Could an artwork licensee buy the original artwork for resale before transferring it to clothing manufacturers?

Plain-English summary

An artist licensed artwork to a client, which then licensed the design to clothing manufacturers that reproduced it on clothing. California assumed the client transferred the same physical artwork it received, did not make and transfer a reproduction, and did not have to return the artwork to the artist.

Under those assumptions, the artist's transfer to the client was a sale for resale, allowing the client to issue a resale certificate. The client's retail transfer of the artwork to a clothing manufacturer in California was taxable.

A transfer to an out-of-state manufacturer was exempt under section 6396 if the contract required the client to ship the artwork outside California and the client actually did so by mail or carrier. The letter referred to an earlier response—not reproduced in this source—for the broader tax treatment of the client's charges.

Common questions

Could the client give the artist a resale certificate?

Yes, under the letter's assumptions about transferring the same artwork onward without a return obligation.

Was merely dealing with an out-of-state manufacturer enough for exemption?

No. The letter required a contractual out-of-state shipping obligation and actual shipment by mail or carrier.

Citations and references

• California Revenue and Taxation Code section 6396

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/430-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/430-0242.pdf

Original ruling text

430.0242

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

1020 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 920 - 7445

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

June 14, 1994

BURTON W. OLIVER
Executive Director

X----------------------------

Re:

Sales Taxability of Licensing Fees

Dear X------------------------,
This is in reply to your response to our April 20, 1994 letter regarding the licensing of artwork by your client. You further explained that your client is not a commercial artist or designer. An artist or designer licenses artwork to your client. Your client, in turn, licenses the artwork to clothing manufacturers which, we assume, reproduce the artwork on items of clothing. We assume your client transfers to the clothing manufacturer the very same artwork which the artist licenses to your client rather than your client reproducing the artwork and transferring the reproduction to the manufacturer. We also assume that your client is not required to return artwork to the artist. In such case, the artist's sale of the artwork to your client is a sale for resale. Your client may issue a resale certificate to the artist. The application of tax to charges by your client is as explained in our April 20, 1994 letter to you. Sales tax applies to your client's retail sale of the artwork to the clothing manufacturer in this state. Your client's sale of the artwork to the out-ofstate manufacturer is exempt from tax pursuant to Revenue and Taxation Code section 6396 if your client is required under its contract with the clothing manufacturer to ship the artwork to a point outside this state, and your client does so ship the artwork by mail or carrier. Very truly yours,

Ronald L. Dick
Senior Staff Counsel
RLD:plh
Cc:

San Francisco District Administrator