If I start a computer-aided design (CAD) drafting business, do I have to charge sales tax on the blueprints I produce, and does it matter whether I'm a licensed architect or engineer?

Subject

Blueprints/Stock Plans — Repeat Fee/Sale

Plain-English summary

A person planning to start a design and drafting business (using a computer as a Design and Drafting Tool to produce things like machine parts, compressor stations, chemical plant components, roadways, drainage ditches, and survey plats) asked the Comptroller whether the drafting services would be taxable. Each design would be made for a single client's specific need, not sold repeatedly to multiple customers.

The Comptroller's answer: sales tax is due on all drafting delineations and blueprints, whether produced by hand (pen and pencil) or with Computer Aided Design (CAD) technology, based on a customer's specifications. Extra copies of delineations and blueprints are taxable too. This is because a draftsman producing these items is treated as fabricating tangible personal property for sale, so a sales tax permit is required.

The letter then draws an important distinction for licensed architects and engineers: their professional design services are not taxable to their client. However, an architect or engineer still owes tax when purchasing taxable items (like blueprints made by an outside draftsman) that they use in performing their services. In the letter's example, if an architect hires an outside draftsman to draw blueprints, the draftsman charges the architect sales tax on those blueprints. When the architect passes that cost through to the client as part of an overall professional design fee, the architect does not separately collect sales tax from the client, because the architect is selling a nontaxable professional service. But if the architect later sells the "stock plans" of a house he or she previously designed to a different, unrelated person, that later transaction is simply a taxable sale of tangible personal property.

What this means for you

Drafting and CAD design businesses

If you produce blueprints or drafting delineations for customers based on their specifications -- by hand or using CAD software -- you must collect Texas sales tax on those items and on any additional copies, and you need a sales tax permit, even if each design is custom-made for a single client.

Licensed architects and engineers

Your professional design services themselves are not subject to sales tax when billed to your client. But you must pay sales tax when you buy taxable items used to deliver those services, including blueprints purchased from an outside draftsman. If you later resell previously created "stock plans" to someone other than the original client, that sale is taxable as a sale of tangible personal property, not a professional service.

Accountants and tax professionals

The taxability turns on the legal character of the transaction: fabrication/sale of tangible personal property (blueprints, delineations, copies) is taxable, while a licensed professional's design service is not -- but purchases of taxable items consumed in providing that service are subject to tax at the point the professional buys them.

Common questions

Q: Do I owe sales tax on blueprints I create with CAD software, even though I drew them by computer instead of by hand?
A: Yes. The letter states that sales tax is due on drafting delineations and blueprints regardless of whether they were created manually with pen and pencil or with CAD technology.

Q: I only make one custom design per client and never resell the same design -- does that make my drafting services exempt?
A: No. The letter addresses exactly this fact pattern (a business that would not sell a design to more than one client) and still concludes that the delineations and blueprints produced are taxable tangible personal property.

Q: If I'm a licensed architect, do I have to charge my client sales tax on the blueprints I create for their project?
A: No, professional design services of a licensed architect or engineer are not taxable to the client. However, you owe tax when you purchase taxable items (such as blueprints from an outside draftsman) used in performing those services.

Q: What if I, as an architect, later sell the same house plans to a completely different customer?
A: According to the letter, selling previously designed "stock plans" to a person other than the original client is simply a sale of tangible personal property, and would be taxable.

Citations and references

Rules cited:

• 34 Tex. Admin. Code § 3.312 (Graphic Arts or Related Occupations; Miscellaneous Activities) -- covers drafting services
• 34 Tex. Admin. Code § 3.300 (Manufacturing; Custom Manufacturing; Fabricating; Processing) -- applies because a draftsman producing delineations and blueprints is fabricating tangible personal property to be sold

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9605L1414A01

Original ruling text

May 17, 1996

Dear ****:

Thank you for your letter concerning the taxability of design and drafting
services.

You stated that you plan to start a business, designing
various things by using your computer as a Design and Drafting Tool. Examples
of the various things include machine parts, compressor stations, portions of
chemical plants, road ways, drainage ditches, survey plats, etc. You will be
delivering design services to your clients. You will not be in the business of
selling a design to more than one client as each client has a specific need.

Regardless of whether a draftsman manually creates the
drawings using pen and pencil or a draftsman uses Computer Aided Design (CAD)
technology, sales tax is due on all drafting delineations and blueprints
produced by a draftsman from the specifications given by the customer.
Additional copies of delineations and blueprints are also taxable. Drafting
services are covered by Rule 3.312, Graphic Arts or Related Occupations;
Miscellaneous Activities. A copy of that rule is enclosed. A draftsman
producing delineations and blueprints is fabricating tangible personal property
to be sold. For that reason, we have also enclosed a copy of Rule 3.300,
Manufacturing; Custom Manufacturing; Fabricating; Processing. An application
for a sales tax permit has been mailed under separate cover.

You did not indicate whether you are a licensed
engineer or architect. If so, please be aware that the professional services
of an engineer or an architect are not taxable to a client. However, an
engineer or architect is required pay tax when purchasing taxable items used in
their services including any delineations and blue prints transferred to a
client as part of their professional services.

For example, an architect who is hired to create a new
design for a house does not collect sales tax from his or her client. If the
architect goes to a draftsman (who is not an employee of the architect) to draw
the blue print of the house based on the architect's specifications, the
draftsman collects sales tax from the architect on the charges for the blue
print and any additional copies of the blue print. If the architect passes the
cost of these blue prints to his or her client, no sales tax is collected from
the client by the architect because the architect is selling his or her client
a nontaxable professional service, not tangible personal property. However, if
the architect later sells the "stock plans" of the house he or she previously
designed to a person other than the client, this would simply be a sale of
tangible personal property.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9605288L