Were a graphic designer's client meetings and printer coordination taxable when included in selling a newsletter layout?

Plain-English summary

A graphic designer produced a newsletter layout while the client contracted separately with the printer. The designer met with the client and copywriter about stories, photographs, layouts, and additional art. She also coordinated press-ready film, delivered it to the printer, and reviewed blueline proofs.

Tax counsel said the designer sold a layout. California's gross-receipts rule did not allow a deduction for labor, services, or other expenses included in that retail sale. Tax therefore applied to the total layout charge, including time spent in client meetings and working with the printer.

The letter drew a narrower distinction for type composition. A transferred product containing type matter only was nontaxable. If a layout mixed type-only pages with pages containing photographs or artwork, tax applied to the part of the charge attributable to the photo or artwork pages.

What this means for you

Graphic designers

Separately tracking meeting time does not necessarily remove it from tax when the time contributes to a taxable layout sale.

Newsletter publishers and business clients

Contracting directly with the printer did not change the designer's tax on the layout and its related production work.

Accountants and tax professionals

Identify the actual transferred product and allocate mixed layouts only where the historical type-only distinction applies. The opinion included client and printer coordination in the taxable gross receipts.

Common questions

Q: Were initial client and copywriter meetings taxable?

A: Yes, because they contributed to the taxable layout sale.

Q: Was printer coordination and blueline review taxable?

A: Yes. Those charges were also part of the total layout charge.

Q: Was type composition taxable?

A: A transfer containing type matter only was nontaxable under the letter.

Q: What about a newsletter with both type-only and illustrated pages?

A: Tax applied to the portion of the charge attributable to pages containing photographs or artwork.

Citations and references

• California Revenue and Taxation Code §§ 6012 and 6051

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0115
• Original supporting opinion: 100.0115 PDF

Original ruling text

100.0115

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

November 21, 1991

Ms. D--- R--R--- H--- D--XX --- ----- ---, CA XXXXX
SR -- XX-XXXXXX
Dear Ms. R---:
This is reply to your September 23, 1991 letter regarding the application of sales tax to your charges for graphic design. You noted the following facts: “The items at issue are meetings I have with the client and the printer. I have assumed this is taxable production time. The client meetings occur at the beginning of a project, for example, the quarterly Insights newsletter. At these meetings, I go over the material for the current newsletter with the copywriter and/or client. I receive hard copy of the stories and all applicable photographs. At this time, we also discuss layout options and ideas for additional art. “The other meeting item in question is the time I spend with the printer either on the phone, at his place of business or at a prearranged location to check and signoff on the blueline. Since I deliver press-ready film to the printer, I often talk with him by phone so I can prepare the film to his specifications. I then frequently deliver the film to the printer and meet with him at that time to go over the job. Finally, I meet with the printer and/or client when a blueline proof is ready so I can make sure the job will be printed according to my specifications.” We assume that, under your contract with the client, you are responsible for producing the layout of the newsletter, and the client contract separately for the printing. California sales tax is imposed upon retailers at the applicable rate of the gross receipts of the retail sales of tangible personal property in this state. (Rev. & Tax. Code § 6051.) Section 6012 of the Code defines “gross receipts” to mean the total amount of the sale price without any deduction on account of the cost of materials used, labor or service cost, or any other expense.

Ms. D--- R---

-2-

November 21, 1991
100.0115

Accordingly, when you make a sale of a layout, tax applies to your total charge for the layout, including the portion of your charge attributable to any meetings you have with the client or the printer. Tax does not apply to the transfer of the product of a type composition service containing type matter only. If you transfer a layout to a client which contains pages with photographs or artwork and pages with type matter only, tax applies to the portion of your charge attributable to the pages which contain the artwork or photographs. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr