96-079
Response
May 8, 1996
Request
April
19, 1996
Hello
XXXXX!
Thanks
for your help to date. We spoke on the phone earlier in the week regarding my
sending you e-mail describing my business activities in order to determine
sales tax exemption status.
Here's
a brief description of my business, XXXXX, Account No. XXXXX.
I
am a graphic designer working from home. I create sales brochures, newsletters,
advertisements, direct mail pieces, trade show graphics, signs, business cards
stationery, etc. for my clients. I also design and maintain World Wide Web
pages on the Internet for clients. All of the materials produced are used by
the client as marketing tools for their products.
The
client will typically provide me with some concept of what they are trying to
achieve and/or provide me with rough text and graphics. I then design the
layout or artwork on a computer.
If
any typesetting is required, I deliver the files by modem or disk to the
typesetter who then bills the client directly for the film produced. The film
from the typesetter is delivered by myself or the client to the printer who
produces the printed piece and then bills the client directly
for
the printing.
I
then bill the client for my time on a hourly basis, with no markup for
typesetting or printing costs, since the client is billed directly by the
printer and typesetter. I charge by the hour for my time reviewing pre-press
film and performing press checks at the printer. It's all pretty
straightforward.
Please
advise me as to your determination by return e-mail in addition to the official
letter, or e-mail me if you need further information.
Hope
I'm not too late to still be the first to request a determination over the
Internet!
Thanks
again.
Regards,
XXXXX
May
8, 1996
XXXXX
Re: Advisory opinion - Application of sales tax
to sales of brochures, newsletters, advertisements and other graphic products
Dear
XXXXX
We
have received your request for an opinion as to the tax status of the products
sold by XXXXX. From the description provided
in your request, we are not sure whether you merely design graphics for use by
a printer, or if you actually produce and sell the final printed product. However, we offer the following guidance:
Charges to design web page graphics
are not subject to tax at this time.
However, we want to let you know that the legislature is conducting a
telecommunications study to reevaluate the tax status of on-line services,
among other issues. At the conclusion
of the study, the legislature may enact changes to our tax laws that impact
this service. Of course, we will issue
bulletins as these issues developed to keep you informed.
Sales of business cards,
newsletters, brochures or other printed material to your customers are
taxable. All services in connection
with the sale of the printed material are also taxable. Therefore, if you are
selling graphic artwork or a final printed product to your client, the entire
charge -- including the charge for design services -- is taxable. There are three exceptions to this rule:
1. If
your customer is purchasing the printed material for resale, the transaction
between you and the retailer is exempt.
It is the retailer who must collect tax on the sale to the final
customer. However, if you sell the
retailer any materials that will not be resold, you must collect sales tax on
those items. The following examples
will illustrate this point:
a. Assume that you design a “master” of
some artwork and sell it in printed form or on disk or CD to your
customer. Your customer, in turn, uses
the master to reproduce thousands of
copies for sale. In this case,
the sale of the master is taxable because the master itself is not resold.
b.
Assume that you design a booklet
using desktop publishing software and print and sell 1000 copies to your customer.
The customer, in turn, resells the 1000 copies. In this case, the transaction between you
and your customer is an exempt sale for resale. You must obtain a resale exemption certificate from your customer
and keep it with your tax records.
If you sell both the master and the
copies intended for resale, your customer must pay sales tax on the master and
any other items that are not resold.
Charges for copies made for resale are not taxable so long as the
non-taxable charges are separately stated on the bill or invoice.
2. The second exception arises if you
deliver or ship the printed material out of state as a condition of the
sale. For instance, if your customer is
in Nevada, and you either deliver the finished product to Nevada yourself or
ship it by common carrier, the sale is exempt from Utah sales tax.
3. Finally we recognize an exception for
printed artwork produced and delivered for distribution as newspaper
inserts. Under Utah Administrative Rule
R865-19S-65, sales of newspapers are not taxable, so sales of newspaper inserts
are not taxable.
Because you sometimes provide
services in conjunction with a printer or typesetter, you should know that typesetters,
artists and other vendors who furnish materials to the printer who sells the
final product are required to collect tax unless the printer furnishes them a
resale exemption certificate. If your
customer contracts with a printer to print 1000 brochures, the printer may
purchase graphics design work directly from you tax free by furnishing you with
a resale exemption certificate. On the
other hand, if you are selling the final product, you may purchase typesetting
and printing services tax free if you furnish the typesetter or printer with a
resale exemption certificate. In both
of these cases, the sales transaction is between you and another vendor who is
supplying some component part of the final product. However, if the customer purchases these items individually from
each vendor, sales tax applies to each transaction.
Although you asked for information
regarding sales to your customers, this is a good opportunity to point out that
you may purchase certain materials and supplies tax free for resale if those
materials become a component part of finished taxable product. For instance, you may purchase paper tax
free if it is used as part of the final product which is taxable to your
customer. You are required to pay sales
tax on the items that you consume in the design or production process. That is, you must pay sales tax when you
purchase an item for use in your business if that item does not become a
component part of the final product.
For example, if you purchase non-custom software, such as desktop
publishing software, for use in producing the final product, you must pay sales
tax on that purchase at the point of sale.
If you have any further questions,
please let us know.
For
the Commission,
Alice
Shearer,
Commissioner
April
19, 1996 Advisory Opinion
Request
May
8, 1996 Response from the
Tax Commission
Hello
XXXXX!
Thanks
for your help to date. We spoke on the phone earlier in the week regarding my
sending you e-mail describing my business activities in order to determine
sales tax exemption status.
Here's
a brief description of my business, XXXXX, Account No. XXXXX.
I
am a graphic designer working from home. I create sales brochures, newsletters,
advertisements, direct mail pieces, trade show graphics, signs, business cards
stationery, etc. for my clients. I also design and maintain World Wide Web
pages on the Internet for clients. All of the materials produced are used by
the client as marketing tools for their products.
The
client will typically provide me with some concept of what they are trying to
achieve and/or provide me with rough text and graphics. I then design the
layout or artwork on a computer.
If
any typesetting is required, I deliver the files by modem or disk to the typesetter
who then bills the client directly for the film produced. The film from the
typesetter is delivered by myself or the client to the printer who produces the
printed piece and then bills the client directly
for
the printing.
I
then bill the client for my time on a hourly basis, with no markup for
typesetting or printing costs, since the client is billed directly by the
printer and typesetter. I charge by the hour for my time reviewing pre-press
film and performing press checks at the printer. It's all pretty
straightforward.
Please
advise me as to your determination by return e-mail in addition to the official
letter, or e-mail me if you need further information.
Hope
I'm not too late to still be the first to request a determination over the Internet!
Thanks
again.
Regards,
XXXXX
XXXXX
Re: Advisory opinion - Application of sales tax
to sales of brochures, newsletters, advertisements and other graphic products
Dear
XXXXX
We
have received your request for an opinion as to the tax status of the products
sold by XXXXX. From the description
provided in your request, we are not sure whether you merely design graphics
for use by a printer, or if you actually produce and sell the final printed
product. However, we offer the following
guidance:
Charges to design web page graphics
are not subject to tax at this time.
However, we want to let you know that the legislature is conducting a
telecommunications study to reevaluate the tax status of on-line services,
among other issues. At the conclusion
of the study, the legislature may enact changes to our tax laws that impact
this service. Of course, we will issue
bulletins as these issues developed to keep you informed.
Sales of business cards, newsletters,
brochures or other printed material to your customers are taxable. All services in connection with the sale of
the printed material are also taxable. Therefore, if you are selling graphic
artwork or a final printed product to your client, the entire charge --
including the charge for design services -- is taxable. There are three exceptions to this rule:
1. If
your customer is purchasing the printed material for resale, the transaction
between you and the retailer is exempt.
It is the retailer who must collect tax on the sale to the final
customer. However, if you sell the
retailer any materials that will not be resold, you must collect sales tax on
those items. The following examples
will illustrate this point:
a. Assume that you design a “master” of
some artwork and sell it in printed form or on disk or CD to your
customer. Your customer, in turn, uses
the master to reproduce thousands of
copies for sale. In this case,
the sale of the master is taxable because the master itself is not resold.
b.
Assume that you design a booklet
using desktop publishing software and print and sell 1000 copies to your customer.
The customer, in turn, resells the 1000 copies. In this case, the transaction between you
and your customer is an exempt sale for resale. You must obtain a resale exemption certificate from your customer
and keep it with your tax records.
If you sell both the master and the
copies intended for resale, your customer must pay sales tax on the master and
any other items that are not resold.
Charges for copies made for resale are not taxable so long as the
non-taxable charges are separately stated on the bill or invoice.
2. The second exception arises if you
deliver or ship the printed material out of state as a condition of the
sale. For instance, if your customer is
in Nevada, and you either deliver the finished product to Nevada yourself or
ship it by common carrier, the sale is exempt from Utah sales tax.
3. Finally we recognize an exception for
printed artwork produced and delivered for distribution as newspaper
inserts. Under Utah Administrative Rule
R865-19S-65, sales of newspapers are not taxable, so sales of newspaper inserts
are not taxable.
Because you sometimes provide
services in conjunction with a printer or typesetter, you should know that
typesetters, artists and other vendors who furnish materials to the printer who
sells the final product are required to collect tax unless the printer
furnishes them a resale exemption certificate.
If your customer contracts with a printer to print 1000 brochures, the
printer may purchase graphics design work directly from you tax free by
furnishing you with a resale exemption certificate. On the other hand, if you are selling the final product, you may
purchase typesetting and printing services tax free if you furnish the
typesetter or printer with a resale exemption certificate. In both of these cases, the sales
transaction is between you and another vendor who is supplying some component
part of the final product. However, if
the customer purchases these items individually from each vendor, sales tax
applies to each transaction.
Although you asked for information
regarding sales to your customers, this is a good opportunity to point out that
you may purchase certain materials and supplies tax free for resale if those
materials become a component part of finished taxable product. For instance, you may purchase paper tax
free if it is used as part of the final product which is taxable to your
customer. You are required to pay sales
tax on the items that you consume in the design or production process. That is, you must pay sales tax when you
purchase an item for use in your business if that item does not become a
component part of the final product.
For example, if you purchase non-custom software, such as desktop
publishing software, for use in producing the final product, you must pay sales
tax on that purchase at the point of sale.
If you have any further questions,
please let us know.
For
the Commission,
Alice
Shearer,
Commissioner