Our studios first open house and sale

[cbjensen]

So I started renting out space in my studio about 5 years ago, I am an LLC. I offer space, firing, clay and Glaze. 

Last weekend we had our first open house and pottery sale. In order to simplify things I offered to take credit cards through Square. I thought it would be a few hundred maybe for each of the potters but no it went so well that some basically sold out, go figure. I didn't charge sales tax and my accountant tells me I need to give them all 1099's. These are 9 potters who are not registered as business and we all know how much it cost to make this stuff, and can I be liable for the taxes? I or the studio made absolutely nothing on the sales, I merely provided the service of accepting payment, got the square app and reader a week before. 

I think I really made a big mistake for me and for them.

Anyone with any advice

Christina

[GEP]

I’m not an accountant, but I’m pretty sure my cpa would say that giving them 1099s is overkill. 

You DO need to remit sales tax for all the sales, but it doesn’t have to be out of your pocket. Just subtract out the sales tax from the funds you collected, then pay out the remainder to the individual potters. You should also subtract out the fees that you paid to Square. 

When I taught pottery classes, I did one sale per year with my advanced students. This is how I handled it, except we added sales tax on top of each purchase, so nobody had to eat that cost. I gave them what they sold minus the Square fees. 

Whether the individual potters report their income properly is up to them. 

This was your first time so don’t sweat the mistakes. Be proud of the great sales! 

[Clay17]

Congratulations on the sale!

The reason your professional accountant wants you to submit 1099s to the potters is so you will not be have to pay income tax on the money that passed through Square. 

Square will be sending you and the IRS a 1099  for the money that it collects this year. By sending the potters 1099s your tax return will show those sales as a pass though income

[cbjensen]

tank you for your replies. I really appreciate the feed back. I seriously need to learn. moving forward we will absolutely add the sales tax. I really don't know why we didn't no one would have flinched. I will figure it out for future sales.

one other question, my studio needs to generate more income, in this case, a studio sale, is there a percentage you would charge the sellers? What is the going rate or considered fair? I charged a flat fee which no where near covered the expenses.

Christina

[GEP]

Add up the total expenses from this sale, then divide by the number of potters. Then charge that as a flat fee. 

If you want to generate income for the studio more than just breaking even on expenses, add in a reasonable profit for your studio too. Then divide by the number of potters. 

I think flat fees are a little more fair than a percentage. With a percentage, you are penalizing people who sell better. 

[DirtRoads]

^What Clay17 said.

Several years ago I ran a vendor mall.   Several people I know have spaces in vendor malls now.   I just looked at a space in Florida about 3 weeks ago.     In Mississippi, Florida & Alabama, the vendor mall is required to charge and collect sales tax.   If you don't add it to a sale, you have to calculate it and deduct from your gross sales price.   Oh yeah, I was once in a vendor mart in Pigeon Forge, TN.   They had to collect sales tax there too.  Percent was 15% and we paid rent on the space      Your credit card company will 1099 you at the end of the year.    Here, the vendor mall is required to 1099 vendors.     The 1099 here is also turned over to the state of Mississippi (I know this for fact).   Might be that way in other areas that have a state sales tax. 

I see sales commissions at 15% around my area.   The spot I just looked at in Florida charges 20% plus 3% credit card processing (if customer pays with credit card).  Plus paying rent for the space. 

If you took other currency like cash or checks, there is something about banks now reporting anything over $600.   Not 100% sure how this is reported.   My top line is calculated from the sales reports on square.    I put ALL sales on square.   I use Square as a POS and enter checks and cash in addition to running my cc's.  The state of Mississippi requires a sales ticket or record of your sales.    Square only 1099's on the credit cards.   I look at end of month sales on Square and turn this in to state of Mississippi.  At the end of the year, my accountant uses this amount as my gross operating income, which is verifiable from my sales reports.  You have to watch taxes from both your state and federal level.  YOU HAVE TO MATCH State & Federal reported incomes.

Edited May 16, 2023 by DirtRoads

[Roberta12]

We have had some events (Mother's Day, studio sales, etc.)  on a fairly casual basis as you have described and in order to avoid the problem with sales tax, etc, everyone was their own vendor.  Responsible for their own sales and reporting.  In Colorado, if we run all sales through one point, we have to have a special license and are considered a Marketplace Facilitator.  You might want to check into the sales rules and laws in NY. Go to the Dept of Revenue online for NY.    I think @GEP advice is on point for you for now.  And @DirtRoadsis correct that Square will 1099 you at the end of the year.  That will be reported.  You will have to figure that out.   I know lots of people who started out selling their wares out of their trunk!  But when you know better you do better!  Good Luck with all of it.

Roberta

 

[cbjensen]

thank you all for your responses. it is extremely helpfull. Just had a meeting with my studio members recapping the mothers day sale and planning a sale for the holidays. I brought up, and was pleased to bring up the information you have offered and I think they all understand what needs to happen moving forwards. They have all accepted that they will receive 1099 and I have told them they need to document material and expenses involved in producing what they sell. But that is their problem. 

In terms of commission. So my studio is almost self funded, rent, firing fees etc. But the area where we are having our sales is not included in that calculation, It is actually a space I hope to rent out for workshops. This initial go around I did not charge anything except for $50 from each potter and that was all spent on flyers, street signs, vine, cheese, ballons, other advertising etc. It was enough to cover the basic costs. And I did deduct the fees from square. So moving forward I think it would be fair to say charge the initial fee and the 10% of what any potter sells beyond say $150. No one sold below that by the way. Someone said that a percentage penalized those who sold more. I am not sure I see it that way, we are a community of potters and for some I think they would rather take a low participation fee and hope for the best. If I was to take a realistic fee for the space I would have to charge a month rent which would be $1000 plus expenses which would be a fee of $150 per participant. But I am doing all the work and I would love for my studio to see some upside from a succesfull sale. Is that wrong? I

[Clay17]

13 hours ago, cbjensen said:

So moving forward I think it would be fair to say charge the initial fee and the 10% of what any potter sells beyond say $150.

I think that is more than reasonable, if not generous. 

One thing you didn't mention if all the other potters are there during the show. I would assume that they are, If not I would suggest maybe 20%.

13 hours ago, cbjensen said:

Someone said that a percentage penalized those who sold more. I am not sure I see it that way

Agreed

[Roberta12]

20 hours ago, cbjensen said:

thank you all for your responses. it is extremely helpfull. Just had a meeting with my studio members recapping the mothers day sale and planning a sale for the holidays. I brought up, and was pleased to bring up the information you have offered and I think they all understand what needs to happen moving forwards. They have all accepted that they will receive 1099 and I have told them they need to document material and expenses involved in producing what they sell. But that is their problem. 

In terms of commission. So my studio is almost self funded, rent, firing fees etc. But the area where we are having our sales is not included in that calculation, It is actually a space I hope to rent out for workshops. This initial go around I did not charge anything except for $50 from each potter and that was all spent on flyers, street signs, vine, cheese, ballons, other advertising etc. It was enough to cover the basic costs. And I did deduct the fees from square. So moving forward I think it would be fair to say charge the initial fee and the 10% of what any potter sells beyond say $150. No one sold below that by the way. Someone said that a percentage penalized those who sold more. I am not sure I see it that way, we are a community of potters and for some I think they would rather take a low participation fee and hope for the best. If I was to take a realistic fee for the space I would have to charge a month rent which would be $1000 plus expenses which would be a fee of $150 per participant. But I am doing all the work and I would love for my studio to see some upside from a succesfull sale. Is that wrong? I

I really do encourage you to check out the state and local rules for this type of sale.  In Colorado we know that it is a misdemeanor to sell retail without a license and without reporting sales tax.  You may be able to get by for awhile but it is something to keep in mind.....

[Callie Beller Diesel]

I haven’t chimed in on this thread yet because we deal with sales tax VERY differently where I’m at. But as far as organizing future sales goes, I think a flat rate charge for anyone wanting to participate is usually the least complicated method for everyone involved. Based on no one making under $150, maybe a $25 rate to cover promotional material/space rental, your own labour, etc. This price could be based on your projected workshop rental fee divided by however many spots there are room for.

Organizing it like a small scale show/table rental scenario simplifies a lot of things, would allow the event as a whole to be profitable, give the studio a predictable income, and have everyone in charge of their own payments and tax remittance. If you have a number of people who don’t sell on the regular but wish to still take card payments, you could consider purchasing a few of the small tap readers and styluses for studio use, and rent them for a small ($5-10 maybe?) fee. They’re very easy to pair on the fly, and setting up a basic Square account can be done by occasional vendors the day before. 

Edited to add: organizing it as a craft show could pull all your permits/licenses under one umbrella and simplify that as well. 

[Callie Beller Diesel]

Re form 1099: they may not be necessary unless there was anyone that sold more than  $600, even at a stretch. I suppose it would qualify as “other income payments?” 

I suppose the question is, would you taking this money on behalf of others and then remitting it directly to them count as taxable income, or would the government consider it to be a deductible business expense, and thereby be revenue neutral? I want everyone who reads this  to understand that they should definitely take their accountant’s advice over mine, and this is just a question I’m asking. 

 From the IRS website:

File Form 1099-MISC for each person to whom you have paid during the year:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• At least $600 in:
  • Rents.
  • Prizes and awards.
  • Other income payments.
  • Medical and health care payments.
  • Crop insurance proceeds.
  • etc

[Clay17]

18 hours ago, Callie Beller Diesel said:

organizing it as a craft show

That's a good Idea and I think GEP was thinking the same thing.

I chose to look at it like an artist's consignment shop, where the artist pays for a shelf and pays a commission to the store owner.  With a craft show the hosts pays rent, insurance, advertising and permits for a day or two and has a good idea of the costs involved. 

Whereas @cbjensen pays rent on a monthly basis for the term of the lease, so she needs to cover costs for a longer term to keep the her community viable. Accepting Square payments and sending the potters a 1099 is just a cost of doing business.

I, along with two other crafters, host a craft show once a year in November and all our proceeds goes to the local food bank. I also run my own pottery studio.

 

Edited May 19, 2023 by Clay17

[Clay17]

19 minutes ago, Callie Beller Diesel said:

would the government consider it to be a deductible business expense, and thereby be revenue neutral?

Yes, I've been doing this for years

[Callie Beller Diesel]

On 5/12/2023 at 4:48 PM, cbjensen said:

What is the going rate or considered fair? I charged a flat fee which no were near covered the expenses.

Now that you have an idea of the expenses, you can adjust your pricing. If your show had good turnout, you could also consider asking for a small entry fee for shoppers (keep it under $5 or make a food bank donation an alternative and no one fusses). If you have 500 people through the door, $2 per adult helps offset costs and helps keep your booth fees reasonable for your vendors. It’s common practice here, but I get that other places might balk. It’s worth a test, especially at a Christmas market. If your spring market was this successful, usually you can expect double that in November/December. Plan now and it’ll give you a chance to talk to your accountant about the best way to go about dealing with sales tax. 

[neilestrick]

I've always felt that charging a percentage of sales is good for a lot of the artists, but bad for the promoter. As an artist, it limits your costs if the show is a dud, and the percentage isn't necessarily penalizing unless you sell a lot of work. If you're someone who typically sells $5000 at a show, I can see how it's not a great deal compared to paying a flat $400 booth fee. But for someone who typically sells half that much it can be a good thing. I think you just need to do the math before applying and decide if it's a good show  for you or not. As a promoter, only charging a percentage of sales makes no sense because your costs for running the show are the same whether the artists sell a lot or a little, and it adds a lot of paperwork to the process. Flat booth fees are easy to deal with and easy to budget.

[GEP]

@cbjensen Sorry it took me so long to reply with more explanation of what I said. (I had two shows in the past two weekends, one of which was a travel show.)

I used to do a show that charged a percentage of my sales. This was great when I was starting out, because of the low risk. But after several years, my sales grew to the point where the show became far more expensive than comparable shows. I stopped doing it, and others like me also moved on. I would recommend the show to other newbies, due to the low risk. Eventually, the show figured out that their talent pool was restricted to those who wanted low-risk, thus the quality of their show, and their revenue, was suffering. This has a real impact on attendance and reputation. Their intention was not to be a lower-end, newbie friendly show. But that’s what it turned into. 

Shows like these DO serve a purpose in the art world, by giving a safe space for new sellers. If you decide you want this to be the intention of your event, that’s not a bad thing! Just understand that there will be a ceiling on your quality, revenue, and reputation.

You said “we are a community” but this presumes that every one of the potters has the same goals for their own work, which is probably not true. The longer you do this event, over time it’s natural that some of your members are going to pull ahead of others. I hope you can be supportive of that, rather than trying to define everyone as being the same. 

The show that I mentioned above tried changing their fee structure to “percentage with a cap at the high end.” For some reason, that did not work out for them. I suspect it didn’t work because they had been making all of their revenue from the high sellers, so the cap cut their revenue by too much. So they eventually switched to a “flat fee for everyone” format, but had to deal with much complaining from those who felt entitled to the low-risk format. It was a real hassle for them to change formats. And by then, it was difficult for them to get the high-sellers to come back. (I had already found plenty of better shows to do.)

So my advice is to start thinking ahead about the future intentions of your event. Do you want it to be a safe space for newcomers? Do you want to foster professional quality work? It’s difficult to combine both types of sellers in one event. So maybe the answer is, down the road, you will establish a separate event that is defined as professional-grade. Where the participants are not self-selecting, but rather they need to pass through an arbiter of quality (similar to a juried art fair), and with a fee structure that is more friendly to them, and probably more profitable for your studio as well.  

Edited May 26, 2023 by GEP