Did making a photomechanical transfer copy count as taxable use of the original artwork before it was delivered to the client?

Plain-English summary

A graphic designer created original artwork and sometimes used a photomechanical transfer, or PMT, process to make the copy delivered to the client.

Tax counsel said making a reproduction counted as use of the original artwork. Tax therefore applied to the designer's cost of purchased artwork. If the designer produced the art, tax was due only on the ink, paint, illustration board, and other materials consumed in producing it; those materials should not be bought for resale.

The designer claimed that the client received title immediately when the artwork was completed. Counsel said title would be treated as passing before reproduction only if the parties entered into an explicit written agreement, as part of their pre-use sales contract, clearly stating that result.

When the designer also provided printed matter such as brochures or catalogs, special printing aids could be treated as sold before use through separate listing and pricing on an invoice or through a pre-use written title agreement meeting the quoted proof standard.

What this means for you

Graphic designers

Using original artwork to create a customer copy can make you the consumer of the original unless title clearly passes before reproduction.

Printers and creative studios

Separate invoice listing and pricing can matter for special printing aids when you also sell the printed matter.

Accountants and tax professionals

Review contracts signed before use, not later declarations. The letter treated after-the-fact statements as weak evidence of earlier title transfer.

Common questions

Q: Was making the PMT copy a use of the original art?

A: Yes, under Regulation 1540(d) as quoted in the letter.

Q: What was taxed when the designer created the artwork?

A: The cost of materials consumed in producing it.

Q: Could title pass to the client before the copy was made?

A: Yes, with an explicit pre-use written agreement forming part of the sales contract.

Q: Did a later declaration establish pre-use title transfer?

A: The quoted printing-aid rule said later declarations had little evidentiary value because they were self-serving.

Citations and references

• California Sales and Use Tax Regulation 1540(d)
• California Sales and Use Tax Regulation 1541(e)(3)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0306
• Original supporting opinion: 100.0306 PDF

Original ruling text

100.0306

STATE OF CALIFORNIA

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

March 10, 1982

Mr. A--- L--G--- D--- & I--XXXWest --- --- Place
--- ---, California XXXXX
Dear Mr. L---:
This is in reply to your January 19, 1982 letter regarding the application of sales tax to your sales of artwork. You stated that you render artwork and sometimes use the photo mechanical transfer (PMT) copy process to copy the artwork. You asked whether tax applies to your use of your original artwork when you make a PMT copy of original artwork to give to a client. Sales and Use Tax Regulation 1540(d) provides in part that, “A photograph or art is regarded as having been used when a reproduction is made from the photograph or art”. Tax applies to your cost of such artwork that you use. Of course, if you produced the artwork, the tax is due only on the cost of the materials (ink, paint, illustration board, etc.) that you consume in producing such artwork. You are correct that, in such case, you should not purchase for resale such materials that you consume. If you have purchased such materials under a resale certificate, you should report the use tax on the materials on line 2 of your sales and use tax return. You believe that the client has title to the artwork immediately upon your completion and before PMT copies are made or printing takes place. We disagree. We can regard your artwork as having been sold prior to use only if, before you use the artwork, you and your client enter into an explicit agreement that title to the artwork will pass to the client before such use. You and your client should clearly express your intentions in writing constituting a part of the contract of sale you enter into prior to your use of the artwork. We suggest the following wording: “G--- D--- and --- (Artist, herein) and the client expressly agree that title to all artwork that artist produces for the client passes to the client at the time of completion by, and therefore prior to use by, artist.”

Mr. A--- L---

-2-

March 10, 1982
100.0306

If you provide printed matter (such as brochures, catalogs, etc.) to a client, you are entitled to regard your materials as “printing aids” for purposes of Sales and Use Tax Regulation 1541, Printing and Related Arts. The regulation provides at subsection (e)(3): “STANDARD OF PROOF. It will be presumed, in the absence of evidence to the contrary, that special printing aids were sold by a printer to his customer prior to use if the properties are separately listed and priced either upon the same sales invoice upon which the printed matter is billed or on a separate sales invoice. The properties may be individually listed and priced or listed and priced by the quantity of each type of property sold. “Without such a listing and pricing on a sales invoice, special printing aids will be regarded as having been sold prior to use only if it is established that the seller and the purchaser have, prior to the time that the special printing aids are used, explicitly agreed that title to such property will pass to the purchaser before the use of the property. Declarations of the parties after the transaction is completed are of little value as evidence because of their self-serving nature. The intention of the parties to transfer title prior to the use of the property should be clearly expressed in writing constituting a part of the contract of sale entered into by both parties prior to the use of the property.” As noted above, such application of tax is only when you provide printed matter to the client. We hope this answers your question. If you need further information, feel free to write again. Very truly yours,

R. L. Dick
Tax Counsel

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