Was computer-created artwork taxable when an artist delivered it on removable disks or diskettes?

Plain-English summary

Tax counsel distinguished artwork saved directly into a client's computer memory from artwork delivered on removable media.

When the artist created the work on the client's computer and saved it only in that computer's memory, counsel viewed the charge as nontaxable because the artist transferred no tangible personal property.

Delivery on an external disk or diskette was taxable either way. If the artist supplied the medium, the charge was for transferring tangible personal property under section 6006(a). If the client supplied a new or used disk, writing the artwork onto it was taxable fabrication or processing of customer-furnished property under section 6006(b).

Citations and references

• California Revenue and Taxation Code sections 6006(a) and 6006(b) (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/120-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/120-0661-175.pdf

Original ruling text

State of California

Memorandum

To :

Mr. J. W. Cornelius, Supervisor
Audit Evaluation and Planning
MIC:40

From :

Ronald L. Dick
Senior Tax Counsel

Subject:

[R]
S- --- XX-XXXXXX

Board of Equalization
Legal Division-MIC: 82
Telephone No.: 445-6450

120.0661.175

This is in reply to your September 17, 1996 memorandum regarding the application of sales and use tax to charges for artwork created on a computer and transferred to a client on a computer diskette provided by the client. As you know, we have previously taken the position that, when an artist creates artwork on a client’s computer and saves the artwork into the computer’s memory, the artist’s charge is nontaxable. We do not believe the artist thereby transfers tangible personal property to the client. We do not reach the same result when the artist transfers the artwork to external storage diskettes or disks and transfers them to the client whether the client or the artist furnishes the removable disks or diskettes. When the artist furnishes the disks or diskettes, the artist’s charge for the disks is sales as defined at subdivision (a) of Revenue and Taxation Code section 6006. The artist’s charge is for the transfer of title to or possession of tangible personal property for a consideration. If the client furnishes either new or used disks or diskettes, the artist’s charge for the work performed to create the artwork is a sale as defined at subdivision (b) of section 6006. The artist’s charge is for “producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing, or imprinting.” RLD:sr cc: Mr. Dennis Fox