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Yes, Michael G. I am not in a position to argue, I am not a tax expert. I was only bringing up a topic for light discussion, not as tax advice so please, I do not want anyone to get in trouble with the tax man because they followed my statement as advice.
I was only musing as to why one custom product is a product, but other artisans can claim it as a service and a labor charge.
As for the granite counter tops, these guys are hired to provide a product; the granite itself, as well as the fabrication of the top. But they split the materials and the labor in a such a way that the sales tax is very small.
Another part of this that seems to me to be a double standard is if we donate a painting to a charity we can only deduct the cost of materials not its sale value. Now, that is the material value minus labor which we are not allowed to deduct, according to the IRS.
So why is this labor all of a sudden taxable as a product at the time of a sale? Why? because we priced it as a product, that's why. Now, say we invoice the painting as X amount for the frame, X amount for the canvas and paint and then charge a labor charge. Then technically only the materials you purchased that you did not already pay sales tax on should be taxed, not the labor. This is how it works for all other businesses that provide custom ordered products and services.
For artists there is already a precedent that we produce a product, so we seem to be stuck. Of course we all know that except in the case of very popular artists it is very hard to sell a portrait except to the person who commissioned it, and if they do not buy it then its perceived sales value is very hard to recoup.
It would actually be a much better pricing structure for portrait painters to sell paintings as a labor charge on a custom service than as a sale of a single product. Even better, collect partial payment on our labor even if the painting was never sold. Say you spend 3 months on a painting and the person who commissioned it backs out; as we price our work now, we are stuck.
But other artisans would have some cancellation clause that the labor was not refundable after the service has been performed. It most likely would not be the full payment but it is usually a large enough amount that customers thinks twice about backing out of the sale, since they do not want to lose that money.
Oh well, I am really getting off topic. I guess it is best to just go along with the system 'as is' to be safe, even if it hardly seems fair when we really are artisans who provide a service. Gallery paintings aside, I suppose that is how the precedent was established - by gallery owners and art dealers who just sell art as a commodity.
I suppose it would be very hard to make distinctions between the sale of a painting by a gallery and the sale by an artist that produced it on commission. Not impossible, but it is easier on the tax codes to not make any distinction, I suppose.
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