Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 100.0198


100.0198 Transfer of Finished Art to Third Party. Taxpayer is engaged in the graphic design business and produces finished art in the form of paste-ups for its clients. Taxpayer delivers a high quality photograph of the paste-up to a printer selected either by the taxpayer or the client. In either case, the client deals directly with the printer, and the printer's charges are not reflected on taxpayer invoices. The printer then reproduces the item desired by the client, (e.g., advertisements and annual reports). In some cases, the taxpayer claimed to have retained title to the finished art and high quality photographs.

Regulation 1540(a)(1) specifically provides that advertising agencies are "sellers of any of the property, . . . they deliver to, or cause to be delivered to, . . . third parties for the benefit of their client." Accordingly, taxpayer's temporary transfer of possession to various printers of the finished art constituted taxable "sales" (leases) under section 6006(g), and taxpayer was responsible for collecting use tax from its clients measured by the lease payments, (i.e., the consideration clients paid for taxpayer's service in the production of the finished art).

With respect to transactions in which taxpayer explicitly transferred title to its client, taxpayer was the retailer of the finished art and is liable for sales tax measured by its gross receipts. 10/11/83.