Sales Tax Articles
Sales Tax State Activity Update - February 2007
New York Grapples with Graphic Design Taxability
Facts
The Petitioner entered into a contract with a client for on-going graphic design services. These services include the design and development of ideas regarding the client's identity, branding and merchandising.
The Petitioner is not granting reproduction rights or selling a license to reproduce, rather the end products of Petitioner's design services are fully transferred and the client acquires full ownership.
The client does not qualify as an exempt organization and is located in New York State. The final design is only delivered to some clients electronically and other clients are given their final designs on disks. In some instances when Petitioner is designing a client's company logo, the client may request that Petitioner also electronically send the logo to an outside vendor or that the Petitioner have the logo imprinted on stationery by an outside vendor.
In these instances, the completed products from the outside vendor (e.g., the imprinted stationery) are directly shipped and billed by the outside vendor to the client.
Opinion
When Petitioner's final design is delivered to the client or a designated outside vendor electronically,
the Petitioner's charges to the client are for the sale of intangible property. Therefore, the Petitioner's charges pursuant to its contract with the client are not subject to sales tax. See Debra Horn Stachura , Adv Op Comm T&F, November 22, 2004, TSB-A-04(26)S; Universal Music Group , Adv Op Comm T&F, April 18, 2001, TSB-A-01(15)S; Martin R. Timm , Adv Op Comm T&F, September 27, 2005, TSB-A-05(34)S.
In the alternative, when the Petitioner's final design is delivered to a client or a designated outside vendor on a computer disk, the Petitioner is selling tangible personal property and Petitioner's charges to the client, including design costs and reimbursable expenses regardless of whether or not such items are separately stated, are subject to sales tax under section 1105(a) of the Tax Law, unless the purchase of the tangible personal property is otherwise exempt.
The full text may be accessed on the New York State Department of Taxation and Finance website.
(Advisory Opinion TSB-A-06 (32) S New York Commissioner of Taxation and Finance December 29, 2006)
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