Is an illustrator's one-time transfer of an illustration to a magazine publisher a taxable lease when the illustrator keeps the original?

Plain-English summary

G--- W--- performed most graphic-design/illustration work by computer and, with rare exceptions, billed hourly. The first question asked about independent-contractor work creating a computer presentation file that a client could show onscreen, turn into 35mm slides or print.

Counsel contrasted an independent contractor with a salaried employee whose employer made normal payroll deductions. On the stated contractor facts, the design/illustration and presentation-file charge was sales-taxable regardless of hourly rather than lump-sum billing.

Second, W--- made an illustration, retained it and sold a magazine one-time use rights. Counsel called the temporary transfer of tangible personal property a lease. W--- as lessor had to collect publisher use tax and report/pay it to the Board.

Third, W--- supplied art direction and documented specifications for book design while the client created/produced the book. Counsel treated the designs transferred for customer book production as sales-taxable.

No agreements, actual files/media, illustration transfer/return, rights terms, designs, invoices or outcomes are supplied, and the letter cites no legal authority. The live annotation publishes only the illustration-lease answer.

Common questions

Did keeping the illustration prevent lease treatment?

No. The publisher's temporary one-time use was enough for the Board to classify the transaction as a lease.

Who had to handle the use tax?

The illustrator, as lessor, was responsible for collecting it from the publisher and reporting and paying it to the Board.

Were hourly computer-design charges exempt as services?

No. For the independent-contractor facts described, the letter treated the computer-presentation file charge as taxable even though time was billed hourly.

Did salaried employment receive the same answer?

The letter distinguished a salaried employee with normal payroll deductions but did not develop that branch because W--- asked as contractor.

Were book-design specifications taxable?

Yes on the described transfer, even though the client handled actual book creation/production.

Did the source show how the illustration moved or returned?

No. It says only temporary transfer; no agreement, original/media record, possession duration or return evidence is supplied.

Citations and references

• August 9, 1993 request — three questions; source absent
• October 14, 1993 Dick letter — three answers without statute, regulation, case or prior ruling
• Employment/contracts, file/media/output, illustration/right/return, book-design, invoice/tax/outcome records — absent
• Official Annotation 330.2287 — illustration lease/collection branch only

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2287
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2287.pdf

Original ruling text

330.2287

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

October 14, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. G--- W--G--- W--- Design
XXX --- ----- ---, CA XXXXX
Dear Mr. W---:
Re: SR -- XX-XXXXXX
This is in reply to your August 9, 1993 letter regarding the application of sales tax to your charges for work you perform as a graphic designer and illustrator. You note that you perform most of your work on a computer, and, with rare exceptions, you bill all your time by the hour. You asked the following questions: “If I work as a contractor for an hourly rate, and perform work through a computer program which the client then turns into a computer presentation, is my time subject to sales tax?” You note that, in this case, you input a computer presentation file which the client has the option of showing on the computer, turning into 35mm slides, or printing out on paper. When you perform work as an independent contractor; that is you are not a salaried employee working for an employer who makes normal payroll deductions from your wages, your charges for creating designs and illustrations are subject to sales tax. This is true regardless that you charge your customer by the hour rather than for a lump sum. Accordingly, your charge for the computer presentation file is subject to sales tax. “If I do an illustration which a magazine buys one-time rights to use in the magazine, but I keep the illustration, is the fee subject to sales tax?”

Mr. G--- W---

-2-

October 14, 1993
330.2287

Yes, your temporary transfer of the illustration to the magazine publisher for its use is a lease of tangible personal property. As the lessor, you are responsible for collecting use tax from the publisher and reporting and paying the tax to this Board. “If I work as a consultant and set up specifications for a design project, such as the design of a book, is the fee subject to sales tax?” You note that, in this case, you provide art direction and documenting specifications for the design of the book, but the client performs the actual creation and production. Your transfer of designs to your customer for the customer's use in producing a book is subject to sales tax. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Tax Counsel
RLD:plh