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PS 95(5)

Purchases and Sales by Graphic Designers

PURPOSE: This Policy Statement announces a change in the policy of the Department with regard to the imposition of sales and use taxes on purchases and sales by graphic designers.

EFFECTIVE DATE: Effective for all open tax periods, except where otherwise stated.

BACKGROUND: In the past, the gross receipts from the sale of graphic designs have been taxed as the sale of tangible personal property when the graphic design in its finished form, whether on paper, film or disk, was sold by the graphic designer to the customer, without deduction for the cost of fabrication labor, the services purchased or the tangible personal property purchased for such production. When only limited rights to use or reproduce a graphic design were sold, such sale has been treated as nontaxable.

DEFINITIONS: As used in this Policy Statement:

Advertising will be considered to be media advertising if there is (i) the sale of time or space (ii) in or on a preexisting medium (iii) for broadcast or dissemination to all or a segment of the public. For example, the following forms of advertising have been considered to be "media advertising": advertising in newspapers and magazines or on radio, broadcast television or cable television; on billboards, buses or taxicabs; in trade or campus directories; on placemats used by restaurants; and on the back of cash register tapes. In contrast, some examples of non-media advertising include catalogs, flyers, posters or brochures, where the particular item on which the advertising appears is devoted entirely to advertising by one particular advertiser, and would not exist but for the advertisements of that advertiser.

Cooperative direct mail advertising services mean and include the preparation of advertisements or coupons for more than one business mailed in a single package or bundle to potential customers located in a particular geographic area.

SALES OF GRAPHIC DESIGNS: The Sales and Use Taxes Act, Conn. Gen. Stat. §12-406 et seq., imposes tax on retail sales of tangible personal property and certain enumerated services. Sales of intangible personal property are not subject to sales and use taxes.

A graphic design is the physical representation of the intellectual work product of, and services performed by, its creator, similar to the production of a master copy of an audio or video production (see PS 92(13), Taxation of the Audio or Video Production Process). As such, the sale of some or all of the incidents of ownership to a graphic design, such as the rights to change, reproduce and market the graphic design, should be treated not as the sale of tangible personal property but as the sale of a combination of intangible personal property and the services of the graphic designer (which may be taxable as advertising services under some circumstances).

In rare instances, the true object of the sale of a graphic design may be the transfer of tangible personal property. One example of such a transaction is when a graphic design is purchased by a collector who wishes to own the original of the design. In such a case, the transaction is taxable as the sale of tangible personal property.

Whether or not a client of a graphic designer chooses any of the designs created for the client, tax may be due on the services of the graphic designer (see discussion below). However, a fee representing only the sale of the right to change, reproduce or market the graphic design, without more, is not taxable to the extent that such fee can be separately stated from the charge for taxable services. But if a charge represents both a fee for the sale of the right to change, reproduce or market a graphic design and a fee for taxable services, and such fees are not separately stated, then the entire charge is presumed to be taxable, subject to the taxpayer's ability to rebut the presumption.

GRAPHIC DESIGN SERVICES: Whether or not the efforts of a graphic designer result in the sale of property, the charge for the services rendered by the graphic designer may be taxable if the services are related to taxable advertising services. Conn. Gen. Stat. §12-407(2)(i)(V) includes in the definition of sale and selling: "advertising or public relations services, including layout, art direction, graphic design, mechanical preparation or production supervision, not related to the development of media advertising or cooperative direct mail advertising." Graphic design services often are rendered in connection with the development of advertising, whether the customer of the graphic designer is an advertising firm creating an advertisement or a business purchasing a graphic design for its own advertising use.

Sales of Graphic Design Services Related to Media Advertising or Advertising By Cooperative Direct Mail: The exclusion from taxable advertising services for media or cooperative direct mail advertising applies to purchases of services described in Conn. Gen. Stat. §12-407(2)(i)(V) by an advertising firm as well as to its sale of advertising services to its customers. Thus, services of a graphic designer that are performed in connection with media or cooperative direct mail advertising are not taxable.

Sales of Graphic Design Services Related to Non-Media Advertising or Advertising Other Than By Cooperative Direct Mail: If graphic design services are related to advertising other than media or cooperative direct mail advertising, they are taxable as advertising services under Conn. Gen. Stat. §12-407(2)(i)(V). Such taxable graphic design services may be sold on a resale basis to an advertising firm by the graphic designer under Conn. Gen. Stat. §12-410(5) and §12-411(14), in which case the advertising firm must collect tax upon its resale of the graphic design services to its customer. In contrast, if the graphic designer is working directly for a business purchasing a graphic design for its own advertising use other than in the media or by cooperative direct mail, the resale exclusion is not available and the graphic designer must collect tax upon the sale of its services to the business.

PURCHASES OF TANGIBLE PERSONAL PROPERTY BY GRAPHIC DESIGNERS: Effective for sales made on or after October 1, 1991, machinery, equipment, tools, materials and supplies used exclusively in the production of typesetting, color separation, finished copy with type proofs and art work or similar content mounted for photomechanical reproduction, or other similar products to be sold for use in the production of printed material, may be purchased under the exemption provided by Conn. Gen. Stat. §12-412(72) (see PS 95(4), Purchases of Machinery, Equipment, Tools, Materials and Supplies By Commercial Printers and Publishers).

A graphic design may be a "product to be sold for use in the production of printed material," as the term is used in Conn. Gen. Stat. §12-412(72). Therefore, machinery, equipment, tools, materials and supplies used exclusively in the production of such graphic designs may be exempt. Items used for a combination of prepress production and managerial, administrative, sales or other non-production purposes do not qualify for exemption.

Since the sale of graphic designs is not considered the sale of tangible personal property (except, as discussed on the previous page, in the rare instances when the transfer of a graphic design is considered the sale of tangible personal property), a graphic designer is the consumer of all other tangible personal property used or consumed in the production of a graphic design, and sales and use taxes apply to sales to and rentals by such graphic designer.

EFFECT ON OTHER DOCUMENTS: This Policy Statement amplifies Ruling No. 95-7, issued on April 26, 1995 and effective for all open tax periods, which modified and superseded TSSN 30 (to the extent that it conflicted with the Ruling) and Ruling No. 89-103.

EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers. Unlike a Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions. 

PS 95(5)
Sales and use taxes
Issued: 11/16/95