When does a designer need to charge sales tax?

April 25, 7:15 AMSacramento Graphic Design ExaminerJennifer Bourn

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photo purchased from www.istockphoto.com

Because this is a state, and often local matter this article focuses on the basic California laws for calculating sales tax.

When I first started freelancing I received great advice from a fellow freelancer. She told me to charge tax on everything I do no matter what, just to be safe. But over time, clients began to question and challenge why I was charging tax on certain services. So I did some research and changed the way I calculate sales tax.

Here are some things to consider:

Identify whether your work is tangible or intangible. Tangible products are usually taxed and intangible services are usually not taxed.

When is work considered tangible?

If a transfer of property is made, it is tangible. If you deliver printed material, provide artwork on a disk or in hardcopy, it is considered tangible. For example, the design of a brochure is non-taxable, but the delivery of the printed material is taxable. A great way to avoid the taxes on printed material is to tranfer the files to the printer and have the printer work directly with your client. If you are worried about losing your markup, have the printer add the markup to their estimate and then invoice them for a designer commission.

When is work considered intangible?

Pure services are usually intangible. Such services include time and labor for production work, photo manipulation, website programming, concepting, idea development, etc. It is also important to determine whether or not your client is purchasing full ownership of the design work (taxable), or they are paying for a license for the artwork (non-taxable) and whether they are able to use the artwork anyway they want (taxable), or they are just able to reproduce the artwork (non-taxable). Overall, work transferred in an intangible way, such as over the internet, is usually exempt from tax.

With that said, you need to determine what service is being done and what product is being transferred and communicate them as completely separate line items on your estimates and invoices. Clarify in your contracts that you are providing the rights to use the work, but not complete ownership of the actual work itself.

I want to state that different parts of design services, such as concept design, final art design, website design, print design and printed materials delivery are viewed differently when it comes to taxes. I am not a financial expert and I highly recommend consulting with a certified tax specialist, cpa, or accountant who has experience working with creative professionals and designers.