Were drawings prepared from architects', engineers', or other clients' specifications taxable architectural services or sales of tangible property?

Plain-English summary

A freelance drafter prepared construction drawings for architects, engineers, sign companies, and others, sometimes also designing signs or sign systems. California applied the true-object test to distinguish professional design services from sales of finished drawings.

When the drafter followed specifications and data supplied by a client, the drafter was not performing architectural services. The transferred drawings were tangible personal property, and a client's purchase for use was a taxable retail sale.

Because the requester was not licensed to practice architecture, charges for renderings, drawings, and designs of structures or building decorations also were taxable. The opinion identified a narrow exception for plans or specifications lawfully prepared under Business and Professions Code § 5537, such as certain wood-frame single-family dwellings; those charges could be nontaxable services, with tax applying instead to the drafter's consumed supplies.

What this means for you

Freelance drafters

Producing drawings from someone else's specifications was treated as selling the drawings, not selling architectural expertise.

Architects and engineers

If drawings are bought for the firm's own use rather than resale, the source treated the drafter's sale as taxable.

Accountants and tax professionals

Review licensing, who creates the underlying design, the contract's true object, lawful statutory exceptions, and whether the client buys for use or resale.

Common questions

Q: Were drawings made from client specifications taxable?

A: Yes. They were sales of tangible personal property.

Q: Did calling the work architectural drafting make it a service?

A: No.

Q: Were all building plans necessarily taxable?

A: No. The opinion described nontaxable treatment for qualifying plans lawfully prepared under Business and Professions Code § 5537.

Q: Who owed tax on supplies used for qualifying service work?

A: The drafter owed tax on paper, pencils, and other consumed items.

Citations and references

• California Business and Professions Code §§ 5500 et seq., 5536, and 5537
• California Sales and Use Tax Regulations 1501 and 1540(c)
• Albers v. State Board of Equalization, 237 Cal.App.2d 494 (1965)
• Business Taxes Law Guide Annotations 100.0040, 100.3010, and 515.0380, as cited in the opinion

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0375
• Original supporting opinion: 515.0375 PDF

Original ruling text

515.0375

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

January 25, 1994

GRAY DAVIS
Controller, Sacramento
────────

Ms. K--- S--- - F--S--- - F--- Design
XXXX --- Street, #XXX
--- ---, CA XXXXX
Re:

BURTON W. OLIVER
Executive Director

SR -- XX-XXXXXX

Dear Ms. S--- - F---:
Your October 4, 1993 letter to Mr. John Lelas of the State Board of Equalization, San Francisco District office has been referred to the legal staff for reply. You asked whether sales tax applies to your charges under the following facts: "My business consists of two parts an architectural drafting service and a design service. I freelance work for different companies mostly drawing construction documents of items (signs or structures) that the company has designed such as a house plan or a pylon sign. If I am requested to design a sign for example, on that occasion I will then draw up a design (pencil on vellum or computer generated) for that sign or sign system." The California sales tax is imposed upon retailers at the applicable rate of the gross receipts from the sale of all tangible personal property sold at retail in this state. Enclosed is a copy of Sales and Use Tax Regulation 1501 Service Enterprises Generally. As noted in the regulation, to determine whether a particular transaction results in a sale of tangible personal property or the transfer of tangible personal property incidental to the performance of a service, the State Board of Equalization looks to the true object of the contract. If the true object of the contract is the service rendered, the transaction is not subject to sales tax even though the person rendering the services incidentally transfers some property to the client. For example, the Board's legal staff has taken the position that fees paid to architects or engineers for their ability to design, conceive or dictate ideas, concepts, designs, or specifications are not subject to tax. (Business Taxes Law Guide Annotation 515.0380.) Tax applies to the sale to the architect of materials which the architect uses in developing blueprints or plans. On the other hand, tax applies to the entire amount charged by designers for items of tangible personal property such as drawings, paintings, designs or sketches transferred to their clients. (Sales and Use Tax

Ms. K--- S--- - F---

-2-

January 25, 1994
515.0375

Reg. 1540, subd. (c).) When a self-employed person performs drafting work for architects, engineers and other businesses based on specifications and other data furnished by those persons, the transfer of the drawings is a sale of tangible personal property and subject to sales tax. (See Albers v. State Board of Equalization, 237 Cal.App.2d 494; Business Taxes Law Guide Annotation 100.0040, 100.3010.) When you contract to prepare drawings for architects, engineers and other persons based on specifications they have provided, you do not perform architectural services. Rather, you make sales of tangible personal property. If the architect purchases the drawings for use rather than for sale in the regular course of business, your sale is a retail sale subject to sales tax. We understand that you are not licensed to practice architecture in this state under the authority of Business and Professions Code, Division 3, Chapter 3 (§ 5500 et seq.). Business and Professions Code section 5536 provides that it is a misdemeanor for any person to practice architecture in this state if the person is not so licensed. When you prepare renderings or drawings or other designs of structures or building decorations, you do not perform architectural services. Tax applies to your charge. If you prepare plans or specifications of buildings or structures in accordance with Business and Professions Code section 5537, such as preparing plans or specifications for a single-family dwelling of wood frame construction not more than two stories and basement in height, tax would not apply to your charge. Tax would apply to the charge to you for paper, pencils and other items you consume in producing the plans or specifications. If you have further questions, please write again. In that case, please provide a description of the tangible personal property which you provide your client. Of course, you may send samples for our review. Very truly yours,

Ronald L. Dick
Staff Counsel
RLD:plh
Enclosure - Regulation 1501