Could a printer lease a stock photograph for resale and sublease it to the customer before using it in production?

Plain-English summary

A printer asked whether it could lease a stock photograph for resale, transfer the use rights to its client before production, and then use the photograph to make a digital image for that client's printing work.

California said the printer could contract to sublease the photograph to its customer before use and then use it on the customer's behalf. The printer did not pass title under a lease, so the proposed resale treatment depended on that pre-use sublease arrangement.

The letter also classified photographs, illustrations, logos, and scanned photographs as artwork, regardless of scan quality. A table consisting only of straight lines, text, and numbers was not artwork. California requested more transaction facts before deciding whether the printer consumed or retailed the galleys.

Common questions

Was a low-quality positioning scan still artwork?

Yes. The letter said a scanned photograph was artwork regardless of image quality.

Was every table artwork?

No. A table containing only straight lines, text, and numbers was not artwork.

Citations and references

• Former California Revenue and Taxation Code section 6362, repealed effective July 15, 1991

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/430-0290.pdf

Original ruling text

430.0290

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

October 19, 1994

BURTON W. OLIVER
Executive Director

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

Re:

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

Dear X------------------------,
This is in reply to the August 11, 1994 message you sent by fax regarding the application of sales tax to your charges for special printing aids. You asked the following specific questions: “1. I purchase printing film (special printing aids) and transfer the title to them to my clients before they allow me to use them in the manufacturing process of creating printed materials for them and they are, therefore, not taxable to me. These printing aids are purchased by me for resale to my clients. Can I also purchase for resale, the rights to use a stock photograph and transfer these rights to my client prior to using the leased photograph in the manufacturing process (which would entail making a duplicate digital image from it?” When you lease tangible personal property from a lessor, you do not pass title to that property to your client. However, you may contract with your customer that, when you lease a stock photograph from a vendor, you sublease the photograph to your client prior to use and use it on behalf of your client. You note that your question regards stock photography not related to the "one-time newspaper use rules. For your information, Revenue and Taxation Code section 6362 formerly provided for an exemption from use tax for the transfer of possession of a photograph for the purpose of being reproduced one time only in a newspaper. That section was repealed effective July 15, 1991. The lease of such a photograph is now subject to use tax. “2. What constitute-s artwork on a computer-generated paper galley of type? Is a table of information artwork? Is a logo that is incorporated into a page layout program artwork? Is a scanned image of a photograph that will only be used by a printer for positioning the real, more carefully scanned image artwork? It is my understanding that if any of these things are artwork, I am the consumer of the paper galleys and should pay tax on them, so I would like this clarified please.”

We consider any photographs or illustrations to be artwork. A table of information that consists only of straight lines with text and numbers is not artwork. We consider a logo as artwork. A scanned image of a photograph is artwork regardless of the quality of the image. In order to give you an opinion as to whether you are the consumer of the galleys or the retailer, we would need more information as to your transaction. Very truly yours,

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

San Jose District Administrator