A taxing saga for photographers continues

A group of about 30 photographers attended a public hearing at the Alabama Department of Revenue to voice their opposition for the proposed changes to the Alabama Tax Code. Photo by Cody Owens.

Plenty of analogies sum up Birmingham-based photographer Edward Badham's experience with the Alabama Department of Revenue over the last few years.

"It's like being at someone's house playing cards and after a few games they say, 'Look, this is my house and I say these are the rules now,'" Badham said. "'And those last few games, I'm changing the ruling there too…So I win, you lose. That's just the way it is in my house.'"

Badham is one of many commercial photographers in the state who say they have been targeted by the ADOR for six years' worth of back sales taxes that they were never supposed to pay. The photographers contend that commercial photography has been sales tax exempt because they provide a service, not a taxable product.

In the latest development, the ADOR has "clarified" the Alabama tax code to include provisions that essentially strike down the tax-exempt status of commercial photography in the state.

State auditors draw no distinction between the service provided by commercial photography studios and those rendered by portrait and wedding photographers, based on testimony at a public hearing last week.

Marcia Ward, an auditor from Baldwin County, said that because people come to the beach to have their pictures taken, then mailed out of state once the session is over, Alabama is losing potential tax revenue.

"Only because photos are mailed out of state, this allows everything to become non-taxable," Ward said at Thursday's hearing. "We're down in Baldwin County, and we have a lot of photographers on the beach, and people come to the beach to have their pictures made. They all get mailed out of Baldwin County and Alabama."

Also, Ward continued, the photos taken on Baldwin County beaches are downloaded from the photographer's website once the customer is out of state. "To me, that's where the title transfers right there," Ward said. "They can save a whole lot of money by doing it that way."

Jerry Green, another auditor from Baldwin County, said that it is troublesome that some photographers pay taxes and others do not. Because of this, auditors have a difficult time applying the tax codes to different businesses.

"We just want to make sure it's fair. We don't want to go out there and audit somebody and say you have to pay taxes but this person doesn't have to pay taxes," Green said. "We have some consumers being charged tax, some are not…we just need to get it straight. Either photographers are going to pay taxes, or they're not.

"But," he continued, "they don't pay the tax, they actually charge it to the customers who have to pay it. Those customers deserve to be treated fairly."

Several people at the hearing said there is an important distinction to make between the varying subsets of professional photography.

The work of commercial photographers like Badham is typically project-based, where location scouting, creative design and cooperation with clients are major pieces of the services rendered. Generally, commercial photographers do not have storefronts where products are sold.

The proposed changes to the tax code are designed to ensure that commercial photography would no longer be tax exempt in Alabama.

"The gross proceeds accruing from retail sales of photographs, blueprints and other similar articles are subject to sales or use tax, without any deduction for any part of the cost of production, whether delivered in final printed form or delivered in digital form via telephone lines, over the Internet, by e-mail, or by another alterative form of transmission," the revision says.

The gross proceeds also include, "consulting fees, sitting fees, or contract fees when such fees are charged in conjunction with the sale of photographs, blueprints and other items sold by the retailer," as stated in the proposed changes to the tax code.

The ADOR reserves the right to clarify the current tax code. The public hearing was the first step of the process for the ADOR to clarify a portion that, as it is currently written, does not clearly state how sales tax should be applied to commercial photography companies. The ADOR will now decide whether to keep the changes as they have been proposed. That process could take weeks.

In order to further clarify, the changes come with examples for auditors to reference.  "Photographer charges $3,500 for a contract to provide a photographic session. This amount billed either as a lump sum or broken down on invoice showing $3,000 due for consulting fees and $500 for a disc or access to digital photos. Regardless of whether the pictures are purchased on a disk [sic] or accessed digitally, the full amount of $3,500 is subject to the sales or use tax."

The photographers involved feel like this is taxation without representation.

A photographer who asked not to be identified because his company had not yet been audited questioned why the agency is "clarifying these tax codes now," and "still be going back and auditing businesses for back taxes they weren't supposed to pay until now?"

"The [ADOR] is basically admitting the codes didn't call for a sales tax, but they are still trying to get the money from these businesses retroactively," that photographer said.

Currently, Badham is being ordered to pay $48,000 in back taxes. Other commercial photographers have been audited as well.

Most notably, Liesa Cole, the owner of Omni Studios in Birmingham, was recently granted a summary judgment by Jefferson County Circuit Court Judge Houston Brown in her case against the ADOR after nearly two years of litigation over the $28,000 in back taxes Cole was told to pay.

Brown's June 15 decision left little room for interpretation and upholds the right of commercial photographers to be exempt from paying sales tax because they offer a creative service. "As a commercial advertising production studio, Omni's professionals use their talent, expertise and experience, in consultation with their clients, to gather the necessary resources to produce both still and video images that fit a particular commercial need," the order reads.

"Section 40-23-2(1) of the Alabama Code (1975) imposes a sales tax on the retail sale of tangible personal property in Alabama. However, tangible personal property delivered as an incident to professional services is not taxable under the statute," according to Brown's summary judgment."

Despite Brown's decision, the ADOR appealed the summary judgment, prolonging a situation that Cole has described as an endless nightmare.

At Thursday's ADOR hearing, Cole urged the panel to read Brown's decision.

"I appreciate what these auditors are saying," Cole said. "I feel sorry for the auditors because they do have a bit of an impossible task because the code is so outdated. There are no clear rules for the road."

Cole said that after comparing notes with other commercial photographers, the various audits are "all over the map." For Cole, it is impossible to do business when various audits turn up different results, she said.

Cole turned and addressed the auditors sitting behind her at the hearing. "If you would read [Brown's] order, that is all the clarity you need," she said. "None of us have a store front. We're more akin to an advertising agency. We don't have a portrait set that stays up all the time and somebody comes in and gets a family portrait because they saw our sign."

ADOR representatives declined to comment due to the pending litigation with Omni Studios.

If the changes are upheld, Badham said that it would be devastating for the industry in Alabama. "I'm sure a bunch of us would just pack up and get out," Badham said after the hearing. "I guess we'll just have to see how this whole thing plays out."

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