How to get started with charging sales tax at your studio

Sales tax can be a confusing topic for dance studio owners especially because the laws are different based on which state you are located in. While there isn't a one-size-fits-all type of answer to many of the questions, there are some general guidelines for you to be aware of so you can be sure you're informed and empowered.

Here is an overview of what you may be responsible for when it comes to charging sales tax on products you sell to your students.

Where To Start

You'll want to start with your state's Department of Taxation or in some states it's the Department of Revenue. In general, they have published articles which tend to be a bit hard to read, but you can call and talk to an agent and ask questions. You'll be able to get answers about what's taxable based on your studio.

Financial Groove launched an online website called Sales Tax for Dancers. They called all of the agencies throughout the country and asked questions as dance studio owners and compiled the answers on the website specific for the dance industry. This is a time saver! Go to salestaxfordancers.com to get answers according to your state.

What To Do Next

Sign up with your Department of Taxation for sales tax. When you do that, you're registering to be seen as a business who potentially has sales tax, not saying you absolutely have to. When you sign up and register for a sales tax account, you're assigned a tax ID number from your state. This means that you have an account that says, "Hey, I have things subject to sales tax and I'm a reseller or a wholesaler."

Each state has a little bit of different terminology. So when you're talking about a reseller permit, that's what you get when you sign up for your sales tax account. So they may give you a nice, pretty, embossed piece of paper, and they may just give you a number.

How This Works For Costumes & Dancewear

The costuming aspect has always been the confusing one. And again, this is different per state. For example, some states say no matter if you pay your sales tax to the costume company where you buy the costumes, or if you don't pay that, you have to charge it to your students, your end customer.

Then other states says if you pay it ahead of time to the vendors at the time of the purchase, then you don't have to charge your students at the end when you're charging them for the costumes.

Studio owners seldom buy their costumes all from one place so this makes it very difficult to figure out, so then you need to figure out and differentiate.

The easiest thing that you can possibly do, even just for ease regardless of the fact that there's now a court ruling, is give the costume vendors your wholesaler/reseller permit and not pay the costume company sales tax at the time of purchase. You would then need to check with your state as to their individual sales tax requirements you are responsible for once you re-sell those items to your students. Here's a helpful FAQ https://www.revolutiondance.com/sales-tax-questions on how to submit your certificate to Revolution Dancewear.

It's much easier to be able to do it all one way, and why pay those extra funds into the Department of Taxation? It just doesn't make sense when that cash flow could be used you or your students.

Exceptions

Some studio owners argue that if it's considered a mandatory uniform, it's not subject to sales taxes, but in general with sales tax, requirement doesn't matter.

Requirement does matter, however with income tax, so that may be where things have gotten a little lost in translation with the different types of tax.

And if you believe that you can get around the sales tax by charging flat fees or by including it in a package price you may be actually making things that are not subject to sales tax suddenly subject to sales tax by bundling. But, let us remind you that again this is a state by state thing!

Where To File

The Department of Taxation or Department of Revenue for your state is where you will file.

Take-Aways

Check with your state, get your certificate, educate yourself on those fees. Don't put yourself in a situation where you're actually bundling thinking you're avoiding, but you're bundling and now you're subject to more sales tax.

If you sign up for sales tax and you don't have anything subject to sales tax, i.e., your only taxable items are costumes, but in this particular quarter you didn't have any costumes, then you do still always have to file with zeros on that form. Make sure you send something in, even if it's filled in with a zero.

This article's expert resource is thanks to Jessica Scheitler, Financial Groove. Listen to the Make Sense of Sales Tax- podcast episode here.

Jessica Scheitler, founder of Financial Groove, has been an international entertainment accounting industry leader over the last decade. Offering accounting and tax expertise for entertainers, Financial Groove bridges the gap between creativity and business. Jessica has worked with the top recognized dance studios in the nation and has clients spanning the globe throughout prominent arts organizations including Broadway, Cirque Du Soleil, SYTYCD, and Alvin Ailey among others. With Jessica as the front runner, Financial Groove manages personal and business finances, inspires individuals into action, and assists in maintaining accountability to increase the bottom line. By translating financial data into solutions, Financial Groove delivers clients the tools and coaching guidance to achieve financial success. Jessica is a QuickBooks Proadvisor and an Enrolled Agent, the only licensed designation given to professionals who specialize in tax and have unlimited rights to represent taxpayers before the IRS.

Jessica parlayed her Marymount Manhattan College BFA in Choreography and minors in Arts Administration and Mathematics into a specialized career in arts accounting and business management. Jessica grew up dancing in Iowa with roots in competitive dance and then went on to concert dance and to choreograph musical theater and independent modern dance work. Jessica has worked in arts administration for the Lion King on Broadway, Abingdon Theatre Company and the Metro Arts Council. Jessica is still an active member of the dance community and keeps herself on the pulse of the emerging music and artistic scene. She is a Board Member of Cockroach Theatre at Art Square Theatre and a member of the National Association of Enrolled Agents and National Association of Tax Professionals.

Financial Groove is dedicated to artistic integrity by offering vital business support to the artists who produce it.

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