Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Sales and Use Tax Annotations
100.0000 ADVERTISING AGENCIES, COMMERCIAL ARTISTS AND DESIGNERS—Regulation 1540
(c) PRELIMINARY AND FINISHED ART
100.0145 Mechanical Artwork. A designer is hired by a client as an independent contractor to design and produce mechanical artwork for a variety of printed materials. Their agreement includes a title clause stating that title to all items purchased is transferred to the client at the time of purchase and prior to usage by the designer.
The designer prepares two or three preliminary designs (preliminary art) for presentation. Once the client chooses a design, the client owns the design. The designer purchases items, such as photography, illustrations, etc., under his or her resale certificate, without sales tax reimbursement, to complete the design selected. The designer then charges for these costs on the invoice to the client along with sales tax reimbursement. Under these circumstances, the designer may properly purchase the photography, illustrations, etc., under a resale certificate. When a preliminary design (preliminary art) is not chosen by the client, the designer retains title to and possession of the designs, and provides no tangible personal property to the client, then tax does not apply to the charge to the client for time spent on the project. Use tax is due from the designer on the purchase price of property used to prepare the rejected designs.
The designer may accept a resale certificate from an advertising agency or another design firm for the sale of the final product which will be sold by the ad agency or other design firm. On the other hand, the designer's sale of special printing aids, such as photography and illustrations, generally would be a retail sale subject to sales tax regardless that the sale of the final product is a nontaxable sale or resale.
The designer may accept a resale certificate for the sale of special printing aids, only if the advertising agency or other design firm insists that it is purchasing the property for resale. In such case, the designer should require the purchaser to provide a resale certificate containing a statement that the specific property is being purchased for resale in the regular course of business. 6/30/92.