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December 1, 2014IM -
by Robert Baird, President Baird Artists Management (BAM!)
My column “Getting Merchandise Across Borders” (October 2014 IM) prompted some questions on dealing with the sale of merchandise once you’ve gotten it into the country. We all know about “under-the-table” sales, but we should also be aware of the regulations regarding tax on merchandise—sales tax or “use” tax. All jurisdictions have regulations regarding the collection and remission of sales tax and you need to know what is required of a nonresident federally, as well as in each state, province, and even in cities. Collecting and remitting taxes are the responsibilities of vendors, so as a self-employed musician, you need to be aware of tax regulations and how to deal with them.
Dear Crossing Borders,
If an artist is selling promotional merchandise at his shows, does he need to charge tax to the buyers? If so, are the regulations different if the merchandise was produced in the United States, as opposed to Canada. Are there any special rules to follow when claiming income from selling the merchandise on your taxes?
Taxed to the Max
As Benjamin Franklin once wrote: “In this world nothing can be said to be certain, except death and taxes.” And for any musician, especially a travelling musician, trying to sell merchandise, finding out about taxes can be daunting. The general rule is that sales tax must be collected on every sale to the ultimate consumer. However, each jurisdiction is different and there may be no sales tax applicable, or there may be exceptions for nonresidents.
First of all, you must determine if there is a sales tax. In the US, there is no general national sales tax. Sales tax is levied at the state (or lower) level. There are five states that do not charge sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Unfortunately, some localities within these states may charge sales tax and you may have to do a little research to check if there is an applicable local tax. Information on state sales tax can also be found by looking at each state’s website. You can find links at: http://www.usa.gov/Agencies/State-and-Territories.shtml.
In Canada, there are two levels of sales tax: federal and provincial. The federal and provincial sales tax rates are combined (harmonized) as HST in Ontario, New Brunswick, and Newfoundland and Labrador (13%), Prince Edward Island (14%), and Nova Scotia (15%). In the rest of Canada, the federal sales tax (GST of 5%) and the provincial sales tax (PST) are collected separately. Registration for GST/HST is voluntary and, depending upon your level of business activity in selling merchandise, you may want to consider registering.
Secondly, you have to determine if you are required to collect sales tax at all as a nonresident. In most jurisdictions in the US, out-of-state sellers do not need to collect sales tax, unless they have a “nexus” or presence in that state. A nexus means that you have a store location in a state, inventory held within that state, or employees or affiliates who live or work in that jurisdiction, visit customers, or attend trade shows. If you have an established nexus, you do need to register as a retailer and get set up to collect sales tax.
However, nexus rules vary from state to state and some states or areas may require that you collect sales tax without a nexus. If the vendor has no nexus within the jurisdiction then “use” tax (self-assessed sales tax) becomes the responsibility of the consumer/purchaser. However, some jurisdictions may require the vendor to collect and remit this tax.
In Canada, if a nonresident vendor has no business presence in the country, then the collection of HST/GST is not required. However, several provinces recommend that nonresident vendors register voluntarily, either provincially (PST), federally (GST), or both (HST). More information can be found at: http://www.cra-arc.gc.ca/E/pub/gp/rc4027/.
Rather than ignoring the issue, musicians need to research sales tax and deal with the specific requirements in the jurisdictions in which they will be selling merchandise. If you are selling merchandise at a trade show, or in connection with a performance at a venue or event, the trade show, venue administration, or event organizer should be able to assist you in doing this. Knowing about sales tax and how to deal with it are two necessary skills for artists crossing borders.
Finally, to answer the other questions posed: sales tax regulations are the same whether the merchandise was produced in the US or in Canada, and there are no special rules to follow when claiming income from selling merchandise, except one: do claim the income.