Could a typesetter exclude a separate typography charge when it also resold subcontracted printing?

Plain-English summary

A typesetter with no printing equipment occasionally bought printing for resale as a convenience to customers. Its contract and invoices listed separate amounts for typesetting and printing, and the customer could cancel after delivery of the typography.

California said the full charge was taxable when the customer actually bought the printing. Typography costs were part of the gross receipts from the printed-matter sale even when separately stated and even though another business performed the printing.

If the customer exercised the cancellation right, took only the typography, and paid only for that work, the typography charge was not taxable.

Common questions

Did separate billing keep the typography charge nontaxable?

No. When printing was purchased, the typography amount remained part of taxable gross receipts.

What happened if the customer canceled the printing order?

The typography-only charge was not taxable under the contract described.

Citations and references

• California Sales and Use Tax Regulation 1541(f)(6)

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/430-0487.pdf

Original ruling text

430.0487

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
916-445-6450

January 25, 1984

Dear Mr. X----------------------,
This is in reply to your November 14, 1983 letter to James Delaney regarding the application of sales tax to sales of printing under the following facts you provided: “1. The contract between X---------------- and our customer specifically assigns a sales value to: (a) Typesetting (b) Printing including film preparation and plates.

2. We produce only the typesetting portion in our facilities and sub-contract the
   printing portion which is purchased by us for resale.
3. We invoice the typesetting separately from the printing, charging sales tax
   only in the printing portion that was purchased for resale.
4. The customer retains the right to cancel the contract after delivery of
   typesetting by paying only for typesetting.”

"You explained that X---------------- is a typesetter with no printing equipment. However, you occasionally purchase printing for resale as a convenience to your customers. We agree with the conclusions of Senior Tax Auditor Steve Foti that tax applies to your separate charges for typesetting when the customer, in fact, purchases printing from you. In this regard, Sales and Use Tax Regulation 1541, Printing and Related Arts, provides at subdivision (f) (6) : “TYPOGRAPHY SERVICE A PART OF THE SALE OF PRINTED MATTER. Printers may not deduct from the gross receipts of their sales of printed matter charges related to their typography work or the cost of typography to them. Receipts attributable to such costs are includable in the measure of tax.”

Of course, tax does not apply to the charge for typography when your customer exercises his right to cancel the contract after delivery of typesetting by paying only for typesetting. However, when the customer does, in fact, purchase the printing, the cost of typography is necessarily included in the gross receipts of the sale of the printing. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

R. L. Dick
Tax Counsel
RLD:jw