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 Skin and Ink Magazine | |||
Information for immediate consideration by studio owners and working tattoo artists by Pat Fish of Tattoo Santa Barbara THE CONTROVERSY: Independent Contractors vs. Employee Status An annoying detail in the tax definition of independent contractor could soon cause a huge problem for traditionally run tattoo studios, and shop owners would do well to think NOW about the implications. Many studios run on a cash only basis, and as far as the tax man knows the "independent operators" lease stations in the studio for a fixed amount per day or week. This amount need be the only income reported by the owner, when in actuality the owners are more likely to be receiving a percentage from the artists, a much higher sum. Black money, cooked books. Those artists are only truly independent contractors if they: arrange their own schedules, work completely independent of any supervision, and manage all their own supplies and finances. They are also required to work at more than one location performing the same duties, and to file taxes as independents. Since the new California ( and soon other) state laws make it a misdemeanor to tattoo outside a state licensed studio, saying the artists also work parties outside the studio is no longer going to cut it. And since many studios now use a credit card and ATM terminal to take payments, that common pooling of money constitutes an employee relationship, since it is a violation of the merchant card agreement to allow anyone to utilize a processing terminal other than the original signatory. Use of a receptionist to answer the common phone line is also evidence that all workers are employees. If that independent contractor happens to flake out on paying their taxes, it is entirely possible that the IRS can audit the shop owner, and retroactively declare the person an employee. Now the owner is a potential tax felon, owing not only the back taxes (30% of the income) but also penalties. And what if, like waitresses, the IRS decides to factor in tips supposedly received? The hole just gets deeper. Also worrisome are the laws that say an owner is liable for the actions of anyone performing body modification activities on the premises. If the shop owner has insurance, including medical malpractice, AND the individual is an employee listed on that policy, so much the better. If the shop owner IS considered responsible, but the "independent" has no insurance, the traditional response of a puff of smoke training behind the offender heading for the next town just may not be effective anymore in these litigious days. Someone will be sued. After having all these dire consequences explained to me by an astute accountant I opted to turn my independent individuals into employees. Now if they hurt themselves on the job, they are covered by workman's compensation. Yes, it is a bite out of my profits, but like all insurance there is a logic to having it. Now they get paid every two weeks by a paycheck generating company, which takes out all the relevant taxes and mails them in for me. The fee for this service is small considering that I am utterly unable to comprehend tax forms. But best of all, I am insulated against the possibility of an IRS audit triggered by someone else not paying their taxes. Just food for thought. Times are definitely changing in the tattoo industry, and wherever possible staying one jump ahead of the regulatory agencies is a good plan. Note: I heard a lot of flack from different parts of the tattoo industry for publishing that article. Believe me, I DON'T like paying taxes for having an employee. BUT a lot of people ARE honest and DO report their incomes, and are realizing that many studio owners have had a pretty good tax-free deal for a long time. And now the time may come when their artists have to explain how they spent those years with no recorded income, nothing paid into social security, especially when they have left a paper trail of credit card purchases. ************************************************* In the months since I wrote the above article the first test case has happened. Read on: written 3-4-2001 for The Skin Game The Labor Board is finally moving on the income stream potential that the fast-growing body modification industry represents. In a first test case they have been called in to Chico, California and are pursuing two studios there for non-payment of employer contributions in taxes, specifically workman's compensation. A disgruntled ex-employee called the Labor Board and turned in her former employer, saying she'd been an employee but he paid her as an independent contractor. This caused the Board to drool, since now they had a complaint to pursue and possibly reclassify an entire class of workers. Traditionally tattoo studios say that all workers are like hairstylists, renting space for a percentage, and this lets the studio owners off the hook so that they do not have to do payroll, and the associated annoying employer-paid taxes. P> According to the directives issued over a year ago, artists must be considered employees if:
The days of the pirate tattoo studio are over, and sensible studio owners will immediately realign their books and be ahead of the game. The days of taking cash and keeping black books and buying houses and sports cars and motorcycles cash, well, I suppose there will always be people in that mode but all it would take would be one vindictive employee to tell-all and topple the house of cards. There are paper trails left everywhere now, and the IRS has plenty of employees to assign. In a pending case someone who squirreled away cash off the books to buy a run-down building in San Francisco for cash and turn it into a tattoo studio is in big trouble now that he has sold the building at an enormous profit to a dot.com and the tax man noticed. Now they are asking him to show where the money came from to buy the building in the first place, and with all the laws about presumed drug money on the books this is a sticky dilemma. No matter what he admits to, tax fraud and punishment loom. I have always been far too dyslexic about numbers to even consider keeping two sets of books. I have a hard enough time keeping records, and want to keep it simple. But I admit to a morbid fascination with all this legal stuff, because our industry has been ignored only because it didn't generate enough money to be worth noticing. Now we face the scrutiny of tax, health, zoning and licensing authorities and things are only going to get worse. The way I look at it, our clients look to us to make it safe for them to take what reasonably might be considered a life-threatening risk. If we are lax in our sterilization methods they can contract deadly diseases, so our moral imperative requires that we conduct our studios in such a manner as to do everything we can to minimize that risk. If we consider it OK to lie about income, where does the dishonesty stop? Even as I regret that my tax contribution will go towards bombing foreign civilians instead of fixing potholes in roads I drive, I would far rather pay my percentage and be done with it than contemplate spending time in some snakepit of a women's prison doing walkman-motor tattoos! Yikes! | |||
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