Were rough catalog-layout sketches preliminary art when copies were sent to separate production contractors and the artist kept the originals?

Plain-English summary

A commercial artist designed catalog-page layouts as rough sketches for a department-store client. The artist kept the originals but gave copies to the copywriter, typographer, photographer, and paste-up person, each working under a separate client contract. The copies were not returned.

Legal staff said the sketches were tangible personal property covered by Regulation 1540(c). Tax applied to the entire commercial-artist charge for transferred drawings, designs, or sketches whether or not they were suitable for display or direct photomechanical reproduction.

The sketches were not preliminary art. They were not prepared solely to demonstrate an idea for the client's approval before the artist prepared finished art. Instead, the sketches themselves were the artist's finished art and guided the other contractors' production work.

Transferring possession of the sketches or copies for consideration was a taxable sale.

What this means for you

Commercial artists

Keeping the original does not prevent a taxable sale when copies of the completed design work are transferred for production use.

Catalog and advertising teams

A rough visual can be finished art for one contractor even when other specialists later turn it into the final advertisement.

Accountants and tax professionals

Examine purpose and downstream use. Approval-only demonstrations differ from drawings that direct copywriting, typography, photography, and paste-up work.

Common questions

Q: Did the rough appearance make the sketches preliminary art?

A: No. Their function in directing production made them the artist's finished art under the memorandum.

Q: Did retaining the originals avoid a sale?

A: No. Copies were transferred for consideration and were not returned.

Q: Did it matter that the other contractors had separate client contracts?

A: That fact supported the conclusion that the artist's sketches were the finished contribution supplied to the production process.

Q: Did the copies need to be directly reproducible?

A: No. The quoted rule applied whether or not the property was useful for actual reproduction.

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 100.0187
• Original supporting opinion: 100.0187 PDF

Original ruling text

State of California

Board of Equalization

Memorandum
100.0187

To:

San Francisco – Audit (DC)

From:

Headquarters – Legal (RLD)

Subject:

Commercial Artist Sketch Layouts
Re: --- --(No Permit)

November 17, 1982

This is in reply to your August 25, 1982 memorandum regarding the application of tax to sales of catalog layouts.
--- ---, a commercial artist, designs catalog page layouts in the form of rough sketches for the --- ---. --- --- 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 --- ---. We understand that the copies are not returned to --- ---. 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, painting, 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).” The sketches do not qualify as preliminary art, because the artist does not prepare the sketches solely to demonstrate an idea to --- --- for approval before the artist prepares finished art. Rather, the sketches are the artist’s finished art.

San Francisco – Audit (DC)

“2)

-2-

November 17, 1982
100.0187

Does artist’s 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.

RLD:jw

Enclosures

100.0187.doc