Are receipts from a patent draftsman's formal drawings, delivered solely electronically as PDFs, subject to NY sales tax?

Plain-English summary

The petitioner is a patent draftsman whose main service is creating formal patent drawings for sale to patent attorneys, who then submit them electronically with patent applications. The drawings are delivered solely electronically -- as PDF files attached to emails, with no paper copy. The petitioner asked whether those sales are subject to sales tax.

The Office of Counsel concluded they are not taxable:

• Sales tax reaches tangible personal property. Tax Law 1105(a) taxes retail sales of tangible personal property, defined as corporeal property "having a material existence and perceptibility to the human senses," which includes artistic items like sketches and drawings (1101(b)(6); 20 NYCRR 526.8(a)).
• Paper version would be taxable. An earlier opinion on identical facts -- except the drawings were delivered as paper printouts -- held those drawings were taxable tangible personal property (TSB-A-97(48)S).
• Electronic delivery isn't tangible. Here the drawings are delivered solely electronically, with no tangible format. Drawings delivered solely electronically are not corporeal personal property (TSB-A-09(20)S), so the receipts are not from the sale of tangible personal property and are not subject to sales tax.

For this petitioner's formal patent drawings, delivery solely by emailed PDF changed the result reached in an earlier opinion about paper printouts.

What this means for you

Patent draftsmen delivering formal drawings

The Department held that this petitioner's emailed PDF drawings, with no tangible copy delivered, were not taxable sales of tangible personal property. The earlier opinion cited in this ruling treated the same drawings delivered as paper printouts as taxable. This opinion did not address other electronic products or all kinds of design work.

Patent attorneys buying these drawings

For the formal patent drawings described here, the Department distinguished between delivery solely by emailed PDF and delivery as paper printouts.

Common questions

Q: I email my drawings as PDFs with no paper copy -- do I charge sales tax? A: For the formal patent drawings in this petition, no. Their delivery solely by emailed PDF produced no taxable sale of tangible personal property.

Q: Would paper copies of the same drawings be taxable? A: Yes. The same drawings delivered as paper printouts are taxable tangible personal property (TSB-A-97(48)S).

Q: Does it matter what the customer does with the drawings? A: The opinion decided the tax treatment of this petitioner's formal patent drawings based on how they were delivered. It did not decide the tax treatment of other electronic products.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1101(b)(6) (definition of tangible personal property)
• Tax Law section 1101(b)(4)(i) (retail sale)
• 20 NYCRR section 526.8(a) (tangible personal property)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(22)S
Sales Tax
August 3, 2011

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

PETITION NO S110601A

Petitioner name and address redacted, asks whether receipts from sales of patent drawings delivered electronically to its patent attorney customers are subject to sales tax. We conclude that the receipts from the electronic drawings are not subject to sales tax. Facts Petitioner is a patent draftsman whose primary service is to create formal drawings for sale to patent attorneys. The drawings are delivered electronically as PDF files attached to emails. The attorney customers subsequently submit the drawings electronically to the United States and foreign patent offices with applications for patents for their clients. Analysis The Tax Law imposes sales tax on the receipts from every retail sale of tangible personal property, except as specifically excluded. [Tax Law § 1105(a), 20 NYCRR § 526.6(a)] A retail sale is defined as a sale of tangible personal property to any person for any purpose…. [Tax Law § 1101(b)(4)(i)] Tangible personal property is defined as corporeal personal property of any nature having a material existence and perceptibility to the human senses. It includes artistic items, such as sketches, paintings, photographs, moving picture films, and recordings. [Tax Law § 1101(b)(6), 20 NYCRR § 526.8(a)] In a previous opinion regarding patent drawings, [TSB-A-97(48)S], the facts presented were identical to the facts in this petition, except that the drawings were delivered to Petitioner’s attorney customers by mail as paper-print outs, and not electronically as PDF files. The prior opinion held that Petitioner’s formal drawings to its attorney customers constituted tangible personal property and receipts from Petitioner’s sale of the drawings were subject to sales tax. In this opinion, the drawings are furnished to Petitioner’s attorney customers by electronic means as PDF files. Therefore it must be determined if the sale of electronic drawings to Petitioner’s customers are tangible personal property within the meaning of the Tax Law. Where drawings are delivered solely electronically with no tangible format, the receipts from the sales of those drawings are not receipts from the sale of corporeal

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TSB-A-11(22)S
Sales Tax
August 3, 2011

personal property [TSB-A-09(20)S]. Therefore, the receipts are not from the sale of tangible personal property and are not subject to sales tax.

DATED: August 3, 2011

NOTE:

/S/
DEBORAH LIEBMAN
Deputy 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.