When were graphic-design contracts taxable because signs, printed materials, or other property were delivered?

Plain-English summary

A graphic-design firm created signs, brand packages, brochures, annual reports, packaging, and similar work. Florida distinguished taxable property sales from nontaxable pure design services by whether tangible personal property reached the customer.

When a contract included fabricated signs, printed materials, or other property delivered directly or through a third party, the entire contract amount was taxable. When no title or possession of property transferred, the contract was a nontaxable service.

Reimbursable items used and consumed by the designer did not make a pure service contract taxable to the customer, although the designer generally owed tax on its vendor purchases. A separate subsidiary could sell property under its own taxable contract, but routing the parent's customer delivery through the subsidiary would make the parent's contract taxable.

What this means for you

Contract scope and delivery structure control. Separately labeling design fees or reimbursements does not isolate them when the same contract promises property to the customer.

Common questions

Was the whole contract taxable when property was delivered? Yes. The delivered property made the contract a taxable sale.

Were pure design services taxable? No, provided no tangible personal property was transferred to the customer.

How were reimbursable items consumed by the designer treated? They did not tax the customer-facing service charge, but the designer's purchases generally remained taxable.

Citations and references

• Fla. Stat. § 212.02(15)-(16), (19) (sale, sales price, and tangible personal property)
• Fla. Stat. § 212.05(1)(a)1.a. (taxable retail sales)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-003

Original ruling text

SUMMARY
QUESTION #1:
Is a contract for design services which includes the delivery of tangible personal property to the client taxable in its
entirety including all invoices related to the contract?
ANSWER - Based on Facts Below:
The Taxpayer entered into a contract to sell tangible personal property to its customer. Therefore, the entire contract
amount would be subject to tax.
QUESTION #2:
Is a contract for design services which does not include the delivery of tangible personal property to the client not
taxable so that none of the invoices related to the contract are taxable unless there is a delivery of taxable tangible
property to the client related to the contract?
ANSWER - Based on Facts Below:
The Taxpayer entered into a contract for design services with no transfer of possession or title of tangible personal
property to its customer. Therefore, the Taxpayer is performing a service, and the entire contract amount would not be
subject to tax, provided no items of tangible personal property were transferred to the customer.
QUESTION #3:
Same as 1. above, plus the contract provides for and invoices include reimbursable expenses that are used and
consumed by the Taxpayer (not delivered to their clients).
ANSWER - Based on Facts Below:
The Taxpayer entered into a contract to sell tangible personal property to its customer. Therefore, the entire contract
amount would be subject to tax.
QUESTION #4:
Same as 2. above, plus the contract provides for and invoices include reimbursable expenses used and consumed by
the Taxpayer (not delivered to their clients).
ANSWER - Based on Facts Below:
The Taxpayer entered into a contract for design services with no transfer of possession or title of tangible personal
property to its customer. Therefore, the Taxpayer is performing a service, and the entire contract amount would be not
subject to tax, provided no title or possession of tangible personal property was transferred to the customer. The
charge for reimbursable expenses is a part of the design services and would not be subject to tax, provided no title or
possession of tangible personal property was transferred to the customer.
QUESTION #5:
If the answer to 1., above is yes, and the taxpayer forms a subsidiary entity, registered as a dealer with the

Department, to separately contract with and deliver to clients items of tangible personal property, will the answer to 1.,
become "no" even if such sales are made to the same customers contracting for non-taxable design services with the
parent Taxpayer?
ANSWER - Based on Facts Below:
If the parent company enters into a contract with its customer to deliver design services with no transfer of title or
possession of tangible personal property, then the parent's contract with the customer will be taxed the same as in #2
above. If the subsidiary company enters into a separate contract with the same customer to deliver items of tangible
personal property, then the subsidiary's contract with the customer will be taxed the same as in #1 above. However,
should the parent contract with the subsidiary to provide tangible personal property to the parent's customer, the
parent's contract would be subject to tax as a sale of tangible personal property.

March 28, 2006

Re: Technical Assistance Advisement 06A-003
XXX ("Taxpayer")
Graphic Design
Sales and Use Tax
Sections 212.05(1)(a)1.a., 212.02(15), (16), (19), and 212.21(2), F.S.
Dear
This response is in reply to your letter dated February 8, 2006, requesting the Department's issuance of a Technical
Assistance Advisement ("TAA") pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the
Department's position on the issue taxability of the graphic design fees the Taxpayer charges. An examination of your
letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA.
Therefore, the Department is hereby granting your request for issuance of a TAA.
Facts
Taxpayer is in the business of providing environmental graphics and graphic designs for hotels, cruise ships, and
other industries. These designs include, but are not limited to, wayfinding signs, brand identity packages, and print
designs, such as brochures, annual reports, or packaging.
The Department conducted an audit of the Taxpayer for the period 10/01/1996 through 09/30/2001 and issued a
Notice of Proposed Assessment dated February 17, 2004. The Taxpayer protested the portion of the assessment that
concerned Exhibit A01 - Untaxed Sales. Here, the Department captured invoices where the Taxpayer did not charge
tax on contracts that the Taxpayer entered into to design and provide camera ready artwork for various items of
tangible personal property, primarily signage that the Taxpayer delivered to its client on compact disk (CD). The
Taxpayer billed its clients for reimbursables that it consumed and used in providing the design. In some instances, it

delivered items of tangible personal property, such as blueprints, signs, or physical models of the signs, to its clients.
The Department issued a Notice of Reconsideration [NOR], dated October 13, 2005, in which the Department
sustained those contracts that provided for the delivery of tangible personal property to the client, in addition to the
design services. It also sustained, all invoices related to a contract if any invoice related to the contract included an
item of tangible personal property that was delivered to the client, even if the contract did not provide for the delivery
of tangible personal property.
Requested Advisements
On January 19, 2006, the Department issued a Letter of Technical Advice, in order for the Taxpayer to properly tax its
business activity prospectively. Now, the Taxpayer requests that the Department advise it of the taxability of the
following transactions in the form of a TAA:

1. A contract for design services which includes the delivery of tangible personal property to the client is taxable in its
   entirety including all invoices related to the contract. Sales tax is due a the time of invoicing such that if sales are
   invoiced in one month, sales tax is payable to the Department by the 20th of the following month.
2. A contract for design services which does not include the delivery of tangible personal property to the client is not
   taxable so that none of the invoices related to the contract are taxable unless there is a delivery of taxable tangible
   [personal] property to the client related to the contract. If that occurs, the entire contract is taxable and sales tax is due
   at the time of invoicing such that if sales are invoiced in one month, sales tax is payable to the Department by the 20th
   of the following month.
3. Same as 1. above plus the contract provides for and invoices include reimbursable expenses is taxable when all
   the items of reimbursement are used and consumed by the Taxpayer (not delivered to their clients).
4. Same as 2. above plus the contract provides for and invoices include reimbursable expenses is NOT taxable when
   all the items of reimbursement are used and consumed by the Taxpayer (not delivered to their clients).
5. If the answer to 1., above is yes, if the taxpayer forms a subsidiary entity, registered as a dealer with the
   Department, to separately contract with and deliver to clients items of tangible personal property, will the answer to 1.,
   become "no" even if such sales are made to the same customers contracting for non-taxable design services with the
   parent Taxpayer?
   Applicable Authority and Discussion
   Section 212.02, F.S., provides in part:
   (15) "Sale" means and includes:
   (a) Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in
   any manner or by any means whatsoever, of tangible personal property for a consideration.

(c) The producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for
consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing,
printing, or imprinting.

(16) "Sales price" means the total amount paid for tangible personal property, including any services that are a part of
the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to
the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of
materials used, labor or service cost, interest charged, losses, or any other expense whatsoever....

(19) "Tangible personal property" means and includes personal property which may be seen, weighed, measured, or
touched or is in any manner perceptible to the senses....

Section 212.21(2), F.S., provides in part:
It is hereby declared to be the specific legislative intent to tax each and every sale, admission, use, storage,
consumption, or rental levied and set forth in this chapter, except as to such sale, admission, use, storage,
consumption, or rental as shall be specifically exempted therefrom by this chapter subject to the conditions
appertaining to such exemption....
Section 212.05(1)(a)1.a., F.S., provides:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the
business of selling tangible personal property at retail in this state, including the business of making mail order sales,
or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or
consumption in this state any item or article of tangible personal property as defined herein and who leases or rents
such property within the state.
(1) For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and
payable as follows:
(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at
retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and
including each and every retail sale.
All sales of tangible personal property in the State of Florida are subject to tax, unless specifically exempt by Chapter
212, F.S. The term "sale" is defined in Section 212.02, F.S., to mean "[a]ny transfer of title or possession, or both ... of
tangible personal property for a consideration." Pure service transactions, those that do not involve the sale of tangible
personal property, are generally not subject to tax under Florida law, unless the taxation of the service is specifically
authorized by Chapter 212, F.S.
It is our position that when the Taxpayer designs signs, brochures, or logos, and provides sign fabrication or printed
materials, either directly or through a third party, it is selling tangible personal property and should collect sales tax on

all charges that would be part of the "sales price," as defined in Section 212.02(16), F.S. Conversely, when the
Taxpayer does not perform the fabrication or printing, either directly or through a third party, it is performing a service
and is not required to collect sales tax, provided that no items of tangible personal property were passed on to the
customer.
If the "reimbursable expenses" charge is for tangible personal property that is not delivered to the customer, these
charges would not be taxable to the customer, but the underlying charges by vendors to the Taxpayer would generally
be taxable.
This position will be applied to your questions stated above as follows:

1. The Taxpayer entered into a contract to sell tangible personal property to its customer. Therefore, the entire
   contract amount would be subject to sales tax. Items not delivered to the customer, but instead used and consumed
   by the Taxpayer, would be subject to tax.
2. The Taxpayer entered into a contract for design services with no transfer of possession or title of tangible personal
   property to its customer. Therefore, the Taxpayer is performing a service, and the entire contract amount would not be
   subject to sales tax, provided no items of tangible personal property were transferred to the customer. Items not
   delivered to the customer, but instead used and consumed by the Taxpayer, would be subject to tax.
3. The Taxpayer entered into a contract to sell tangible personal property to its customer. Therefore, the entire
   contract amount would be subject to sales tax. Items, including reimbursable items, not delivered to the customer, but
   instead used and consumed by the Taxpayer, would be subject to tax.
4. The Taxpayer entered into a contract for design services with no transfer of possession or title of tangible personal
   property to its customer. Therefore, the Taxpayer is performing a service, and the entire contract amount would be not
   subject to sales tax, provided no title or possession of tangible personal property was transferred to the customer. The
   charge for reimbursable expenses is a part of the design services and would not be subject to sales tax, provided no
   title or possession of tangible personal property was transferred to the customer. Items, including reimbursable items,
   not delivered to the customer, but instead used and consumed by the Taxpayer would be subject to tax.
5. If the parent company enters into a contract with its customer to deliver design services with no transfer of title or
   possession of tangible personal property, then the parent's contract with the customer will be taxed the same as in #2
   above. If the subsidiary company enters into a separate contract with the same customer to deliver items of tangible
   personal property, then the subsidiary's contract with the customer will be taxed the same as in #1 above. However,
   should the parent contract with the subsidiary to provide tangible personal property to the parent's customer, the
   parent's contract would be subject to tax as a sale of tangible personal property.
   This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
   Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22,
   F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
   subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this

advice is based may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records under
Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the
undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this
response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850) 414-6107.
Sincerely,
Kimberly McCorvey
Tax Law Specialist
Technical Assistance & Dispute Resolution
M/
Record No: 19434