Sales Tax Articles
Sales Tax State Activity Update - May 2006
Florida Examines Graphic Design Services
Background
Taxpayer is in the business of providing environmental graphics and graphic designs for hotels, cruise ships, and other industries. These designs include, but are not limited to, way finding signs, brand identity packages, and print designs, such as brochures, annual reports, or packaging. In a series of questions the Taxpayer requested clarification to certain transactions.
Q1: Is a contract for design services which includes the delivery of tangible personal property to the client taxable in its entirety including all invoices related to the contract?
A: The Taxpayer entered into a contract to sell tangible personal property to its customer. Therefore, the entire contract amount would be subject to tax.
Q2: Is a contract for design services which do not include the delivery of tangible personal property to the client not taxable so that none of the invoices related to the contract are taxable unless there is a delivery of taxable tangible property to the client related to the contract?
A: The Taxpayer entered into a contract for design services with no transfer of possession or title of tangible personal property to its customer. Therefore, the Taxpayer is performing a service, and the entire contract amount would not be subject to tax, provided no items of tangible personal property were transferred to the customer.
Q3: Same as 1. above, plus the contract provides for and invoices include reimbursable expenses that are used and consumed by the Taxpayer (not delivered to their clients).
A: The Taxpayer entered into a contract to sell tangible personal property to its customer. Therefore, the entire contract amount would be subject to tax.
Q4: Same as 2. above, plus the contract provides for and invoices include reimbursable expenses used and consumed by the Taxpayer (not delivered to their clients).
A: The Taxpayer entered into a contract for design services with no transfer of possession or title of tangible personal property to its customer. Therefore, the Taxpayer is performing a service, and the entire contract amount would not be subject to tax, provided no title or possession of tangible personal property was transferred to the customer. The charge for reimbursable expenses is a part of the design services and would not be subject to tax, provided no title or possession of tangible personal property was transferred to the customer.
Q5: If the answer to 1., above is yes, and the taxpayer forms a subsidiary entity, registered as a dealer with the Department, to separately contract with and deliver to clients items of tangible personal property, will the answer to 1., become "no" even if such sales are made to the same customers contracting for non-taxable design services with the parent Taxpayer?
A: If the parent company enters into a contract with its customer to deliver design services with no transfer of title or possession of tangible personal property, then the parent's contract with the customer will be taxed the same as in #2 above. If the subsidiary company enters into a separate contract with the same customer to deliver items of tangible personal property, then the subsidiary's contract with the customer will be taxed the same as in #1 above. However, should the parent contract with the subsidiary to provide tangible personal property to the parent's customer, the parent's contract would be subject to tax as a sale of tangible personal property.
View the full text on the State of Florida Department of Revenue Website.
(Florida Department of Revenue, Technical Assistance Advisement, No. 06A-003, March 28, 2006)
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