New York Advisory Opinion TSB-A-96(10)S: Are a corporate-communications consulting firm's charges for image/communications consulting, recommending and sourcing videos/slides, creating logos, and coordinating corporate meetings subject to New York sales tax -- and does billing structure or a client's Direct Payment Permit change the answer?

Plain-English summary

Arteffects, Inc. is a graphic design and corporate communications firm (not an advertising agency -- it doesn't place ads or buy media) that raised five separate questions about its various service lines. First, its hourly-rate consulting on enhancing a client's image or improving internal workforce communications, with no tangible personal property created or transferred, is not taxable, since pure consulting isn't among Tax Law § 1105(c)'s enumerated taxable services. Second, when Petitioner recommends that a client commission a videotape or slide presentation, that recommendation alone isn't taxable either -- but Petitioner also sometimes hires an outside production company to actually make the video/slides, which it then resells to the client; in that scenario, if the recommendation and the video/slide sale are billed together (even separately stated on the same invoice, under the SAME contract), the ENTIRE charge -- recommendation portion included -- is taxable, following the Department's earlier Morton L. Coren opinion. Only if the recommendation service is supplied and billed under a wholly SEPARATE contract or agreement does the recommendation charge escape tax, leaving just the video/slide sale taxable. Third, a logo Petitioner designs and transfers to a client counts as tangible personal property (an "artistic item" under 20 NYCRR § 526.8), so its sale is taxable under § 1105(a) -- unless the client will use the logo directly and predominantly to produce its own tangible personal property for sale, which qualifies it for exemption with a properly completed Exempt Use Certificate (following the Department's Design Council precedent). Fourth, coordinating a corporate communications meeting (booking a room, arranging catering, setting up podiums/microphones) isn't itself an enumerated taxable service, but when that coordination is bundled on an unitemized bill with designing and selling banners, posters, napkins, and T-shirts for the event, the WHOLE unseparated charge becomes taxable; separately stating the coordination fee from the merchandise sale (at values reasonably related to what's actually being sold) keeps the coordination fee untaxed while the merchandise sale stays taxable on its own. Fifth, if a client presents Petitioner with a Direct Payment Permit, Petitioner is relieved of collecting sales tax and the client instead pays tax directly to the Department -- but only for purchases whose taxable status genuinely can't be determined at the time of purchase; the permit can't be used to defer tax on purchases already known to be taxable, as a substitute for a resale/exemption certificate, or to transfer its privileges to someone else.

What this means for you

Consulting and corporate communications firms

Pure advisory/consulting work, standing alone with no transfer of tangible goods, escapes New York sales tax entirely. The moment you also sell a physical deliverable (a video, slides, a logo, printed banners) tied to that advice, get the consulting/recommendation portion billed under a genuinely SEPARATE contract or agreement if you want it to stay untaxed -- merely itemizing it as a separate line on the same invoice for the same engagement isn't enough.

Businesses coordinating events with a merchandise component

Keep your event-coordination service fee separately stated from any tangible goods you design and sell for the event (banners, apparel, printed materials), and make sure each stated price reasonably reflects what's actually being sold -- an unitemized lump sum taxes the whole thing.

Clients using Direct Payment Permits

Only use the permit where you genuinely can't tell at purchase time whether the item or service will end up taxable -- using it on purchases you already know are taxable, or as a way to push off paying tax, isn't a valid use and could expose you to liability.

Common questions

Q: Why does it matter whether the recommendation and the video/slide sale are on separate contracts rather than just separate invoice lines?
A: Because the Department's controlling precedent (Morton L. Coren) treats a recommendation/consulting service performed IN CONNECTION WITH producing a taxable item as inseparable from that item's sale unless the services are truly severed into their own contract or agreement -- itemizing charges on one combined engagement's invoice doesn't accomplish that separation.

Q: Does a logo automatically qualify for the production-use exemption?
A: No -- the exemption only applies if the CLIENT will use the logo directly and predominantly to produce its own tangible personal property for sale (e.g., printing it on products), and Petitioner must obtain a properly completed Exempt Use Certificate from the client to avoid collecting tax; absent that use and certificate, the logo sale is taxable.

Q: Can a client legally use a Direct Payment Permit just to simplify its own tax accounting, even on clearly taxable purchases?
A: No -- the regulations expressly prohibit using the permit as a device to defer tax payment on known-taxable purchases, as a substitute for a resale or other exemption certificate, or to transfer the permit holder's own privileges to someone else.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipts; no deduction for expenses)
• Tax Law § 1105(a) (retail sale tax)
• Tax Law § 1105(c) (enumerated services tax)
• Tax Law § 1132(c) (direct payment permit authorization)
• 20 NYCRR 526.8 (definition of tangible personal property; artistic items)
• 20 NYCRR 532.5 (direct payment permit rules)

Prior rulings and cases referenced:

• Greenstone & Rabasca Advertising, Inc., Advisory Opinion, State Tax Commission, September 9, 1986, TSB-A-86(35)S
• Morton L. Coren, P.C., Advisory Opinion, Commissioner of Taxation and Finance, June 29, 1990, TSB-A-90(33)S
• The Design Council Ltd., Advisory Opinion, Commissioner of Taxation and Finance, June 28, 1995, TSB-A-95(23)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (10)S
Sales Tax
February 21, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950627A

On June 27, 1995, a Petition for Advisory Opinion was received from Arteffects, Inc., 1115
Midtown Tower, Rochester, New York 14604.
The issues raised by Petitioner, Arteffects, Inc., are:
1.

Whether Petitioner's charge for its consultation with a client regarding
the enhancement of the client's image and/or for improving internal
communications among the client's workforce is subject to sales and
use taxes. Petitioner charges an amount based on an hourly rate and
does not create or transfer any tangible personal property to the client.

2.

Whether Petitioner's charge for the recommendation to its client for
the creation of a videotape and/or slide presentation to assist in
internal communication techniques, when Petitioner hires a
commercial production company to create a video and/or produce
slides for the client, is subject to sales and use taxes. The production
company delivers the completed videotape and/or slide presentation
to Petitioner and bills Petitioner directly. In turn, Petitioner transfers
the video and/or slides to the client and charges the client separately
for (1) the consultation service and (2) the video and/or slides. In
some cases, the charges may not be separately stated.

3.

Whether Petitioner's charge for the creation of a logo for its client is
subject to sales and use taxes. Petitioner consults with the client,
prepares several proposed logos and transfers the final logo to the
client.

4.

Whether Petitioner's charge for the coordination of corporate
communication meetings for its client, including the design and
preparation of banners, posters, napkins and T-shirts is subject to
sales and use taxes. Coordinating a corporate communications
meeting may involve the service of locating a meeting room,
arranging a menu for meals to be served to attendees, arranging to
have podiums and microphones available, etc. The bill from
Petitioner separately states the charges for (1) services and (2) the
tangible personal property. On some occasions, however, an
unitemized bill may be presented.

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5.

Whether Petitioner's charges for the performance of the services and
transfer of tangible personal property set forth in issues 1 through 4
are subject to sales and use taxes when the client presents Petitioner
with a Direct Payment Permit.

Petitioner states the following facts. Petitioner is a New York corporation engaged in the
graphic design and corporate communications business. Its principal place of business is Rochester,
New York.
Petitioner performs many functions. It creates graphic artwork for clients, such as logos and
letterheads. Petitioner develops videos and/or slides for its clients' internal communications.
Petitioner also develops promotional campaigns for its clients. Petitioner is not an advertising
agency; it does not place ads or buy media time and space for its clients. Petitioner's services can
be purchased separately.
Section 1105(a) of the Tax Law imposes sales tax upon the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale, except
for resale, of certain enumerated services.
Section 1101(b)(3) of the Tax Law defines receipts as "[T]he amount of the sale price of any
property and the charge for any service taxable . . . without any deduction for expenses . . . ."
Section 1132(c) of the Tax Law authorizes the use of a direct payment permit to make
purchases of tangible personal property or services "under circumstances which make it impossible
at the time of acquisition to determine the manner in which the tangible personal property or services
will be used."
Section 526.8 of the Sales and Use Tax Regulations provides, in part, as follows:
Reg. Sec. 526.8. Tangible personal property.--(Tax Law, Sec. 1101(b)(6)).
(a) Definition. The term "tangible personal property" means corporeal personal
property of any nature having a material existence and perceptibility to the human
senses. Tangible personal property includes without limitation:
*

*

*

(3) artistic items such as sketches, paintings, photographs, moving picture
films and recordings;
Section 532.5 of the Sales and Use Tax Regulations provides, in part, as follows:
Reg. Sec. 532.5. Direct payment permit.--(a) General. A direct payment
permit is a notice to a vendor that the holder thereof is authorized to pay directly to
the Commissioner of Taxation and Finance any tax due on purchases made.

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The vendor's responsibility for the collection of tax from the permit holder is waived upon
receipt of such permit.
*

*

*

(e) Use of direct payment permits. (1) A direct payment permit may only be
used by the holder who makes purchases of tangible personal property or services,
the use of which is unknown to him at the time of purchase.
*

*

*

(2) A direct payment permit may not be used:
(i)

as a device to defer payment of the sales tax on
purchases;

(ii)

as a substitute for a resale certificate or other
exemption certificates; or

(iii)

as a device to transfer the permit holder's privileges to another person.
(emphasis added)

In Greenstone & Rabasca Advertising, Inc., Adv Op St Tx Comm, September 9, 1986, TSBA-86(35)S the State Tax Commission opined as follows:
A.

Consulting and public relations services; planning and preparing advertising
budgets, news releases, and publicity campaigns.

Petitioner is not required to collect tax on its charges to the client, provided
no tangible personal property is transferred to the customer or its designees in
connection with this service. All purchases by Petitioner, either for its own account
or as agent for a principal, of material or taxable services to be used in performing
these services are subject to sales tax . . . . (emphasis added)
In Morton L. Coren, P.C., Adv Op Comm T&F, June 29, 1990, TSB-A-90(33)S, the
petitioner's client, a behavioral scientist, conducted interviews with employees of his customers and
developed strategies for training his customers' employees. He prepared oral and/or written reports
and discussed his recommendations with his customers. In addition to the consulting services, the
behavioral scientist produced video tapes for his customers to be used for training employees in
selling techniques, customer services and other matters. The cost of producing the tapes included
both professional and production services including consultation with his customers. The advisory
opinion concluded that the behavioral scientist had to collect sales tax on his entire charge for the
tapes, including any portion of the charge for the tapes which represented the charge for consulting
services that were performed in connection with the preparation of the tapes. The advisory opinion
indicated, however, that if the consulting services were supplied and billed pursuant to a separate

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contract or agreement apart from the contract or agreement for the sale of the tapes, then the charges
for the consulting services would not be subject to sales tax although the charge for the tapes would
still be subject to sales tax.
In The Design Council Ltd., Adv Op Comm T&F, June 28, 1995, TSB-A-95(23)S, the
petitioner was engaged in producing mechanical drawings for its customers, who were predominately
garment and textile manufacturers. The mechanical drawings, which were camera ready artwork,
were used to produce a silkscreen or other printing process. Customers also used the mechanical
drawings to produce hang tags, wrapping paper and box and bag designs. The advisory opinion
concluded that the purchase of mechanicals is exempt from sales and use taxes if the mechanicals
are used or consumed directly and predominantly to produce tangible personal property for sale.
With respect to issue "1", pursuant to Section 1105(c) of the Tax Law and Greenstone &
Rabasca Advertising, Inc., supra, the providing of consulting services is not an enumerated service
which is subject to sales and use taxes, provided that no tangible personal property is transferred to
the customer in connection with this service. Therefore, since Petitioner will not create or transfer
any tangible personal property in connection with providing this service, Petitioner's charge for this
service is not subject to sales and use taxes.
Concerning issue "2", Petitioner's recommendation to its client for the creation of a videotape
and/or slide presentation is not an enumerated service which is subject to sales tax pursuant to
Section 1105(c) of the Tax Law. However, pursuant to Morton L. Coren, P.C., supra, when the
service of producing the videotape and/or slides is coupled with the recommendation service, the
entire charge for the videotapes and/or slides, including any portion of the charge which represents
the charge for the recommendations made to the client that were performed in connection with the
preparation of the tapes and/or slides, is subject to sales tax. If the recommendation service made
to the client is supplied and billed pursuant to a separate contract or agreement apart from the
contract or agreement for the sale of the videotapes and/or slides, and the charge for the
recommendation service is separately stated, then the charges for the recommendations made to the
client concerning the creation of a videotape and/or slide presentation would not be subject to sales
tax. The charge for the videotapes and/or slides would still be subject to sales and use tax.
With respect to issue "3", pursuant to Section 526.8 of the Sales and Use Tax Regulations,
artistic items such as sketches, paintings, photographs, moving picture films and recordings are
considered tangible personal property. A logo would fall within the ambit of an artistic item and,
thus, would be considered tangible personal property. Pursuant to Section 1105(a) of the Tax Law
sales tax is imposed upon the receipts from every retail sale of tangible personal property unless
otherwise exempt. In accordance with the policy expressed in The Design Council Ltd., supra, if the
logo created and transferred by Petitioner to its client will be used by the client directly and
predominantly in the production of tangible personal property for sale, the receipts from the sale of
the logo will not be subject to sales or use tax. Petitioner will not be required to collect sales tax
provided it receives a properly completed Exempt Use Certificate from its customers.

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With respect to issue "4", pursuant to Section 1105(c) of the Tax Law Petitioner's service of
coordinating corporate communication meetings is not an enumerated service which is subject to
sales and use taxes. However, when the service of coordinating the meeting is coupled with the
design, preparation and sale of banners, posters, napkins and T-shirts for sale, an unitemized charge
which represents a charge for coordinating the meetings performed in connection with the design,
preparation and sale of the banners, posters, napkins and T-shirts is subject to sales tax. If the charge
for the service of coordinating the meeting is stated on the customer billing separately from the
charge for the sale of banners, posters, napkins and T-shirts, then the charge for coordinating the
meeting for the client is not subject to sales tax. The separately stated charge for the sale of the
banners, posters, napkins and T-shirts is subject to sales or use tax. The separately stated charges
for coordinating the meeting and for the sale of the banners, posters, napkins and T-shirts must be
reasonably related to the true value of the services and property being sold.
Concerning issue "5", pursuant to Section 1132(c) of the Tax Law and Section 532.5 of the
Sales and Use Tax Regulations, if Petitioner receives from its customer a Direct Payment Permit in
connection with the performance of services or the sale of tangible personal property, Petitioner is
not responsible for the collection of tax from the permit holder on the receipts from the services or
sale of tangible personal property. However, the Direct Payment Permit holder may only use the
permit where it cannot determine the taxability of its purchases. The permit holder should not use
the permit to avoid tax when it purchases tangible personal property or services that are known to
be subject to sales or use tax.

DATED: February 21, 1996

s/DORIS S. BAUMAN
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.