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The licensing of a photograph occurs when a photographer sells the intangible right to use their photograph to a customer for further commercial display, while retaining ownership of the photo. This is sometimes referred to as commercial photography. Thus the photographer’s income arises not from the sale of photographs, but from licensing the use of their intangible property. Typical rights granted to customers include the right to publicly display, exhibit, publish, copy and sell the image.
Rights are defined and limited by contract, invoice or other relevant documentation. For example the customer may receive specific intangible rights to display the image for a two year period on billboards in the greater Spokane area, and within a catalog distributed nationally.
Business and Occupation Tax: The photographer’s gross income from licensing the right to use their intangible property to others is subject to B&O tax under the Royalties classification.
Retail Sales Tax: Charges to the customer for the grant of intangible rights are not subject to sales tax. The photographer is not required to obtain a sales tax exemption certificate or digital products and remote access software exemption certificate from the buyer.
Sitting Fees: Sitting fees associated with the granting of an intangible right to use the photo are subject to the Royalties B&O tax. See the “Sitting Fees” discussion in this guide for more information.
Documentation: It is important that a photographer retain documentation establishing the nature of the transaction. The invoice, contract or other instrument of sale must clearly state the specific intangible rights that are being granted to the user of the photo. The fact that the invoice may have a line item for “licensing” or “rights of usage” fees is not, in and of itself, determinative if the exact rights are not also described.
Please note: The outright sale of all rights to a photograph (e.g. right to copy, publish etc) is not subject to B&O tax under the Royalties classification. Instead, this income is subject to B&O tax under Service and Other Activities. The photographer is not required to obtain an exemption certificate from the customer. In this case it is the invoice or contract between the photographer and customer that establishes the “Service and Other Activities” B&O tax nature of the transaction, and sales tax does not need to be collected on such transactions.
Royalties and Digital Photographs: When licensing the right to use a photograph to a customer as described above, the photographer’s income will be subject to Royalties B&O tax and sales tax will not apply regardless of how the photograph in question is delivered to the customer. The method of delivery – whether tangible (i.e., print or CD) or electronic – does not determine the taxability of the transaction. Thus photographers engaged in this activity are not selling digital goods when the photo is delivered electronically, and are not required to collect sales tax.
Example 9: Photographer is hired by a business (the Customer) to take photos of Mount St. Helens. Customer requests that it have the right to use the images in their promotional materials and on their website. Photographer invoices the Customer for a total of $6,400. Line items on the invoice include costs incurred by the Photographer such as travel expenses, equipment rentals and creative fees. However, the invoice states that Photographer retains ownership of the photos and grants the Customer the intangible right to use the images for four years in its promotional material distributed and displayed inside the United States, along with limited web site usage. The Photographer is engaging in a licensing activity and their gross income (in this case $6,400) is subject to B&O tax under the Royalties classification.
Example 10: The same facts as Example 10 above, except the photographer adds a line item to the invoice for 100 posters of Mount St. Helens at $10 per copy for an additional charge of $1,000. The invoice total is now $7,400. Photographer still pays Royalties B&O tax on the licensing activity of $6,400. The photographer pays Retailing B&O tax on the $1,000 charge for posters, and must collect and remit sales tax on the $1,000 sale of posters. The photographer has engaged in two separate business activities taxable under different B&O categories.
Apportioning Your Royalties Income: Income reported under the Royalties B&O tax classification is apportionable. See “Apportionable B&O Tax Classifications” in this guide for more information.
