When could an artist exclude installation charges from taxable rent for temporary artwork placed in churches?

Plain-English summary

Oakland Compliance asked Tax Counsel about a redacted artist's temporary church installations and her work facilitating art created by students. The December 12, 1989 request included the artist's letter and District Principal Auditor Jim Speed's August 16 summary; none is reproduced.

The artist retained ownership of temporary art and retook possession at lease end. Finished work transformed minimal-value paper, fabric and string into substantially different property, so rent was subject to use tax even if the artist paid acquisition tax. If materials had no other use than taxable rentals, resale purchase or a tax-paid-purchases-resold deduction might apply; a free temporary transfer or gift counted as another use.

A fixed church payment was taxable rent. An agreement to pay something remained taxable when the church or agreed factors fixed the amount later. Tax arose when the amount became certain—or, for a lease amount certain before payable, when payable. By contrast, no agreement, suggested minimum or obligation could allow a later voluntary contribution to remain a gift; the artist then consumed the materials.

Section 6011(c)(3) allowed qualifying installation charges. The memorandum drew the line at completion. Merely attaching finished artwork could be installation, but artwork fabricated through attachment generated taxable fabrication rather than excludable installation.

The leases presumably began only after creation, making prior completion cost part of rent. For a proposed 50,000-origami-crane project, attachment of completed cranes might be installation; arranging them during attachment into one crane pattern might instead create a unified artwork. Counsel called this difficult to describe but likely knowable on inspection. No plans or work records settle the branch.

For student work, the artist reportedly facilitated creation rather than making the art, supplied some or all materials without a specific charge, and left the finished art with the church or other hirer. Necessary supervision controlling customer-supplied fabrication was taxable fabrication; consulting without control was not.

At least the material portion of consideration was taxable. If title stayed with the artist through completion, the whole charge generally was taxable absent contrary facts. If title passed first, a prorated material amount was a sale under section 6006(a); the rest was taxable under section 6006(b) if the artist controlled fabrication, but nontaxable if only consulting.

Counsel stressed that every result depended on the particular lease and expected more information. No church agreement, amount, payment, art, return, material, title, installation, student arrangement, invoice, allocation, tax computation or later Compliance action appears.

Live Annotation 330.3350 publishes only completed-art attachment versus attachment fabrication. The same memorandum is published under 280.1155, 295.1930, 330.2717 and 435.1650. Copies 280.1155, 330.2717, 330.3350 and 435.1650 match apart from annotation numbers. Copy 295.1930 prints paint, an exchange and hang 50,000 origami cranes where this source prints pait, and exchange and hand 50,000 origami cranes; this page preserves its own official version.

Common questions

Is every on-site art charge excludable installation labor?

No. Attaching completed art could qualify, while work that created or unified it during attachment was fabrication.

What if the installation process creates the final design?

That work was fabrication. The 50,000-crane example turned on whether attachment merely hung completed pieces or created one patterned artwork.

How was supervision of student artists treated?

Necessary supervision controlling fabrication was taxable. Consulting without control was not fabrication labor.

Were uncertain church contributions taxable?

Yes when an agreement required payment even if the amount was fixed later. With no agreement, suggested minimum or obligation, a later voluntary gift was different.

Could the artist buy paper, fabric or string for resale?

Only under the source's no-other-use premise. A free temporary transfer or outright gift counted as another use.

How did title affect student-art charges?

Title after completion generally made the whole amount taxable; earlier title required allocation among materials, controlled fabrication and consulting.

Did Compliance reach a final project result?

Not shown. The memorandum expected more facts and supplies no later audit, assessment, refund or appeal record.

Citations and references

• Cal. Rev. & Tax. Code § 6011(c)(3) — installation-charge exclusion
• Cal. Rev. & Tax. Code §§ 6006(b) and 6010(b); Cal. Code Regs., tit. 18, reg. 1526 — fabrication and supervision
• BTLG Annotation 330.3310 (July 16, 1968) — pre-lease creation cost included in taxable rentals
• BTLG Annotation 495.0370 (October 16, 1972) — suggested-minimum-donation analogy
• Live Annotation 330.3350 — installation-versus-fabrication branch only
• Companion Annotations 280.1155, 295.1930, 330.2717 and 435.1650 — the same memorandum under related subjects
• Request and every artist, auditor, agreement, payment, art, title, material, installation, student, allocation and outcome record — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.3350
• Original supporting memorandum: 330.3350 PDF
• Companion official publications: 280.1155 PDF, 295.1930 PDF, 330.2717 PDF, and 435.1650 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

330.3350

To:

Mr. J. J. Kontilis
Oakland – Compliance

Date:

January 12, 1990

From:

David H. Levine
Tax Counsel

(916) 445-5550
ATSS 485-5550

Subject:

--- --- --This is in response to your memorandum dated December 12, 1989 regarding the application of tax to [A]’s activities of providing art to churches. You have included a letter from --- as well as a letter from District Principal Auditor Jim Speed dated August 16, 1989 which summarizes his understanding of the relevant activities by [A]. The activities at issue are the temporary installation of art in churches and the supervision of the installation of art created by students. Furnishing of Art by [A]. The art furnished by [A] apparently takes a great deal of thought and planning and involves a considerable effort to actually place in the church but apparently often involves the transfer of tangible personal property that may be of minimal value when acquired by [A] (e.g., paper, fabric, and string). This is a lease since [A] retains ownership of the property and retakes possession of the tangible personal property at the end of the lease. Although much of the value of the transferred art is added through the efforts of [A], this is nevertheless the lease of tangible personal property just as would be a temporary transfer of a painting (the value of the bare canvas and pait may very well be minimal compared to the value of the completed painting). Since [A] will be leasing the art in a form not substantially the same as acquired, her lease is subject to use tax measured by rentals payable regardless of whether she paid sales tax reimbursement when purchasing the property. Of course, if she makes no other use of that property except these rentals (such use would include the temporary transfer of possession for no charge or an outright gift), she may purchase the property incorporated into the art ex tax for resale or take a tax-paid purchases resold deduction when appropriate. The difficult question here is the amount of the taxable rentals payable for [A]’s leases. There are two aspects to this question: what amounts are required to be paid to [A] for the leases; and whether any of those amounts are excludable from tax.

Mr. J. J. Kontilis

-2-

January 12, 1990
330.3350

Some of the churches agree to a specific dollar amount for [A]’s artwork. This agreed to amount is the measure of the taxable rentals payable. The other circumstances [A] describes in her letter to Mr. Speed as: “I do it as a gift…. The churches in return contribute to my life with the best that they can do, so that their money can enable my time to be continuously spent doing this work. They are reassuming the old role of patron of the artist in this act. It is an exchange of gifts, and there simply are no fees. I have no idea what I will be paid for any of this work.” We do not agree that this is simply and exchange of gifts. From her description, it appears that she has agreed to supply the art in exchange for the church paying her something. That the amount is not certain does not mean that tax does not apply. Tax would apply in the same manner as royalties, that is, tax is due for the reporting period in which the amount becomes certain (except for a lease, if the amount becomes certain before it becomes payable, it is taxable when payable). This analysis would apply to transactions in which the church as agreed to pay
[A] something, in an amount to be determined by the church or in an amount to be determined based upon some other agreed upon factors. Please note, however, that this discussion is merely for your guidance. Our conclusion depends on the specific facts of each lease in question. If there were no agreement that the church would pay [A] something, even though uncertain, then we might agree that she was making a gift. (This appears unlikely based on [A]’s letter.) The analysis is similar to that of a suggested minimum donation. (See BTLG Annot. 495.0370 (10/16/72).) If the facts were such that there was no suggested minimum donation, and no obligation to pay [A] even an uncertain amount, we would regard the transfer as a gift even if the church thereafter gave money to [A]. Tax would not apply to that transfer, and [A] would be regarded as the consumer of the tangible personal property she provides as a gift. We note that an amount charged for installation of the artwork may be excluded from the measure of taxable rentals payable. (Rev. & Tax. Code § 6011(c)(3).) However, it appears that the artwork provided by [A] is fabricated in the process of attaching it to the church. This would be regarded as fabrication labor and not excludable installation labor. We note also that the leases presumably do not begin until after the artwork is created. If this is the case, the artwork must be completed before the can begin. That is a cost of [A] which is passed on to the lessee, and is not excludable from the taxable rentals payable. (See, e.g., BTLG Annot. 330.3310 (7/16/68).) On the other hand, if [A] merely attaches completed artwork to the church, that attachment constitutes installation, the charge for which is excludable from the measure of tax. For example, [A] stated in her letter that her current project is to design and hand 50,000 origami cranes. If the cranes are complete prior to attachment, it is possible that such attachment may be regarded as installation. However, if the attachment is such as to form a unified artwork (e.g., individual cranes attached so as to form a pattern of a crane), that artwork might then be regarded as a unified piece, the attachment of which to the church is regarded as fabrication of the artwork. Unfortunately, this may be a case in which you must apply that well respected legal principle, it’s difficult to describe but you will probably know it when you see it.

Mr. J. J. Kontilis

-3-

January 12, 1990
330.3350

Supervision
This again depends on the particular facts involved. Apparently, [A] is hired to work with students and others to create a work of art. She is not expected to create the art, but rather to facilitate the artwork’s creation by the students. She provides some or all of the materials needed but makes no specific charge for them. The completed art is the property of the church or other person that hires her. When a person supervises the fabrication of tangible personal property supplied directly or indirectly by the customer, and that supervision is considered to be a necessary component of the fabrication, we consider the supervision to be part of the fabrication of tangible personal property. (Rev. & Tax. Code §§ 6006(b), 6010(b), Reg. 1526.) On the other hand, when a person provides consulting services only, without having control over the performance by others of the fabrication, we regard such consulting services as not part of the fabrication.
[A] provides some or all of the tangible personal property. When she receives any consideration, she is selling that property and some or all of the consideration she receives is subject to tax. If title to the property does not transfer to the purchaser until after the artwork is completed, unless we had further information that convinced us otherwise, we would regard her entire charge as subject to tax. If title transfers prior to the fabrication, a prorated amount of the consideration she receives would be regarded as subject to tax as for a sale of the materials under subdivision (a) of Section 6006. If she controls fabrication of that property into the artwork, the remainder of her consideration would be taxable as for a sale under subdivision (b). If she provides consulting services only, the remainder of the consideration she receives would not be subject to tax. We hope this information is sufficient to answer you questions in this area. However, we would not be surprised if you had further questions after you receive further information from
[A]. If so, feel free to write again.

DHL:wak

David H. Levine