Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
295.0000 GROSS RECEIPTS
(g) SERVICE CHARGES GENERALLY
295.1503 Designer Fees. There is no general exemption for the sales of custom made property. Although the manufacture or production of custom-made property necessarily involves design work or similar types of creative services, the services required to produce the property in the form desired by the customer are generally taxable as services that are "part of the sale." If the customer contracts solely for design services and there is no associated transfer of tangible personal property, tax does not apply. If the customer then contracts separately for production of the property in accordance with the design, the charge for the property is taxable while the charge for the design work remains nontaxable. However, where sketches and patterns are transferred to consumers, tax applies to the transaction as measured by the amount charged for the sketches and patterns because it is itself a sale of tangible personal property.
When the parties enter into separate contracts for design services and also for the production of custom property, and the charge for the property is unrealistically low, it could be viewed as evidence that a portion of the design fees was in fact being paid for the property. This could lead to the conclusion that the design services and the property were being sold together as a "package" and tax would be due on the entire amount charged. 5/31/91.