Were royalties for artwork reproduction taxable, and were photographs or transparencies shipped directly to out-of-state publishers exempt?

Plain-English summary

The artist said she sold or leased artwork to people who reproduced it on prints, posters and jigsaw puzzles. She typically supplied a photograph or transparency from which a publisher made printing plates, color separations and other production aids. Her November 29 request was sent to the Return Review Section and referred to legal staff; it is not reproduced.

The tangible photograph or transparency was a retail sale. Taxable gross receipts included the entire amount received from the publisher, including royalties, without deductions for materials, labor, services, or other expenses. The artist could separately collect sales-tax reimbursement if the contract allowed it.

When the contract required shipment to an out-of-state publisher and the artist sent the copy outside California by U.S. Mail, Federal Express, or another commercial carrier without California delivery, the sale qualified for the interstate-shipment exemption. Solely out-of-state publisher use did not create California use tax.

The source identifies prior transparency sales to publishers in Japan and Utah. CDTFA's live annotation says all buyers were outside California, but the supporting letter itself does not establish that broader fact. Its answer is conditional on the contract requiring out-of-state shipment and on the publisher's manufacturing use being solely outside California.

No artwork agreement, reproduction or copyright term, royalty schedule, invoice, photograph, transparency, shipping record, publisher-use record, taxable measure, return, audit, payment, claim, appeal, or later outcome is supplied.

Common questions

What tangible property did counsel treat as sold?

The photograph or transparency transferred to the publisher for making plates, separations and other production aids.

Were royalties excluded as payment for intangible reproduction rights?

No under this source's treatment. Counsel included the entire amount received from the publisher in the retail sale's measure, without deductions for property, materials, labor, services or other expenses.

Could the artist add sales-tax reimbursement separately?

Generally yes under the cited Civil Code section, while still reporting the entire amount received as the tax measure.

What made the out-of-state shipment exempt?

The contract had to require delivery outside California, and the artist had to ship there by U.S. Mail or carrier without California delivery under Regulation 1620(a)(3).

Did the publisher's later use matter?

Yes for use tax. Counsel assumed manufacturing use of the transparencies was solely outside California.

Does the source address digital artwork delivery?

No. It concerns physical photographs and transparencies and supplies no digital-delivery facts or current law.

Citations and references

• California Revenue and Taxation Code section 6012 — cited for the gross-receipts measure and no cost deductions; complete statute, exclusions, amendments, later history, and current law not supplied
• California Civil Code section 1656.1 — cited for sales-tax reimbursement; complete contract rules, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1620(a)(3) and (b) — cited for required out-of-state shipment and sole outside use; complete regulation, proof, amendments, later history, and current law not supplied
• November 29 request and transaction records — not reproduced or absent; agreements, royalties, copies, shipment, use, measure and outcome remain unproved
• February 24 response — conditional on shipment and use assumptions, with no applied tax proceeding or later result
• Official Annotation 325.0255 — adds an all-buyers-outside statement but omits the provenance, examples, royalty and reimbursement treatment, express assumptions, missing evidence, outcome, and reliance status

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/325-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0255.pdf

Original ruling text

325.0255

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR..
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

February 24, 1994

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

--Re: --Dear Ms. ---:

Your November 29, 1993 letter to Ms. E. L. Burgan of the State Board of Equalization, Return Review Section, has been referred to the legal staff for reply. Your letter asked for the application of sales and use tax to charges for artwork. We understand that you are an artist and sell or lease your artwork to persons who reproduce the artwork on prints, posters, and jigsaw puzzles. You explained that you typically make a copy of the original artwork in the form of a photograph or transparency. You provide that copy to the publisher who makes the necessary printing plates, color separations, and other printing aids necessary to produce the final product. You are correct that your transfer of the photograph or transparency is a retail sale subject to sales tax. The measure of tax is the total amount you receive from the publisher valued in money, whether you receive the gross receipts in money or otherwise, with no deduction on account of the cost of the property sold, the cost of the materials you use, your labor or service cost, or any other expense. (Rev. & Tax Code § 6012.) You asked whether the sales tax is added separately from the total amount of the royalties. Generally, you are required to report and pay the tax measure by the entire amount you receive from your client and may add the sales tax reimbursement to that amount. (Civil Code Section 1656.1.) You note that, when you sold transparencies to publishers in Japan and Utah, you shipped the tangible personal property outside the state by U.S. mail, Federal Express, or other commercial carriers. You delivered none of those transparencies within the state of California. When you are required pursuant to contract to ship the transparencies to a point outside

Ms. ---

-2-

February 24, 1994

the state, and you ship the transparencies by U.S. mail or by carrier in accordance with subdivision (a)(3) of Sales and Use Tax Regulation 1620, your sale is exempt from sales tax. Assuming the publisher's use of the transparencies in manufacturing the prints, posters, and puzzles is solely outside this state, the use is not subject to California use tax. (Cf. Sales and Use Tax Reg. 1620, subd. (b).) We hope this answers your questions; however, if you need further information, feel free to write directly to this office. Very truly yours,

Ronald L. Dick
Staff Counsel
RLD:plh
O---.ltr
bc: Santa Ana District Administrator - EA
Ms. Louise Burgan
Return Review Section - MIC:35