales to artistic or cultural organizations of certain objects acquired for exhibition or presentation.
The tax levied by RCW 82.08.020 shall not apply to sales to artistic or cultural organizations of objects which are acquired for the purpose of exhibition or presentation to the general public if the objects are:
(1) Objects of art;
(2) Objects of cultural value;
(3) Objects to be used in the creation of a work of art, other than tools; or
(4) Objects to be used in displaying art objects or presenting artistic or cultural exhibitions or performances.
This means that things such as easels, frames, glass, display walls, are exempt from Use Tax. If you can justify it, things like TVs, projectors, and iPad or tablet (I use a tablet as a presentation tool) could be exempt, too. Key thing to note is that you’d need to be able to justify it.
Also, if you have a Reseller Permit, like I talked about in the Sole Prop video, you are exempt from paying tax or use tax on items you intend to resell. You’d then have to collect tax on those items and pay that to your state and local governments.
Do You Hate Taxes?
You need to stop right there. That is the wrong framework for mind. Taxes are a tool that enables you to live the life you are living. Your government is funded by your taxes and all the things complain about (i.e. roads, cops, etc) and all the things you don’t complain about (firemen, street sweepers, your mail) from your government are funded by them, too. I’ll have no whining on the topic.
More and more, I find people from Australia joining TASA and I know that not everything that I’ve spoke of/shared applies to you folk down under. In Australia you don’t have USE TAX but you do Goods and Services Tax that is a bit confusing. Here are two resources that cover everything you need to know:
Hey, tell two artists about The Art of Selling Art if you find this content useful.