The Alabama Department of Revenue (ADR) has appealed an April 29 Alabama Court of Civil Appeals ruling that validated claims that commercial photographers should remain exempt from paying state sales taxes and has requested a rehearing in the case against Omni Studios LLC.
Liesa Cole, the embattled proprietor of Omni Studios (which has since been dissolved), is at the forefront of a battle she sees as being much bigger than herself. Her case will set a precedent for the dozens of other photographers in Alabama who the revenue department have ordered to pay back sales taxes they were never supposed to pay in the first place.
For three years now Cole has been fighting the ADR which, after an audit, ordered her to pay six years’ worth of back sales taxes (as far back as the state can retroactively collect sales tax) even though commercial photography — a business Cole has been in for 20 years in Alabama — has been exempt from paying sales taxes.
Commercial photographers like Cole provide a service, not taxable good, the courts have ruled. Omni Studios does not have a storefront in which they sell photographs unlike portrait photography studios. Cole said the locked gate in front of Omni Studios should serve as an indication that people don’t walk in off the street to peruse selections of nonexistent photographs. “[The ADR] just doesn’t seem to get that,” Cole said after their latest court appeal.
“It’s just incredibly demoralizing being a small business owner in the crosshairs of your own state government — a Republican-dominated government that claims they want to help small business, I might add — that’s using my own tax dollars to appeal a bogus tax assessment against me,” Cole said. “I’m convinced this is a tactic that they are deliberately using to apply vague tax laws on businesses with the assumption that people like me will just settle and sign a gag order that says they can’t talk about it. But that’s not who I am or what I am going to do.”
Cole said she was recently contacted by an interior designer who heard about her plight and wanted to share a similar run-in she had with the ADR last year. “She told me she was working with a client and charged them $250 for a lamp, on top of the other labor costs that aren’t taxable. The ADR came back and told her since the lamp was taxable, her overall costs would be subject to sales taxes too, even though she’s doing consulting work. So they tried to say, basically, that lamp cost $15,000 and she needed to pay taxes on it. Eventually she had to settle,” Cole explained.
The bigger issue here, Cole said, is that the state government can misapply tax codes on small business owners in an “incredibly unfair” way that only serves to put money in the state coffers, even when the courts have decided on multiple occasions that the state is wrong for doing so.
After the April 29 ruling the ADR had two weeks to appeal the decision. “They actually walked their request for a rehearing over to the courts in Montgomery on the last day. We didn’t even know about it until two days later when my attorney called to tell me,” Cole said. Cole had been reluctant to celebrate what looked like a legal victory because she suspected the state would appeal.
Amanda Collier, ADR communications specialist, would say little about the state’s decision to appeal for the third time. “Regarding your question about the department’s case with Omni Studios we will not comment on the court’s decision,” she said.
Cole believes ADR’s stance toward her industry was made clear in the wording of the agency’s request for rehearing, which was filed two weeks ago. “In their request they said that what commercial photographers do is no different than a mom taking a picture of their kid on their phone,” Cole said. “They are being wilfully dismissive of what we do. Why would this even be a business if our clients can just take a picture on their phone and call it a day?”
Not only is the ADR arguing that commercial photographers should be taxed, but they are also claiming that Cole and others must pay back taxes. For Cole that amounts to $28,000. For others like Edward Badham, who was initially audited for $46,000 and has since been charged “late fees” bringing his total to $48,000, Cole’s case is a harbinger of what’s to come in their pending litigations.
Badham said the state is “spending millions to make thousands” and it is “absolutely maddening” that the state would appeal after such a resounding decision. He too believes the state is trying to “bleed us to death in hopes that we will settle and pay them some of what they said we owed.
“Why are they interpreting the tax codes in a way that only favors them? It’s a complete disregard for business owners and it makes them look like idiots,” Badham said. “Five judges offered this opinion with no room for uncertainty and the state basically came back and said they were wrong and they want another hearing without offering any new evidence or arguments.”
Badham believes that if the state can misapply these tax codes in the case of commercial photographers, other businesses could potentially come under fire in the future. For now, Badham and the dozens of other photographers who have been audited and fined for “bogus” back sales taxes, are in a holding pattern until Cole’s case is finally put to bed. It is uncertain how long that will be or if the state will continue to appeal in perpetuity.
The April 29 ruling was concise in siding with previous rulings in favor of Omni. “As noted, the Department has adopted a regulation providing that the proceeds from transfer of photographs are taxable without deduction for amounts attributable to ‘sitting, consultation or any other activity that is done in preparation of the final product,’” according to the judgement signed by Alabama Appellate Court Judge Craig Pittman.
“As Omni correctly asserts, however, notwithstanding that the gross proceeds of a sale include charges for ‘labor [and] service cost,’ it has been established that some transfers of tangible personal property are considered merely incidental to the nontaxable sale of services and, therefore, are not themselves taxable,” the decision reads.
The case was taken to the Court of Appeals after Jefferson County Circuit Judge Houston Brown offered an equally unambiguous decision in favor of Omni.
Despite the request for a rehearing from the revenue department, Cole remains convinced that she will eventually prevail.
“When this is over, I’m not just going to say ‘Woohoo’ and forget about it. People need to understand that what the [ADR] is doing is hurting the business in the state. It’s a result of this culture of corruption that has taken hold of the state,” Cole said. “It’s not a fluke, what is happening to me. It’s a calculated attack to get everything that [they] can from small businesses. But I don’t think they realized they messed with the wrong person.”