Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
100.0000 ADVERTISING AGENCIES, COMMERCIAL ARTISTS AND DESIGNERS—Regulation 1540
(b) DELINEATORS AND DESIGNERS
100.0074.080 Design of Retail Store Interior. A design and marketing company (DMC) has a contract to design the interior layout of a store and its interior fixtures. The contract also provides that DMC will design and develop the store's display fixtures, including Point of Sale Graphics and Interior signage relating to the product that will be sold in the store.
The work DMC will perform for the client is as follows:
Step One: "Client Consultation." Attend meetings and verbally present creative concepts to client.
Step Two: "Creative Concept." Depict the concepts in tangible form as visual presentations mounted on boards. These include "conceptual illustrations, computer-generated visual materials incorporating typography, photography and illustrations." These items will be presented out in the form of hard copy for client review. These designs will be rough at this point and will be modified many times. Neither title to, nor possession of, these designs will pass to the client.
Step Three: "Finished Drawings." These will be the final drawings and/or diagrams of the interior layout of the store, and final drawings of interior store display fixtures and other interior fixtures. These drawings will be transferred to or used by the client in making the fixtures and placing them in the proper location in the store.
Step Four: "Finished mock-up and final artwork." This will consist of final visual representations of the interior signs, including dimensions, artwork, typography, color and other details. These will serve as a guide during the making of the signs. DMC will also make example models, usually to the exact size and scale of the signage. The models will also be used as a guide during the making of the completed signs. The final artwork, embodied in a computer, will be transferred to the client.
Step Five: "Installation." DMC is responsible for placing and, if needed, fastening and adjusting the fixtures in the store in the proper locations and configurations. No fabrication or assembly of fixtures will be performed at the store site, and the installers will be employees of DMC.
Step Six: "Training." DMC will train employees of the client to properly set up and maintain the interior store system and plan designed by DMC. This training is not required by DMC but is an optional element which the client chose to include in the contract.
Since it is only the sale or use of tangible personal property which is subject to tax under the Sales and Use Tax Law, where there is no transfer of title or possession to tangible personal property, the transaction is not subject to tax. In Step One ("Client Consultation") and Step Two ("Creative Concepts") there is no transfer of title or possession of any tangible personal property from DMC to the client. Under the particular facts of this transaction, the services performed in these two steps are not considered to be a part of the sale of tangible personal property by DMC. Rather, these charges are for professional services for interior decorating. Thus, charges in Steps One and Two, including charges for travel cost, are not subject to tax. However, these charges should be separately stated in DMC's billing to the client.
Since the final drawings of the fixture in Step Three are used as a reference or guide in making the fixture, they are final art or production drawings. Tax applies to the total charges made by DMC to the client for the finished drawings (including any related travel costs). Charges for any other final drawings provided to the client, or to a third party for the benefit of the client, are also subject to tax, excluding separately-stated charges for preliminary art as defined in Regulation 1540.
In Step Four, the final visual representations and mock-ups/example models are created to serve as a guide during the making of the completed signs by the third party vendors. Likewise, the computer disk which contains final artwork for the signs is fabricated by DMC to be used for actual reproduction in making the signs. The sales of the final visual representations, mock-ups, and computer disks by DMC to the client are retail sales of finished art which are subject to tax. Tax applies to the total charges made by DMC for that finished art, including any charges for the cost of travel. If any preliminary art is physically incorporated into the finished art, charges for such preliminary art are subject to tax as well.
In Step Five, DMC is responsible for installing the fixtures. Charges for the labor or service of installing tangible personal property are not subject to tax. Thus, DMC's charges for installation of the client's fixture, as well as any charges for travel costs related to the installation, are not subject to tax. However, these charges should be separately stated in the contract or billing to the client.
In Step Six, the training provided by DMC as a service which is an optional part of the agreement with the client is not a part of any sale of tangible personal property by DMC to the client. Charges for that training, including any charges for travel costs are not includable in DMC's taxable gross receipts. However, these charges should be separately stated in DMC's billing to the client. 12/20/96.