Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
515.0000 SERVICE ENTERPRISES GENERALLY—Regulation 1501
(c) ORIGINAL MANUSCRIPTS, PLANS, ETC.
515.0440 Design Layout—Production Drawings—Production.
(1) A fee paid to an engineering firm is not taxable where the fee is under a contract for the design and preparation of a general layout for a special purpose piece of machinery based on requirements furnished by the company.
(2) If after (1) above the client has a second engineering firm prepare production drawings, the second firm makes a taxable sale of tangible personal property, i.e., the drawings. But the sale may not be taxable if the second firm, in preparing the production drawings, contributes its engineering knowledge and skill as distinguished from merely converting the layout into a different form of physical property.
(3) If the general layout and the production drawing are prepared by the same firm under a single contract (or simultaneous contracts) and the sale of the production drawing is taxable (2 above) the entire amount paid is taxable. The amount attributable to the design is part of the expense of producing the production drawing and is not deductible from gross receipts. The principle is the same as in the case of "preliminary art" and "finished art."
(4) If the same firm does the design layout, production drawing, and produces the machine, the entire sum is taxable. But if the design contract is separable in the sense that there is no contract for the finished machine until after design work is completed, the charge for design work may be excluded. 2/27/64.