h d h hPhotos and Photographers

Revised 3.3.2015

Th NC D t t f R id thi i f ti The NC Department of Revenue provides this information as a courtesy to help keep you informed. As tax laws change, the

application of the information provided may change as well. This information is general and summary in nature, and should not be

construed as advice for your specific situation. If you would like to obtain specific tax advice which is binding on the Department, you p g p , ymay follow the procedure for requesting a letter ruling, which is

located at www.dornc.com.

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• Business RegistrationBusiness Registration

• Photos and PhotographersS l & U T Obli i• Sales & Use Tax Obligations

• Privilege Tax

• Withholding Tax

• Record keepingp g

• Resources

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h l d For the latest updates in North Carolina Tax Law that

may effect you and your y y ybusiness, please sign up for

E-Alerts at:http://www dornc com/elhttp://www.dornc.com/electronic/taxupdates.html

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Business Registration• Complete Form NC-BR, Business Registration Application for

Income Tax Withholding, Sales and Use Tax, and Machinery and Equipment TaxEquipment Tax• Register using one of the following methods:

R O l • Register Online • Go to http://www.dornc.com/electronic/registration/index.html

• Use Web Fill-In Form Use Web Fill In Form • Go to http://www.dornc.com/downloads/sales.html > NC-BR>web fill-in to

enter information online and print a completed form to mail to the Department

• Fill out Paper Form• Order online at http://www.dornc.com/forms/order.html ; or” • Pick up Form NC-BR from one of our service centers

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Business Registration

OnlineBenefits:

• Free

Benefits:

• Easy step-by-step instructions

• Receive account number in minutes

7http://www.dornc.com/electronic/registration/index.html

Business Registration

• Business Registration Application for Income Tax Wi hh ldi S l d U T d M hi d Withholding, Sales and Use Tax, and Machinery and Equipment Tax

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Business Registration

Form NC-BR Sales and Use Tax Section, and Machinery and Equipment Tax Section

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Understanding Sales & Use Tax Obligations

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Sales and Use Tax

• Every person engaged in business in North Carolina is required to collect and pay sales or use tax on is required to collect and pay sales or use tax on retail sales or leases of tangible personal property and certain digital property not specifically exempt and certain digital property not specifically exempt by law.

• Some services are also taxable.

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Sales and Use Tax

• Use taxes are due by businesses on tangible personal property and certain digital property purchased or leased inside or outside this State that is g p p y pstored, used, or consumed in North Carolina. Use tax is due on taxable services sourced to North Carolina.– For example: A restaurant in N.C. buys an oven from a Virginia vendor. The

Virginia vendor ships the oven to the restaurant in N C and does not charge tax Virginia vendor ships the oven to the restaurant in N.C. and does not charge tax. The restaurant in N.C. owes use tax. The vendor is not obligated to charge N.C. sales tax if he does not have a physical presence in this state.

• Use Tax rates are the same as sales tax rates• Taxpayer can claim a credit for sales or use tax due and paid to another state

if other state allows a similar credit to NC.• Businesses report use tax on Form E-500, Sales and Use Tax Return• Businesses not registered to remit sales and use tax must register by

completing Form NC-BR, Business Registration Application for Income Tax Withholding, Sales and Use Tax, and Machinery and Equipment Tax.

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Sales and Use Tax

Tax Rates:

• General state rate: 4.75 %

• Sales and purchases of tangible personal property not subject to a preferential rate.

• Receipts from leases/rentals of tangible personal property

• Receipts from rentals of hotel/motel rooms, lodgings, etc.p g g

• Receipts from laundries, dry cleaning

• Receipts from satellite digital audio radio service

• Certain digital property that is delivered or accessed electronically is not considered • Certain digital property that is delivered or accessed electronically, is not considered tangible personal property, and would be taxable under Article 5 if sold in a tangible medium.

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Sales and Use Tax

Local and transit rates of sales and use tax as of October 1, 2014:

2% - 72 counties

2.25% - Alexander, Buncombe, Cabarrus, Catawba, Cumberland, Davidson, Duplin, Edgecombe, Greene, Halifax, Harnett, Haywood, Hertford, Lee, Martin, Montgomery New Hanover Onslow Pitt Randolph Robeson Rowan Sampson Montgomery, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry, and Wilkes

2.5% -Mecklenburg County (2% local rate and 0.5% transit rate of sales and use tax)

2.75% - Durham & Orange Counties (2.25% local rate and 0.5% transit rate of sales and use tax)of sales and use tax)

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Sales of frames, films and other articles by photographers, photo finishers or others to users or consumers are subject to the 4 75% general State and applicable local to users or consumers are subject to the 4.75% general State and applicable local and transit rates of sales or use tax.

G i f l f h h i l di ll h f d l i • Gross receipts from sales of photographs including all charges for developing or printing by commercial or portrait photographers or others are subject to the 4.75% general State and applicable local and transit rates of sales or use tax. Taxable gross receipts include sitting fees charged to a customer who ultimately purchases gross receipts include sitting fees charged to a customer who ultimately purchases photographs or other tangible personal property.

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Di i l d d fi d G S 105 164 3(7 ) i d h • Digital code as defined pursuant to G.S. 105-164.3(7a) is a code that gives a purchaser of the code a right to receive an item by electronic delivery or electronic access. A digital code may be obtained by an electronic means or by a tangible means A digital code does not electronic means or by a tangible means. A digital code does not include a gift certificate or a gift card.

D li d d l i ll d li d i d b b i d b • Delivered or accessed electronically means delivered to, received by or obtained by the purchaser by means other than tangible storage media. Delivered electronically is delivery by download, email or other method while accessed electronically is delivery by online access generally accessed electronically is delivery by online access generally accompanied by a password or digital code.

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Th f ll i di i l i bj h 4 75% l S d li bl The following digital property is subject to the 4.75% general State and applicable local and transit rates of sales and use tax: (1) an audio work; (2) an audiovisual work; (3) a book, a magazine, a newspaper, a newsletter, a report, or another publication; (4) a photograph or a greeting cardpublication; (4) a photograph or a greeting card.

The 4.75% general State and applicable local and transit rates of sales and use tax li di i l h i d li d d l i ll i applies to digital property that is delivered or accessed electronically, is not

considered tangible personal property, and would be taxable under Article 5, Sales and Use Tax, if sold in a tangible medium. The tax applies regardless of whether the purchaser of the item has the right to use it permanently or to use it without purchaser of the item has the right to use it permanently or to use it without making continued payments.

http://www.dornc.com/taxes/sales/impnotice_digital_property09.pdf

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• A purchaser receives digital property when the purchaser takes possession of the property or makes first f h hi h fi ( ki )use of the property, whichever comes first. (skip space)

• A sale of digital property is sourced as follows:

• (1) When a purchaser receives digital property at a business location of the seller, the sale is sourced to that business location.

• (2) When a purchaser or purchaser’s donee receives digital property at a location specified by the purchaser and the location is not a business location of the seller, the sale is sourced to the location where the purchaser or purchaser’s donee receives the product.

• (3) When (1) and (2) do not apply the sale of digital property is sourced to the location indicated • (3) When (1) and (2) do not apply, the sale of digital property is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller’s business when use of this address does not constitute bad faith.

(4) Wh (1) (2) d (3) d l h l f di i l i d h l i • (4) When (1), (2), and (3) do not apply, the sale of digital property is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser’s payment instrument, if no other address is available, which use of this address does not constitute bad faith.

• (5) When (1), (2), (3), and (4) of this subsection do not apply, including the circumstance in which the seller is without sufficient information to apply the rules, the location will be determined based on the address from which the digital good was first available for transmission by the seller. 18

Purchases by commercial or portrait photographers of items they use in their business are subject to the 4.75% general State and applicable l l d i f l d l b l local and transit rates of sales and use tax unless exempt by law. Examples are general office supplies like desks, chairs, pens, staples, paper clips, etc…

Purchases by commercial or portrait photographers of machinery or h d h f f machinery parts or accessories used in the manufacture of

photographs are exempt from sales and use tax and subject to the 1% privilege tax with a maximum tax of $80.00 per article. p g p

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A sitting fee charged to a customer who does not purchase any photographs or other tangible personal property is not subject to sales or use tax.

A copyright fee that entitles a purchaser the right to reproduce a photograph does not constitute part of the gross receipts from the sale of the photograph and is not subject to sales or use tax when the charge is separately stated on a customer’s invoice and in the

d ’ dvendor’s records.

Sales to commercial or portrait photographers of materials which become an ingredient or t t f th fi i h d i t i l di t f d t bj t component part of the finished picture including mounts, frames and paper are not subject

to the tax.

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F E 500Form E-500.21

• Breakdown of county tax required if sales in • Breakdown of county tax required if sales in more than one county or if filing online.

F E 536 (S h d l f C t S l d U T )– Form E – 536 (Schedule of County Sales and Use Taxes)

• In January 2014, XYZ Photographer has in-store photo J y , g p psales of $500.00 and digital photo sales of $224.73. The store is located in Wake County (6.75%). The digital sales were emailed to the customer and were downloaded in Edgecombe county (7%).

• Complete the monthly E-500 form and E-536 form for XYZ Photographer for the month of January 2014.

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Make sure you provide your legal name, address, period and ACCOUNT , , pNUMBER for accurate processing.

NOTE: ALL gross receipts should be reported.

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Taxable purchases and receipts should b b k d li bl be broken down applicable tax rates.

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Make sure you sign the return and d k bprovide a working contact number.

John Doe

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Filing Frequencies• Quarterly: taxpayers who consistently owes less than $100 per month

• Reports and payment are due by the last day of the first month after the quarter ends (April, July, October, January)

• Monthly: taxpayers who consistently owes $100 but less than $20,000 per month• Reports and payment are due by the 20th of the following month• Reports and payment are due by the 20th of the following month

• Monthly (with Prepayment): taxpayers who consistently owes at least $20 000 per month or more$20,000 per month or more

• Reports and balance of tax owed are due by the 20th of the following month g

• Prepayment due on the 20th of each month• Taxpayer may choose to pay:

• 65 percent of the amount of tax owed the previous month• 65 percent of the amount of tax owed for the same month in the preceding year• 65 percent of the average monthly amount of tax owed in preceding calendar year

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29http://www.dornc.com/electronic/salesanduse.html

P i il TPrivilege Tax

Privilege License

Who Must File Privilege License

A photographer, a canvasser for any photographer, or an agent of a photographer in p g p , g p g ptransmitting photographs to be copied, enlarged, or colored. 

A licensed photographer having a located place of business in this State is liable for the licenseof business in this State is liable for the license tax on each agent or solicitor employed by the photographer for soliciting business.photographer for soliciting business.

P i il LiState privilege license taxes are 

Privilege License

imposed for the privilege of carrying on the business, exercising the privilege or doing h d lthe act named in Article 2, Schedule B of the Revenue Laws of North Carolina. These privilege license taxes are in addition tolicense taxes are in addition to any regulatory or qualification requirements to engage in the practice of a profession businesspractice of a profession, business 

or trade.

Privilege License RatesThe privilege license tax is an annual tax and is due by July 1 of 

Privilege License Rates

each year. The license tax is not prorated, instead, the full amount of the license tax is due when a person begins to engage in an activity for which a license is required at any ti d i th fi l J l 1 J 30 Litime during the fiscal year, July 1 – June 30. Licenses are renewable annually (Form B‐202A) by July 1 and no grace period is allowed before penalty accrues.

Where any person, firm, or corporation is engaged in more than one business, trade, employment, or profession that is subject to State license taxes under the provisions of thissubject to State license taxes under the provisions of this Article, such persons, firms, or corporations must pay the license tax prescribed in this Article for each separate business, trade, employment, or profession.

Understanding Withholding

Tax obligationsTax obligations

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North Carolina General Statute 105-163.2

An employer shall deduct and withhold from the wages of each employee the State income taxes wages of each employee the State income taxes payable by the employee on the wages.

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• Employerp y• An employer is any person or business for whom an

individual performs any service as an employee.

• Employee• Anyone who performs services for a person or business y p p

if the person or business can control what will be done and how it will be done. If the employer-employee relationship exists, calling it something else or signing a contract does not change the status.

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G.S. 105-163.1(13)

The term wages generally has the same meaning for NC as it does in Section 3401 of the Internal Revenue Code, except that it does not include the

l l f amount an employer pays an employee for reimbursement of ordinary and necessary business expensesexpenses.

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• An employee must furnish the employer with a signed p y p y gNorth Carolina Employee’s Withholding Allowance Certificate, Form NC-4 EZ or Form NC-4. The federal f W 4 t b d b tit t A id t form W-4 cannot be used as a substitute. A nonresident alien must use form NC-4 NRA in lieu of Form NC-4 or Form NC-4 EZ.

• If the employee fails to furnish the certificate, the employer must withhold tax as if the employee is single with zero withholding allowances.

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• U d b l t • Used by an employer to determine the proper amount of North Carolina state income tax withholding from an employee’s pay.

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• Depending on your North Carolina deductions and North Carolina tax credits you may elect to use the NC-4 EZ.• Use form NC-4 EZ

If l l i h N C d d d d i• If you plan to claim the N.C. standard deduction.• $15,000 for married filing jointly or qualifying widow(er)

• $12,000 for head of household

• $7 500 for single $7,500 for single

• $7,500 married filing separate

• Plan to claim no tax credits or only the credit for children. Please refer to the NC-4 Part II Schedule 4 of Allowance Worksheet for more information.

• Prefer not to complete the NC-4

• Qualify to claim exempt status

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NC-4 EZ or NC-4

• If the NC-4 EZ does not apply to your specific situation, you may need to fill out the NC-4 to determine your number of allowances.

Note: NC-4 EZ will suffice for most

employees.p y

43http://www.dornc.com/downloads/nc4ez.pdf

NC-4 NRA

• Since nonresident aliens generally are not eligible to take the

d d d d i h h standard deduction, they have to enter an additional amount of income tax to be withheld for income tax to be withheld for each payment period on line 2 of Form NC-4 NRA.

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• Wage Bracket Tablesg

• Percentage MethodPercentage Method

• Annualized Wages Method• Annualized Wages Method

• There IS NOT an established “%” rate for computing • There IS NOT an established % rate for computing withholding. Exceptions: 4% for personal services, 5.8% for supplemental wages, and 5.8% for lottery winnings.for supplemental wages, and 5.8% for lottery winnings.

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• NC-30 provides • ithh ldi t• withholding amounts

• detailed information on withholding requirements and g qfiling and paying

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Frequency Tax Withheld Per Month Due Date

Quarterly(NC-5) $0.00 - $249.99 Last day of the

first month after

the quarter endsq

Monthly(NC-5) $250.00 - $1,999.99 15th of the following monthfollowing month

Exception: December due date is January 31st

of following year

Semiweekly(NC-5P) $2,000 or more Same as Federal dates

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• XYZ Enterprise will be filling out its NC-5 for the h f J Th b h l month of January. The business has one employee

whose salary is $2,970.00 per month. The l ’ f l d h 1 ll employee’s filing status is married with 1 allowance.

Please complete the form.

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• Provide each employee a copy of the completed W‐2 or 1099 statement by January 31.

• File the Annual Reconciliation Statement   (NC‐3) and the Department’s copy of each(NC 3) and the Department s copy of each   W‐2 and 1099 statement by February 28 with DOR.DOR.

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NC-3

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• CD-ROM, DP43 & DP40

NC 57 C P• NC-57 Computer Printout

• Paper documents

• North Carolina DOES participate in the combined North Carolina DOES participate in the combined federal/state filing of 1099. However, the employer must get permission from the IRS.employer must get permission from the IRS.

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Recommendations

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Keep records for three years• All books and records (receipts, invoices, cancelled checks, etc.) to substantiate

income and deductions claimed for any business. y

• All records (receipts, invoices, cancelled checks, etc.) to substantiate itemized deductions.

• Any other information relevant to your Federal or State returnsAny other information relevant to your Federal or State returns.

• A retailer’s records must include records of the retailer’s gross income, gross sales, net taxable sales and all items purchased for resale. Examples of documents containing this information include (this is not an inclusive list):documents containing this information include (this is not an inclusive list):

• General Ledger• Sales Invoices

• Receipt books• COMPLETE Bank Statements• C l d h k

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• Purchase Invoices• Cash register tapes

• Canceled checks• Credit card statements• Account statements

Records should be kept for at least seven years.p y

• Names

• Addresses• Addresses

• Security numbers of employees or payees receiving payments

• Withholding allowance certificates

• Amounts and dates of wages and other payments and records of the amount withheld

• Copies or records of all reports or returns filed

• Records of all payments made to DOR.

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• Taxpayers must be able to substantiate all information on p yreturns.

• Documentation should be maintained in an orderly manner yin an effort to substantiate income, expenses, deductions and/or credits claimed on any returned filed with the Department.

• Documentation should be organized, summarized, and d f ll grouped in an easy to follow manner.

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• www.dornc.com• YouTube

T A i d C ll i C • Taxpayer Assistance and Collection Center: • 1-877-252-3052• Service Centers across the state

• Asheville• Charlotte• Durham• Elizabeth City• Fayetteville• Greensboro• Greenville• Hickory• Raleigh• Wilmington• Winston-Salem

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