Did an invoice have to use the exact words 'preliminary art' to satisfy Regulation 1540's clear-identification requirement?

Plain-English summary

Auditing staff asked how literally an invoice had to follow Regulation 1540's requirement that preliminary art be clearly identified on the billing.

Tax counsel said the invoice did not have to use the exact words “preliminary art.” A suitable term describing the work was enough to meet the identification standard.

The memorandum gave roughs, visualizations, layouts, comprehensives, and concept art as examples of acceptable descriptive terms.

The brief source addressed identification only. It did not say that using one of those labels automatically proves the work satisfies every other condition for preliminary-art treatment.

What this means for you

Designers and advertising agencies

Use an invoice description that specifically names the preliminary work instead of a generic label that could cover unrelated services.

Bookkeepers

Keep the descriptive preliminary-art line separate and consistent with work orders and project records.

Accountants and tax professionals

Treat clear identification as one requirement, not the whole test. Verify timing, title, purpose, and production use under the applicable rules.

Common questions

Q: Was the phrase “preliminary art” mandatory?

A: No. The memorandum allowed other suitable descriptive terms.

Q: What examples did counsel give?

A: Roughs, visualizations, layouts, comprehensives, and concept art.

Q: Would a generic label automatically qualify?

A: The memorandum approved descriptive terms; it did not say any generic label would suffice.

Q: Did the memorandum decide all preliminary-art requirements?

A: No. It interpreted the billing-identification standard only.

Citations and references

• California Sales and Use Tax Regulation 1540(b)(4)(A)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0251
• Original supporting opinion: 100.0251 PDF

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
100.0251

To:

Fresno Auditing (BAJ)

From:

Tax Counsel (GJJ) - Headquarters

Subject:

Preliminary Art

Date:

Jan. 21, 1977

This will confirm our advice to you of January 12, 1977, with respect to the interpretation of paragraph (b)(4)(A) of Regulation 1540 “Advertising Agencies, Commercial Artists, and Designers.” The paragraph in question provides that “[Preliminary art] must be clearly identified on the billing as preliminary art.” This does not mean that the preliminary art must be designated as “preliminary art” on the billing. Any suitable term, such as “roughs,” “visualizations,” “layouts,” “comprehensives,” “concept art,” etc., descriptive of the preliminary art will suffice to meet the “identified” standard.