Was a commercial artist's full design charge taxable when the artist kept the original and gave the client only a stat copy for a newspaper ad?

Plain-English summary

A commercial artist retained her original art and designs but furnished clients with “stat” copies for use in newspaper advertisements.

The Legal Division concluded that the artist's entire design charge was subject to sales tax. Regulation 1540 applied to tangible drawings, designs, and sketches transferred to a client, and giving the client only a copy did not change that result.

The opinion noted the regulation's exception for separately charged preliminary art, but the described client copy was the design furnished for use in the advertisement. It also told the artist to apply for a seller's permit if she had not already done so.

What this means for you

Commercial artists

Keeping the original does not by itself make the customer copy nontaxable.

Clients buying newspaper-ad designs

The physical copy supplied for use in the advertisement was enough for the Legal Division to treat the artist's design charge as taxable.

Accountants and tax professionals

Distinguish genuine separately charged preliminary art from the copy actually delivered for client use.

Common questions

Q: Did the artist transfer the original design?

A: No. She kept the original and furnished a stat copy.

Q: Was only the copy's reproduction cost taxable?

A: No. The opinion said the artist's charges for the design work were subject to sales tax.

Q: Did retaining the original avoid tax?

A: No.

Q: What permit guidance did the letter give?

A: The artist should apply for a seller's permit if she had not already done so.

Citations and references

• California Revenue and Taxation Code § 6051
• California Sales and Use Tax Regulation 1540(b)(4)(A) and 1540(c)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0074
• Original supporting opinion: 100.0074 PDF

Original ruling text

100.0074
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
TELEPHONE NO.: (916) 445-6450
FAX NO: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

March 27, 1995

BURTON W. OLIVER
Executive Director

Mr. K--- M. B--Certified Public Accountant
XXX --- --- --- - P.H. X
--- ---, CA XXXXX

Dear Mr. B---:
This is in reply to your December 27, 1994 letter regarding the application of sales tax to charges by your client, a commercial artist. You explained she will perform design work for clients. She will retain the original art or designs and provide a “stat” copy for her clients to use in newspaper advertisements. You asked whether the artist’s charges would be subject to sales tax. The sales tax is imposed upon retailers at the applicable rate of the gross receipts from the sale of all tangible personal property sold at retail in this state. (Rev. & Tax. Code § 6051.) Sales and Use Tax Regulation 1540, Advertising Agencies, Commercial Artists and Designers, provides at subdivision (c): “The tax applies to the entire amount charged by commercial artists or designers for items of tangible personal property such as drawings, paintings, designs or sketches transferred to the client, whether or not the property is suitable for display or is useful for actual reproduction by photo-mechanical or other processes.” “Tax does not apply to separate charges for preliminary art as defined in (b)(4)(A).” A copy of Regulation 1540 is reproduced on page 21 of the enclosed Pamphlet No. 38, Tax Tips for Advertising Agencies.

Mr. K--- B---, CPA

-2-

March 27, 1995
100.0074

When the artist performs design work for her clients, the artist’s charges are subject to sales tax regardless that she merely provides a copy of the design to the client. If your client has not done so, she should contact her nearest State Board of Equalization District office to apply for a seller’s permit. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Staff Counsel
RLD:sr
Enc.