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Author Topic: Witholding Tax the future and the 75%  (Read 2900 times)

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« on: June 15, 2009, 00:50 »
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The IRS and HMCR both treat the income from stock as a royalty payments and not as payment for a product or service, and subject this reveneue to withholding tax for non nationals.

So the stock sites are collecting this tax on their behalf, I wonder if this could change in the future where they start to include nationals as well, this is something they have done with casual and construction labour in the UK, taxed at source and claim back rebates later, this was to stamp out illegal tax evasion or avoidance, where people worked under false names, did not declare the earnings, or were non nationals that worked illegally or returned home without paying any tax.

The 75% refers to the contributors that never reach payout level, how many millions of dollars in royalties will never be subject to income or withholding tax, it will be taxed at a later date as the stock sites profit if not used, at the moment this revenue is a cynically calculated asset and factored into the business plan and accounts, and a percentage of this revenue will be used for running the business, paying the reviewers to review other photographers images, marketing, bad debt, R & D etc:, without this revenue percentages would be smaller or contributors would have to pay a fee.

The stock sites have it covered at the moment as the withholding tax is taken at the point of payment to the photographer, I wonder if the IRS and HMRC will start to take a different view as to what point the royalty payment becomes subject to tax, and who has to pay it, and move it more like sales tax and VAT at the time of sale.
Quote
Commision is the payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold.

In art, a commission is the hiring and payment for the creation of a piece, often on behalf of another.
The stock sites do not hire or commission a work, and the photographer is not the salesman, so we do not get a commission payment.
Quote
Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use ...

royalty - payment to the holder of a patent or copyright or resource for the right to use their property; "he received royalties on his book"

So it is correctly a royalty payment, the photographer is the licensor and the end client is the licensee, that would leave the stock sites as a merchant that facilitates the transaction.

David (My thought for the week)  ;D
« Last Edit: June 15, 2009, 00:57 by Adeptris »


« Reply #1 on: June 15, 2009, 04:30 »
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I would think?? that the taxman would say that technically the site (there are only 2 with this?) are paying the person on sale of image thereby if someone has 1 $0.25 in a year the site still has to pay the tax to the taxman, regardless of whether the person reaches payout. If so then the taxman is the winner as the 75% would never claim it back.

lisafx

« Reply #2 on: June 15, 2009, 12:02 »
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Seems the IRS are having their cake and eating it too. 

For a US citizen the income is taxed not as royalties (which would be exempt from social security and self employment tax) but as self-employment income and taxed at the higher rate.

I would be thrilled if I could have gotten away with having it taxed as royalties.  Would have saved me a ton of aggravation and accounting fees, not to mention 15% in taxes.

« Reply #3 on: June 15, 2009, 16:03 »
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I have no idea if there is a possibility to have my photography earnings as royalties instead of work income, also if it would make any difference in taxes.

I wonder what is the principle behind it?  Aren't the earnings fruit of my work, the same way I earn my sallary from my job as an engineer?

lisafx

« Reply #4 on: June 15, 2009, 22:45 »
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I have no idea if there is a possibility to have my photography earnings as royalties instead of work income, also if it would make any difference in taxes.

I wonder what is the principle behind it?  Aren't the earnings fruit of my work, the same way I earn my sallary from my job as an engineer?

You are in Brazil, right?  I don't know how they view it, but the IRS in the US definitely does view it as work income, if you are still working on stock photography.

Arguably if you stop working on photography and your images continue to draw royalties years after that might be able to be considered as royalty income. 

At least that is how the accountant explained to me. 

« Reply #5 on: June 16, 2009, 07:12 »
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You are in Brazil, right?  I don't know how they view it, but the IRS in the US definitely does view it as work income, if you are still working on stock photography.

Arguably if you stop working on photography and your images continue to draw royalties years after that might be able to be considered as royalty income.  

At least that is how the accountant explained to me.  
That would be right if you are a national you would not pay withholding tax while you are producing images, you would have running and equipment costs that you would off-set against your income tax liability when you do your accounts, so you are not taxed at source.

If you stopped producing stock images you would still be active because the works would still be generating licences, and the revenue would be subject to income tax.

Is it a royalty payment or income from the sale of a product.

There are many part-time photographers that feel what they are earning is pocket money and not worth declaring as taxable, this was a similar scenario to casual worker and the construction industry at one time in the UK, avoiding or evading paying the income tax, the tax office realised that this was losing a massive amount of reveue and changed to a sytem of taxing at source.

I was wondering if the IRS and HMRC might change this industry to include nationals in the future, how they see the revenue, to me it is not a wage but a product that you lease rights to, but is it then a royalty payment.

The sales of licences from non-nationals that will never hit the payment level should attract withholding tax, but withholding tax is only liable on payments so the tax office will never see this revenue if things stay the same.

The whole business of payment levels is defended by some photographers, but in reality it is not a financial number plucked out of the air or based on the cost of reviewing a new contributors images, but is cynically calculated to maximise profit from photographers failure, the common observation is 75% of photographers never making a first payment, so the stocksites know what revenue the average contributor can generate, but set the level 25% above that value, there is a lot of profit in there for the stocksites and a lot of lost income tax revenue.

In the current financial climate, the IRS and HMRC will be looking for where they can find more taxable income, and this industry is new, ripe and ready for picking, my day job is as a freelance IT consultant and HMRC has changed this industry over the last few years to bring it in line with the Construction Industry and I am now taxed at source.

David  :-\   (HMRC = HM Revenue & Customs)    
« Last Edit: June 16, 2009, 07:15 by Adeptris »

« Reply #6 on: June 16, 2009, 07:28 »
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The whole business of payment levels is defended by some photographers, but in reality it is not a financial number plucked out of the air or based on the cost of reviewing a new contributors images, but is cynically calculated to maximise profit from photographers failure, the common observation is 75% of photographers never making a first payment, so the stocksites know what revenue the average contributor can generate, but set the level 25% above that value, there is a lot of profit in there for the stocksites and a lot of lost income tax revenue.

I don't get this reasoning. Are you suggesting that agencies are keeping money for "witholding tax" but not actually paying it to tax authorities? I'd think this would be considered fraud in most countries.

« Reply #7 on: June 16, 2009, 08:05 »
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The whole business of payment levels is defended by some photographers, but in reality it is not a financial number plucked out of the air or based on the cost of reviewing a new contributors images, but is cynically calculated to maximise profit from photographers failure, the common observation is 75% of photographers never making a first payment, so the stocksites know what revenue the average contributor can generate, but set the level 25% above that value, there is a lot of profit in there for the stocksites and a lot of lost income tax revenue.

I don't get this reasoning. Are you suggesting that agencies are keeping money for "witholding tax" but not actually paying it to tax authorities? I'd think this would be considered fraud in most countries.
If they don't pay the contributor (because said contrib hasn't reached minimum payout) then they don't reach the point of withholding the tax from the payment. Presumably it only goes to the IRS if the contributor actually gets paid. Hence the sites get the use of a lot of money.

« Reply #8 on: June 16, 2009, 08:27 »
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If they don't pay the contributor (because said contrib hasn't reached minimum payout) then they don't reach the point of withholding the tax from the payment. Presumably it only goes to the IRS if the contributor actually gets paid. Hence the sites get the use of a lot of money.

That is correct, having worked in both construction and IT as a freelancer during economic downturns, you may have done the work and not been paid, because you have not been paid that money is never subject to your personal taxation, your costs are higher due to expenses and bad debt than they should be and your net taxable income is reduced.

Any calculations and forecasts by stocksites that are holding defferered revenue will factor in some of the revenue that will never be claimed and this will become working capital and nothing Illegal.

I have seen a post here where one site had a policy where they paid out all deffered revenue under the payment level at year end to the contributors, much better for new and part-time contributors.

Quote from: Brian O'Shea
1). Royalties earned on SnapVillage will continue to be paid out as they have been.
When the SnapVillage site is eventually turned off later this year - you'll be paid out any remaining unpaid royalties (even if they do not meet the usual $10 threshold - similar to how balances were cleared at the end of each calendar year).

David  
« Last Edit: June 16, 2009, 08:39 by Adeptris »

« Reply #9 on: June 16, 2009, 08:55 »
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I have seen a post here where one site had a policy where they paid out all deffered revenue under the payment level at year end to the contributors, much better for new and part-time contributors.

Okay, maybe this is "fair". But there is cost involved in each payment made - guess how many contributors need to be tracked down to get current payment data... Someone has to pay for that cost...
« Last Edit: June 16, 2009, 08:57 by MichaelJay »

« Reply #10 on: June 16, 2009, 09:42 »
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Okay, maybe this is "fair". But there is cost involved in each payment made - guess how many contributors need to be tracked down to get current payment data... Someone has to pay for that cost...
Verification and Payment Methods are requested when you sign on to these websites, it does not cost $10 - $250 (Alamy) to send a check or process a paypal payment this can be automated, then any uncleared payments could then be used, which would be fairer, most online payment gateways now handle micropayments so there is no excuse not to payout whatever is owed providing the bare transaction cost is covered by the net payment.

A large percentage of deffered revenue is seen by some sites as just working capital and not the artists royalties, so the sites are looking after the 25% that will make a payout at the expense of the 75% that will never, the main problem is all the 'you can earn money from snaps' blogs and articles which encourages new contributors to have a go, they get a few images online that generate a bit of revenue and then delete thier portfolio or convert the revenue to downloads as closing the account will not generate a payment, this is a win win profit situation for the websites.  

Back to withholding tax, if a contributor converts earnings to credits is that the same as a payout and subject to withholding tax?

David
« Last Edit: June 16, 2009, 13:06 by Adeptris »

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