Taxes are a nightmare at the best of times. There’s the form-filling, the receipt-keeping, the revenue-calculating and finally, the check-writing. That always hurts. And there’s very little escape from it. Even part-time photographers have to do the tax thing and hand over large chunks of their sales to the IRS – at least, they’re supposed to. Some photographers though have found that the tax authorities can be particularly mean, landing them with some unexpected bills of eye-watering sizes – and for some very odd reasons.
Sports photographer Eugene Amos, for example, has reason to feel particularly aggrieved. On January 15, 1997, he was photographing an NBA basketball game between the Chicago Bulls and the Minnesota Timberwolves when Dennis Rodman fell off the court and landed on him. Amos received minor injuries but these were compounded when Rodman kicked him in the groin, say representatives at the Risk Law Firm.
The two sides reached a settlement in which Rodman agreed to pay Amos $200,000 in compensation.
The IRS Lands a Second Blow
And that was when the tax authorities gave Amos a second kick. The IRS sent him a note of deficiency, informing him that only one dollar of Rodman’s payment was for his injuries and therefore tax-free. The remainder was taxable damages.
The Tax Court took a more generous view, allowing Amos to deduct $120,000 of the payment from his gross income as compensation for his injuries but claiming that the remaining $80,000 was in return for the confidentiality clauses that were included in the agreement. As part of the deal, Amos had agreed not to defame Rodman, disclose the terms or existence of the agreement, publicize facts relating to the incident, or assist in a criminal prosecution against Rodman in relation to the kicking he was said to have delivered. The details were revealed in the court ruling, effectively negating their apparent $80,000 value.
The IRS is believed to actively search for large damage awards, and issues its field agents with special guidelines regarding lawsuit awards and settlements. That’s something to bear in mind next time you’re agreeing a figure with a celebrity who’s just bounced your camera off your head.
Leibovitz Pawns Her Images to Pay the Taxman
If Amos might feel he was hard done by, he could at least count himself lucky to hold $120,000 in return for being squashed by a pile of tattoos. Annie Leibovitz, however, has much more reason to feel bitter. When her partner Susan Sontag died in 2004, Leibovitz, Vanity Fair’s in-house photographer, inherited her estate. Had the couple been legally married, points out Queerty, the inheritance would have brought no tax liabilities at all. Because they weren’t married though, Leibovitz is faced with paying up to 50 percent of the value of an estate that had once belonged to an internationally-renowned author, film-maker and intellectual.
It’s a bill that comes at a particularly bad time for Leibovitz. Renovations on her three adjoining townhouses in Greenwich Village have turned out to be more expensive than she anticipated. She recently paid off a lien placed by federal and state authorities in response to tax demands of more than $1.4 million, and a lighting company and stylist are suing her for more than $700,000.
The financial difficulties are so tight in fact that last fall, Leibovitz borrowed $5 million from lenders Art Capital Group. A few months later, she was back with a request for $10.5 million more. Her collateral included the townhouses, a country house… and the rights to all her pictures.
It’s nice to know you’ve got valuable photos, but it’s nicer still if you can keep them out of the hands of the pawnbrokers.
Do Photographer Services Require a Sales Tax?
Eugene Amos’s problem was relatively rare. It’s not every day that a celebrity with lots of money and an image problem mistakes a photographer for a soccer ball. The size of Annie Leibovitz’s tax and debt issues are worries for millionaire photographers. But the tax code is so complicated that even small photographers can easily slip through the net and get picked up by the tax authorities. That’s especially true when it comes to sales tax.
When Ted West, a photographer in Oklahoma, was audited for the period between March 1, 1992 and February 28, 1995, the tax authorities discovered that he did not have a sales tax permit for his photography business. He paid sales tax when he bought supplies, rented equipment or developed film but he didn’t collect sales tax from customers that included advertising agencies and commercial clients.
West argued that the demand for sales tax was wrong because even though he gave the completed film to the clients and didn’t even retain copyright over the images, his transactions were for services rather than tangible personal property. He also claimed that his relationship with his clients was that of employer/employee – a definition even few photographers would want to support. That meant the client always owned the photographs and he didn’t need to pay sales tax for what was effectively a salary.
The court, perhaps not surprisingly, didn’t agree. He was ordered to pay 4.5 percent of the gross receipts of each sale for the three years covered in the audit.
West’s case was relatively straightforward. If you hand over pictures to a client and they pay you for it, you’ve made a sale and have to collect the sales tax. Fail to do that and the IRS will come round with a big bill. But what happens when no images change hands?
In April 2009, the North Carolina Court of Appeals heard an appeal lodged by the state’s Secretary of Revenue against a decision made in favor of Carolina Photography Inc., a photography firm that photographs high school students. In June 2002, The company was audited for the period between March 1, 1999 and January 31, 2002, and ordered to pay sales tax for “retouching fees,” “copyright fees” and “sitting fees” that were levied before an order was placed.
But while every student that sat for a picture paid a sitting fee, only 70 percent bought an image. Carolina Photography paid the sales tax for all the fees then asked the court for a refund for the 30 percent of sitting fees that didn’t produce a sale. The Trial Court agreed to the refund. The Appeals Court saw things differently. It assessed that the sitting fee was part of the sales price – in effect, it was a labor fee to fabricate the printed photographs – and therefore needed sales tax. It overturned the Trial Court’s decision.
It would be nice to say that there’s a moral here, that the tax laws are straightforward as long you sign the checks, collect the sales tax and pay the bill. But if there is any conclusion you can draw from this, it’s that you’ll always end up paying taxes, it will always hurt — and it’s worth listening to a professional tax advisor.