Were catalog-page layouts taxable when the artist kept the original rough sketches but gave production copies to the client's other contractors?

Plain-English summary

A commercial artist designed catalog-page layouts as rough sketches for a department-store client. He kept the original sketches and gave copies to the copywriter, typographer, photographer, and paste-up person. Each contractor worked separately for the client, and the copies were not returned to the artist.

Legal staff concluded that the layouts were taxable tangible personal property under Regulation 1540(c). The rule covered drawings, paintings, designs, and sketches transferred by commercial artists whether or not the property was display-ready or useful for direct reproduction.

The layouts did not qualify as preliminary art because they were not prepared solely to demonstrate an idea for client approval before the artist made finished art. They were the artist's finished contribution, used by other contractors to design and prepare the final advertisement.

Transferring possession of the sketches or copies for consideration was a sale for sales and use tax purposes.

What this means for you

Catalog designers

Rough sketches can be finished art when they are the final work you supply and other vendors use them to complete production.

Retailers and marketing departments

Separate vendor contracts do not make the designer's production layouts preliminary approval work.

Accountants and tax professionals

Focus on what the designer transfers and why. Copies used by downstream production vendors were taxable even though the designer retained the originals.

Common questions

Q: Did retaining the original sketches make the transaction nontaxable?

A: No. The artist transferred copies for consideration.

Q: Why were the layouts not preliminary art?

A: They were used by production contractors, not solely shown to the client for approval before the artist prepared finished art.

Q: Did the copies need to be display-ready or camera-ready?

A: No. The quoted rule did not require suitability for display or actual reproduction.

Q: Was the transfer a lease?

A: The memorandum characterized the transfer of possession for consideration as a sale.

Citations and references

• 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 100.0111
• Original supporting opinion: 100.0111 PDF

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
100.0111

To:

San Francisco – Audit (DC)

From:

Headquarters – Legal (RLD)

Subject:

Commercial Artist Sketch Layouts.
Re: Mr. K--- B--- (No Permit)

Date:

November 17, 1982

This is in reply to your August 25, 1982 memorandum regarding the application of tax to sales of catalog layouts. Mr. K--- B---, a commercial artist, designs catalog page layouts in the form of rough sketches for the ---. M--- Co. Mr. B--- keeps the original sketches and gives copies of the sketches to the copywriter, typographer, photographer, and paste-up person to use in designing and preparing the final advertisement. Each of such persons are under separate contracts with Magnin. We understand that the copies are not returned to Mr. B---. Given the above information, you asked: “1) Is artist’s layout sketches considered tangible personal property that would be subject to sales tax as a sale?” Yes, it is our opinion that the sketches you sent for us to review are specifically covered by Sales and Use Tax Regulation 1540(c), which provides: “Commercial Artists and Designers. 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 photomechanical or other processes. “Tax does not apply to separate charges for preliminary art as defined in (b)(4)(A).”

San Francisco – Audit (DC)

-2-

November 17, 1982
100.0111

The sketches do not qualify as preliminary art, because the artist does not prepare the sketches solely to demonstrate an idea to M--- for approval before the artist prepares finished art. Rather, the sketches are the artist’s finished art. “2) Does artists transaction constitute a sale or lease under the above circumstances?” The artist’s transfer of possession of the sketches or copies of the sketches, for a consideration, is a sale for sales and use tax purposes. We are returning the enclosed sketches for your files.

RLD:jw
Enclosures