Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 100.0193


100.0193 Transfers of Artwork. A commercial artist who is an independent contractor contracts with a company for purposes of preparing layouts of proposed ads. The artist will get an idea from the customer of what they would like in the ad. The artist will prepare a proposed layout for such an ad. If the customer is not happy with the ad, everything stops and no further action is taken. If the customer is satisfied, the layout is completed and put in a form acceptable for advertising. Upon acceptance by the customer, the layout is forwarded by the company to their ad agency. Upon receipt by the ad agency, they redo the mock-up and will typically use a computer for preparation of the fine artwork. At this point, the layout prepared by the artist is simply thrown away. The question is whether these visualizations and layouts are nontaxable as "preliminary art."

Regulation 1540 provides the basis for nontaxable preliminary art. However, it specifically limits when the tax will not apply. One such requirement is that the finished art is to be furnished by the agency, commercial artist, or designer who prepared the original art. This artist merely provides artwork but never provides any finished art. In all situations, the work done by the artist is taken by the company to its ad agency for preparation of finished art. Since the artist does not supply the finished art, the visualizations and layouts cannot meet the definition of "preliminary art," and the artist's gross receipts are subject to tax. 10/5/92.