Was artwork sold by a graphic artist to an advertising agency taxable when the agency used it only in conceptual ad-campaign development?

Plain-English summary

Graphic artists supplied artwork to advertising agencies for use in conceptual development of advertising campaigns. The agent described the product as preliminary art because of the agency's intended use.

The Comptroller instead treated the artist's output as finished art: the artist had produced a finished product for sale to the agency. Whether the agency later used that product as preliminary or finished material in its own campaign process did not change the classification.

The artist therefore had to collect sales tax on the artwork sold to the advertising agency.

What this means for you

Tax classification followed what the seller completed and transferred, not the buyer's internal label or downstream development stage.

Common questions

Was the artwork taxable? Yes. Did conceptual use make it preliminary art for the artist's sale? No. Who collected tax? The graphic artist selling to the agency.

Citations and references

• The letter does not identify a numbered statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1142B13

Original ruling text

October 28, 1991

Dear ***:

Thank you for your letter asking how sales tax applies to art by
graphic artists based on the following facts.

A graphic artist is an agent for various artists which provide
services and artwork to advertise agencies and industry for
advertising purposes.

The particular product which is the subject of taxability, is
"preliminary art." This is artwork done by graphic artists for
use by advertising agencies in the conceptual development of
an ad campaign. The agent is invoicing the agency for this
service and is trying to determine its tax status.

Based on the above facts, the artwork produced by the graphic
artist for sale to the advertising agency is "finished art."
The fact that the advertising agency may use the artwork in
the conceptual development of an ad campaign (that may be
"preliminary art" or "finished art") does not change the fact that
the graphic artist is producing a finished product for the
advertising agency.

A graphic artist must collect the tax on the sale of artwork
to an advertising agency who will use the artwork in developing
an ad campaign.

This opinion is based on the facts presented. If the there are
additional or different facts, the opinion may change.

If you have any questions or need additional information, you
may call toll free, 1-800-252-5555. or the regular Austin
number 512-463-4600. My extension is 3-4666. You may also write
to Tax Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division