This is a three part series to help you get started in the art festival circuit.
- Part 1: Doing your research
- Part 2: The application process
- Part 3: Taxes and Licenses (this article)
You’ve applied and been accepted into shows. Now begins the dreaded part, taxes and licenses!
Business Licenses
You should already be established as a business of some sort in your home community. This might mean being a sole proprietor, an LLC or more. Therefore, you should already be registered (if necessary) and have a sales tax license for your home state. How do you do these? Usually with a secretary of state, but even this varies by state and city. The cost also varies and you’ll probably need to pay a yearly fee to maintain the business entity. You can learn more about that here.
Specific Business Licenses for art shows
Every city and town handles mobile vendors, which is what you are, differently. Some may require you to have a business license for that municipality. Others, simply require a sales tax license. It really depends on the location of the art show. Other towns and cities will allow the show organizer to include a license with your booth fee. This last option is by far the easiest. But then again you don’t usually have a choice in the matter. Keep in mind some cities and towns make you buy a license for the year or possibly just the weekend. In my experience a show director will almost always include tax and business license information with your acceptance to the show. If they don’t, ask them. They will know exactly where to send you for whatever is needed. This might be a website or a contact person within the town/city. Either way they are the most helpful in this regard.
Sales Tax
So you have the proper business licensing and you’re all set to go. While you are simply collecting sales tax on behalf of a municipality, whether it be a state, county, city or town, you might need a license to do so. There is no way around this unless there is no sales tax in that state. Which states don’t have sales tax? Oregon, Montana, New Hampshire, Alaska and Delaware. Anywhere else and you’ll be collecting and remitting sales tax. Make sure you know the sales tax rate for the locality of the festival. This can vary from city to city even within the same state. If you use a vendor for your sales such as Square, it’s easy to enter in the sales tax rate for that location. Then you’ll be collecting it with every sale.
Remitting your sales tax collected
After the show, you’ll need to submit the sales tax collected to that locality or state. Again this varies by location. Some cities collect their sales tax separately from the state and other places allow you to send in one payment to one location. My favorite are the municipalities that allow me to submit my form and payment online. This, for me, is the easiest and quickest way. You usually have until the 20th of the month following the event to submit this information which is plenty of time. I have also had festivals collect sales tax at the end of the show. This is by far the easiest. Then you owe nothing more to any other agency. Others collect the city or town tax and you have to still pay the state tax. Can you tell it really varies from show to show? Keep in mind some cities make you buy a tax license for that city that is good for the entire year. You will then owe them a sales tax form monthly! Yes. I have run into this and didn’t realize I needed to submit a form for each month even though I had no sales in that city after the art festival was over. It was easy enough to submit a form each month with $0 on it to make sure I was complying with the rules and not receiving sale tax invoices or notices. This is a confusing endeavor, but my best word of advice is to ask the show organizer or tax agency directly. They are there to help you with questions and concerns and I have never had one get upset when asking about proper sales tax licensing and remittance.
Out of State Sales Tax
If you do art festivals and end up shipping items to people who live out of state, you may not need to collect the sales tax. Confused? Well, this is one exception to the sales tax collection rule in many states. My business was originally based in Colorado and they have a ship out of state exception to the sales tax rule. Therefore, when I sold a piece to be shipped out of state I turned off the sales tax collection within Square to save the customer that percentage. Technically the person is to report this to their home state and pay the local sales tax on it. At that point it becomes their responsibility and not yours as the vendor. When filling out my annual or monthly sales numbers, there is a line for out of state sales. Therefore, the sales are included in your gross income and then subtracted later to get your sales tax income. I know other states have similar rules to shipping out of state. It is best to research whatever state you’ll be selling in to know the exact rules.
Income Tax
This is where it gets sticky. I technically report all my income to my business home state and location. This is the state where your business is registered or you file your taxes as a sole proprietor. I know for sure that California considers income earned at a festival in California as income for that state. If you are not already a California resident, you will need to file a tax return with the income earned for any California art festivals. You will get a credit for income tax paid to your home state and you may not owe income tax. It really depends on the income earned and tax rates. But if you don’t file and get caught later, it’s no fun. California in particular has been strict about this and has come after people since there is usually a paper trail for the art show. Be careful here and talk to your CPA, if you really feel lost.