We know — tax-law changes are boring and probably don't affect you. Until they get confusing and apply directly to how you eke out a living here in Maine.
A new law passed by the Legislature expands Maine's five-percent sales tax to items that weren't covered, as well as some services. (It also changes the income tax, getting closer to a flat tax rather than a progressive graduated system in which wealthier people pay a higher tax rate.) At the moment, there is a people's-veto signature-gathering campaign on, but if it fails, the law will take effect January 1.
You've always paid a five-percent sales tax on a new (or used!) guitar. Now you'll have to pay sales tax on tickets to shows, and musicians will have to collect sales tax when they play weddings, or DJ private events.
The Portland Music Foundation asked Peter Beaulieu, the director of the sales-tax division of Maine Revenue Services, about how professional musicians might be affected. Here are the questions, and his answers.
DO ALL BANDS AND DJS NEED TO COLLECT A FIVE-PERCENT SALES TAX EVERY TIME THEY PERFORM FOR MONEY? Yes, but see further explanations below.
ARE ANY BANDS OR DJS EXEMPT, SUCH AS THOSE WHO DON'T WORK THAT OFTEN OR THOSE WHO WORK REGULARLY FOR ONE ESTABLISHMENT? For those that don't work very often, there is an exemption intended to address those persons who earn less than $5000 annually. See below. There is no exemption based on the fact that a person works regularly for one establishment.
HOW IS THE SALES TAX A BAND MUST COLLECT DIFFERENT THAN THE INCOME TAX THAT BAND MUST PAY ON THE REVENUES IT HAS GENERATED? Sales tax is based on the gross amount and is billed to and collected from the band's customers. So it is a pass-through tax imposed on the band's customer not on the band. Income tax is imposed on the band and is based on the net income after allowable expenses.
GENERALLY MUSICIANS RECEIVE PAY IN ONE OF THREE WAYS — EITHER THE VENUE AT WHICH THEY'RE PERFORMING PROVIDES A FLAT FEE, A PRIVATE INDIVIDUAL PAYS A FLAT FEE FOR A PRIVATE PARTY OF SOME KIND (A WEDDING, ETC.), OR A BAND RECEIVES THE TOTAL OR A PORTION OF THE TICKET SALES/COVER CHARGE. COULD YOU OUTLINE THE TAX RESPONSIBILITIES IN EACH CASE? SPECIFICALLY:
BAND X PLAYS CLUB Y FOR A FLAT FEE OF $300. CLUB Y SELLS TICKETS TO THE SHOW FOR $5 EACH AND SELLS 100 TICKETS. WHO COLLECTS/PAYS WHAT SALES TAX? The band's fee of $300 would be exempt as a sale-for-resale since Club Y is selling tickets to see the performance. Club Y would collect a 25-cent sales tax from its patrons on the $5 fee.
BAND X PLAYS A WEDDING FOR A FLAT FEE OF $2000. WHO COLLECTS/PAYS WHAT SALES TAX? IS THE VENUE WHERE A WEDDING IS HELD RESPONSIBLE IN ANY WAY? The band would collect $100 sales tax on the $2000 fee from the wedding customer. [The venue is not responsible.]
BAND X PLAYS CLUB Y FOR 50 PERCENT OF THE COVER CHARGE. CLUB Y SELLS 100 TICKETS FOR $5 EACH. CLUB Y THEREFORE GIVES BAND X $250. WHO COLLECTS/PAYS WHAT SALES TAX? The band's take of $250 would be exempt as a sale-for-resale since Club Y is selling tickets to see the performance. Club Y would collect a 25-cent sales tax from its patrons on the $5 fee.