Were garment designer charges taxable when the designer delivered approved patterns and sample garments that customers used to make production patterns?

Plain-English summary

A garment designer prepared sketches for customer approval and then produced patterns and sample garments that became the customer's property. Customers used the samples to prepare production patterns.

California treated the contracts as taxable sales of tangible personal property. The customers wanted the designer's ideas embodied in original samples and designer patterns from which duplicates could be cut.

The source distinguished nontaxable plans, blueprints, legal briefs, or financial statements that merely express professional ideas. A model or sample usable to produce production patterns went beyond expression and became a taxable product.

What this means for you

Fashion designers and manufacturers

Delivering a production-ready pattern or sample can be taxable even when creative design work is substantial.

Accountants and tax professionals

Separate sketches and consulting from customer-owned patterns, samples, prototypes, duplicates, production tools, and digital manufacturing files.

Common questions

Q: Were the garment-design contracts taxable?

A: Yes.

Q: Why were the samples not incidental to design services?

A: They were usable products from which production patterns could be made.

Q: Were all expressions of professional ideas taxable?

A: No. The source distinguished plans and similar documents used only to express ideas.

Citations and references

• California Sales and Use Tax Regulation 1501

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0470
• Original supporting opinion: 515.0470 PDF

Original ruling text

515.0470

State of California

Board of Equalization

Memorandum
To:

Los Angeles District - District
Principal Auditor (JTQ)

From:

Legal Counsel (DJH) - Headquarters

Subject:

REDACTED TEXT

Date:

January 7, 1971

This is in response to your memorandum of December 18, 1970, addressed to Mr. T. P. Putnam, which was referred to the undersigned for reply. REDACTED TEXT creates garment designs under contracts such as those forwarded to us. She prepares sketches for approval by her customers and then executes patterns and sample garments which become the property of the customers. The sample garments are used by customers in preparing production patterns. The attorney for REDACTED TEXT believes she performs an exempt service. The auditor believes tangible personal property is produced when patterns and prototypes are prepared and transferred to manufacturers. We are of the opinion that the described transactions are sales of tangible personal property and subject to the sales tax. Under Regulation 1501, paragraph 2, the true object of the contracts at issue is the property produced by the service, not the service per se. The customers wish REDACTED TEXT’s ideas as embodied in the patterns and samples. The typical contracts submitted call for the production and delivery of tangible personal property. Specifically, the contracts provide that REDACTED TEXT will provide her customers with “original sample and designers pattern from which duplicates can be cut.” (See California Tax Service annotation 1463.70.) We have previously held the creation of a plan, blueprint, lawyer’s brief or accountant’s financial statement necessary for the expression of ideas and nontaxable. However, the production of a model or sample which can be used to produce production patterns goes beyond the exempt expression of ideas. It is a taxable sale of a usable product. (See California Tax Service annotation 1809.60.) If you have further questions on this matter, please write this office. DJH:lt cc: Hollywood – Subdist. Admin.