Graphic artists are subject to many new changes. In the November issue I touched on one of the changes but I would like to clarify it as well as discuss the new Regulation in greater detail. First of all, electronic or digital art (the process of using computer software and hardware to compile or compose finished art or text), is non taxable if it is transferred via modem or if the file is downloaded on the customers computer by the seller and if that customer does not obtain title to or possession of property such as a diskette or compact disk. Also, transfers of files qualifying as electronic or digital pre-press instruction is non taxable even if transferred on a disk. Electronic digital or pre-press instruction is the transfer of original information created by combining more than one computer program into specific instructions or information necessary to prepare and link files for electronic transmission for output to film, plate, or direct to press. This electronic or pre-press instruction is considered a custom computer program when prepared to the special order of the customer.

When ad agencies, artists, or designers fabricate property in house, they are considered retailers.

In the case of printing aids used to fabricate tangible property it will be presumed title passes to the client prior to use and as such they may be purchased for resale. These items include artwork, illustrations, photography, photo engravings, and other similar materials.

When advertising speciality industries, commercial artist or designer makes a lump sum charge for finished artwork and when that charge includes services performed such as a design, concept development and preliminary art, it will be rebuttably presumed that 75% of the lump sum charge is for the non taxable services. Therefore, only 25% of the charge will be taxable. Separately stated fees for services such as:

(A) Agent fees added to purchases of tangible personal property by agencies established as agents for their clients as compensation for their performances of services related to such purchases.

(B) Media commissions derived by agencies for placement of advertising whether paid by the medium, by another agency, or by the client. The service of placing of advertising is not a service that is a part of a sale of tangible personal property.

(C) Commissions paid to agencies by suppliers. Examples of such commissions are those paid to an agency by a premium manufacturer (or distributor) or a direct-by-mail supplier.

(D) Consultation and concept development fees related to client discussion, development of ideas and other services. Tangible personal property produced as a result of these services is incidental to the service and nontaxable.

(E) Research or account planning that entail consumer research and the application of the research to the client's business or industry.

(F) Quality control supervision that entails the proofing and review of printing and other products provided by outside vendors.

(G) Separately stated charges for the formulation and writing of copy.
are not taxable.

The new Regulation also makes it clear that the design, editing, and/or hosting of websites in which no tangible personal property is transferred to the customer is not subject to tax.

Printers in the meantime, are enjoying the new Regulation allowing them to possibly buy printing aids for resale. Also, many printers are due refunds on tax paid on past purchases of printing aids but the State is still trying to sort out who to give it to. Should the refund go to the printers who purchase the printing aids or to the suppliers who actually reported the tax? The suppliers of course would have to refund the tax to the printers. In the meantime, claims should be filed by both parties. Consult a competent business tax consultant or sales tax consultant to determine if you have unclaimed tax refunds.

OTHER UPDATES
Several months ago I wrote an article on the body shop owner who was asked by an auditor whether he painted his new bumpers before or after he installed them on the vehicle. The body shop owner proudly told the auditor that they did a superior job and as such the bumpers were painted before installation to assure a better job. The auditor pulled out Annotation 315.0220 and said that because it was painted before installation, this labor was taxable. If the bumper was painted on the car, the labor would have been exempt repair labor. The legal staff has now decided that painting the bumper off or on the car doesn't matter. It is all exempt repair labor when it is in conjunction with a vehicle repair.

I also wrote about a proposed Regulation that would have made CRV charges tax exempt. Well that didn't pass and now they are still taxable as before.