Was an illustrator's license fee taxable when illustrations were sent only by modem, even though the illustrator visited the client and could have delivered a disk or paper?

Plain-English summary

A humorous illustrator licensed artwork without selling the originals and transmitted the illustrations to clients only by modem. He worried that charges became taxable because he visited clients and could have delivered the images on paper or disk.

The Legal Department disagreed. The unchosen physical-delivery alternatives were irrelevant. Modem transmission transferred no tangible personal property, so the license charge was not taxable even when the illustrator visited the client.

A temporary physical transfer would have been different: a licensed illustration embodied on tangible property would be a taxable lease under section 6006.3. The illustrator was advised to retain the contract or purchase order and a date-stamped hard copy for at least four years.

What this means for you

Illustrators and artists

Document the delivery method actually used and avoid an accompanying physical transfer when claiming the treatment described here.

Accountants and tax professionals

Distinguish a telecommunications transmission from a temporary license of tangible media; capability and client visits did not substitute for actual delivery facts.

Common questions

Q: Did visiting the client make the modem transfer taxable?

A: No.

Q: What if the illustration was temporarily delivered on disk or paper?

A: The opinion said that would be a taxable lease.

Q: What records were recommended?

A: The purchase order or contract evidence and a date-stamped hard copy, retained for at least four years.

Citations and references

• California Revenue and Taxation Code § 6006.3

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0037
• Original supporting opinion: 100.0037 PDF

Original ruling text

100.0037

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

March 11, 1994

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. D--- C--C--- D--P. O. Box XXXX
---, CA XXXXX-XXXX
Re: SR -- XX-XXXXXX
Dear Mr. C---:
Your recent letters to members of the State Board of Equalization regarding the application of sales tax to your charges for artwork have been referred to the legal staff for reply. You explained that you are a humorous illustrator. You never sell your original artwork; however, you license it for use. Your letter indicates that, although you understand that tax does not apply to your charge for illustrations which you transfer solely by modem, someone has advised you that your charge becomes taxable merely if you are capable of visiting the client. You note that you now believe your charge becomes taxable if you could have physically delivered the artwork in the form of tangible personal property such as a computer disc or on paper even though you have not made such a transfer of tangible personal property. We disagree with the advice you were given. Tax does apply to your charge to a client for your temporary transfer of illustrations embodied on tangible personal property. Such a transfer would be a lease of the illustrations. Under the Revenue and Taxation Code, "sale" includes any lease of tangible personal property in any manner or by any means whatsoever for a consideration. The term "lease" includes rental, hire, and license. (Rev. & Tax Code § 6006.3.) However, if, in fact, you do not deliver the illustrations to the client in the form of tangible personal property but merely transfer them by modem, your charge is not subject to tax even if, while performing your contract with the client, you visit the client.

Mr. D--- C---

-2-

March 11, 1994
100.0037

As Senior Tax Auditor Ira C. Anderson noted in his November 22, 1989 letter to you, you must retain documentation to support your claim that your charge for the artwork is not subject to sales or use tax. For audit purposes, you should retain for at least four years the purchase order or other evidence of your contract and a date stamped hard copy of the document you transmit. We hope this answers your questions; however, if you need further information, feel free to write directly to this office. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:plh