My design firm delivers logos, brochures, and website designs to clients either on disc or electronically — does the delivery method change whether my design charges are subject to New York sales tax?

Plain-English summary

Marschallin + Sachs, Inc. provides design services to clients both in and outside New York: logo and graphic design, content and design for brochures and other printed materials, Internet ad and newsletter design, and website planning/design (including writing the HTML code, unique to each client's site). The firm doesn't print or mail anything itself, and transfers all rights to the finished design to the client — it isn't just licensing a right to reproduce. Currently the firm delivers final designs on tangible media (like a disc), either to the client or to an outside vendor (like a printer) the client designates, but was considering switching to electronic delivery.

The Department's answer turns entirely on how the final design is delivered, not on what kind of design work was done:

• Delivered on tangible media (disc, etc.) to a client or vendor in New York — the firm's entire charge is taxable, including its design work and other expenses, because the tangible design is treated as tangible personal property and the design service is an integral part of that sale. This is true whether or not the design and delivery charges are separately stated on the invoice.
• Delivered on tangible media outside New York — not taxable, since the property is delivered for use outside the state.
• Delivered electronically (anywhere) — not taxable, because no tangible personal property is being sold at all.
• Delivered electronically, but the firm also separately offers an optional tangible copy for an extra, separately-stated charge — only the tangible-copy charge is taxable (if reasonable in relation to the whole); the electronic delivery itself, and the rest of the charge, stay untaxed.

The Department also flagged a special exemption for anyone buying "mechanicals, layouts, artwork, photographs, color separations and like property" to hand to a printer that will use it to produce exempt printed promotional materials (materials given away free via mail/common carrier) — Marschallin + Sachs doesn't have to collect tax on such tangible-form sales if it accepts a properly completed ST-121 exemption certificate in good faith.

Notably, the Department also stated that this opinion's approach to website design supersedes any contrary suggestion in two earlier opinions — Pegasus Internet, Inc. (TSB-A-02(13)S) and K2 Design, Inc. (TSB-A-97(43)S) — meaning those older opinions no longer represent current Department policy on website design specifically.

What this means for you

Graphic design, marketing, and web design firms

The taxability of your fee is a delivery-mechanics question, not a "what kind of design" question. If you want to minimize sales tax exposure for clients, switching from disc/tangible delivery to purely electronic delivery removes the charge from the sales tax base entirely — but if you (or your client) also want a physical backup copy, keep that as a genuinely separate, reasonably-priced line item so only that piece is taxed.

Firms delivering to an outside printer or vendor

Delivering your tangible design work to a printer the client designates is treated the same as delivering it to the client directly — taxable if that delivery happens in New York, untaxed if it happens out of state. If your tangible-form artwork feeds into a printer's production of exempt printed promotional materials, get a properly completed ST-121 exemption certificate from your customer to avoid having to collect tax on that specific charge.

Accountants and tax professionals

This is a good template for any professional/creative service where the deliverable can be either tangible or electronic — the entire tax result hinges on the Penfold v. State Tax Comm'n principle that a service is treated as taxable when it's an "integral component" of a tangible-property sale, but escapes tax entirely when nothing tangible changes hands. Also worth flagging to clients doing website design work specifically: this opinion is the current, controlling word, having explicitly overridden contrary language in two older opinions.

Common questions

Q: We deliver our final designs electronically — does that mean our whole fee is untaxed?
A: Yes, under this opinion — delivering a design electronically means you aren't selling tangible personal property, so the charge isn't subject to New York sales tax, regardless of what kind of design work went into it.

Q: What if we deliver electronically but also sell an optional printed/disc copy for an extra fee?
A: Only that separately-stated, reasonable extra charge for the tangible copy is taxable. It doesn't pull your main electronic-delivery charge into the tax base.

Q: Does it matter if we deliver the tangible design to the client's printer instead of the client directly?
A: No — delivery to a client-designated vendor (like a printing company) is treated the same as delivery to the client. What matters is whether that delivery happens in New York or outside the state.

Q: We do website design and HTML coding — is that treated differently from other design work?
A: No — this opinion applies the same tangible-vs-electronic-delivery framework to website design as to any other design service, and it explicitly supersedes older opinions (Pegasus Internet, K2 Design) to the extent they suggested a different result for website design.

Q: Can any design firm rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the specific facts described — including that this firm transfers full rights to its work rather than merely licensing a right to reproduce it, and doesn't provide interior-decorating-type design services that are separately taxable under a different Tax Law provision.

Citations and references

Statutes and regulations:

• Tax Law §1105 (imposition of sales tax on tangible personal property, unless exempt)
• Tax Law §1101(b)(3) (taxable receipt)
• Tax Law §1115(n)(4), (5), (7) (exemption for mechanicals/artwork used to produce exempt printed promotional materials)
• Tax Law §1132(c) (integral-component sale rule)
• 20 NYCRR §526.5(e); §526.7(e)(1) (place of delivery controls tax); §526.8(a); §527.1

Cited cases and opinions:

• Penfold v. State Tax Comm'n, 114 AD2d 696 (3d Dep't 1985) (design services integral to sale of tangible property)
• Matter of Zagoren Group Inc., DTA Nos. 808189, 808190 (May 19, 1994)
• Doyle Partners, TSB-A-06(32)S; Gentile, Wiener, Pena & Co. CPAs PC (citation number garbled in source PDF extraction as "TSBA096(91)S")
• Apple Computer Inc., TSB-A-07(11)S; Universal Music Group, TSB-A-01(15)S (electronic delivery not taxable)
• Pegasus Internet, Inc., TSB-A-02(13)S; K2 Design, Inc., TSB-A-97(43)S (superseded to the extent inconsistent with this opinion's website-design analysis)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(20)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(20)S
Sales Tax
May 22, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S080805A

On August 5, 2008, the Department of Taxation and Finance received a petition by Marschallin +
Sachs, Inc., 1133 Broadway, Suite 1330, New York, New York 10010, requesting an advisory opinion about
whether receipts from its sale of certain design services are subject to New York State and local sales taxes.
We conclude that if Petitioner’s final design is delivered on tangible media, Petitioner’s charges are subject
to tax when delivered to customers within New York State. If the final design is delivered to clients outside
New York State, or is delivered in electronic form to clients in New York State, Petitioner’s charges are not
subject to tax.
Facts
Petitioner provides various design services to clients located both in and out of New York State.
Petitioner’s services include the following: (1) designing logos and graphic images; (2) designing and writing
content for brochures, direct mail pieces, exhibits, annual reports, advertisements and other printed
publications; (3) designing Internet advertisements, banner ads and electronic newsletters; and (4) website
planning and design.1 The website design service includes creation of the HyperText Markup Language
(HTML) code for the website graphics and layout. The code is unique to a particular client’s website.
Petitioner does not print or mail any printed matter. Petitioner does not grant a client a right to reproduce the
end product of its design services; rather, all rights to the end product are fully transferred to the client.
Petitioner currently delivers its final designs to its clients or to an outside vendor designated by a client (e.g.,
a printing vendor) on tangible media (e.g., disc), but is considering changing to electronic delivery.
Petitioner asks the following questions:
1.

If the final design is delivered on tangible media, is Petitioner’s entire charge subject to State and
local sales tax?

2.

If the final design is delivered electronically, is Petitioner’s entire charge subject to tax?

3.

If the final design is delivered electronically, but a copy or print is provided on tangible media for a
separately-stated charge, are either the electronically delivered design or the tangible copies subject
to tax?
If the final design is delivered to a printing vendor on tangible media, is Petitioner’s charge subject
to tax?

4.

1

Petitioner’s design services do not include interior decorating or design services subject to sales tax under Tax Law
section 1105(c)(7), and this opinion does not address those services.

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5.

TSB-A-09(20)S
Sales Tax
May 22, 2009

If the final design is delivered to a client located outside New York State, is Petitioner’s charge
subject to tax?

Analysis
New York State and local sales taxes are imposed on all sales of tangible personal property, unless
otherwise exempt, and on certain enumerated services. See Tax Law §1105. When Petitioner’s final design
is delivered to a client or a designated vendor (e.g., printing vendor) in tangible form, Petitioner is selling
tangible personal property. The design services are an integral component of the sale of the tangible
personal property. See Penfold v. State Tax Comm’n, 114 AD2d 696 (3d Dep’t 1985); see also Tax Law
§1132(c); Sales and Use Tax Regulations §527.1. Thus, Petitioner’s entire charge to its client for the final
design delivered in tangible form, including its design costs and other expenses, are subject to tax, regardless
of whether those charges are separately stated, unless the purchase of the tangible personal property is
otherwise exempt. See Tax Law §1101(b)(3); Sales and Use Tax Regulations §526.5(e); see also, Matter of
Zagoren Group Inc., DTA Nos. 808189, 808190 (May 19, 1994); Sales and Use Tax Regulations § 526.8(a);
Doyle Partners, TSB-A-06(32)S (December 29, 2006); Gentile, Wiener, Pena & Co. CPAs PC, TSBA096(91)S. Petitioner is required to collect the applicable sales tax at the State and local rates in effect at the
place of delivery of the tangible personal property to its client or designated vendor. See Sales and Use Tax
Regulations § 526.7(e)(1). Petitioner is not required to collect sales tax if the tangible personal property is
delivered outside New York for use outside the state.
We note that Tax Law section 1115(n)(7) exempts the sale of “mechanicals, layouts, artwork,
photographs, color separations and like property,” if that property is purchased by someone who provides it
to a printer for use directly and predominantly in the production of printed promotional materials exempt
under section 1115(n)(4) (i.e., printed promotional materials that will be delivered without charge to
customers or prospective customers by means of a common carrier, United States Postal Service or like
delivery service), or in performing services exempt under section 1115(n)(5) (i.e., services otherwise taxable
under section 1105(c)(2) performed on printed promotional materials exempt under section 1115(n)(4)), for
sale by the printer to the person furnishing the property. Petitioner is not required to collect tax from its
customer on the sale in tangible form of the property described if it accepts a properly completed exemption
certificate (ST-121 - Sales Tax Exempt Use Certificate) from its customer in good faith that documents this
exemption.
If, however, Petitioner delivers the final design to a client or designated vendor electronically,
Petitioner is not selling tangible personal property. In that case, Petitioner’s charges are not subject to State
and local sales taxes. See Apple Computer Inc., TSB-A-07(11)S, April 12, 2007; Doyle Partners, TSB-A06(32)S, December 29, 2006; Universal Music Group, TSB-A-01(15)S, April 18, 2001.
If Petitioner delivers the final design to a client or designated vendor electronically, but also
separately offers an optional tangible copy of the final design for a separately-stated charge, the separatelystated charge for the tangible copy is subject to tax. The separate offering of a tangible copy will not cause

TSB-A-09(20)S
Sales Tax
May 22, 2009

-3-

the entire charge to be subject to tax, provided that the charge for the tangible copy is separately stated and
reasonable in relation to the overall charge. See Tax Law §1132(c); Sales and Use Tax Regulations §527.1.
These conclusions represent the current position of the Department. To the extent that Pegasus
Internet, Inc. (TSB-A-02(13)S), K2 Design, Inc. (TSB-A-97(43)S), or any other advice from the Department
suggests a contrary conclusion with respect to website design, it does not represent current policy.

DATED: May 22, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the person
or entity fully and accurately describes all relevant facts. An Advisory
Opinion is based on the law, regulations, and Department policies in effect as
of the date the Opinion is issued or for the specific time period at issue in the
Opinion.