Is a graphic design studio's charge for a client's final logo or branding design subject to New York sales tax when it's delivered electronically versus on a disk?

Plain-English summary

Doyle Partners is a graphic design studio that develops branding, identity, and merchandising concepts for clients — full ownership of the final design transfers to the client (Doyle Partners isn't licensing reproduction rights). One client (Company X) receives its final design purely electronically; other clients get their finished designs on a computer disk. Sometimes a client asks Doyle Partners to send a finished logo directly to an outside vendor (for example, a printer who will imprint it on stationery), with that outside vendor billing the client directly for the printed product.

The Department applied New York's now-familiar digital-delivery rule: when the final design is delivered ELECTRONICALLY, Doyle Partners is selling INTANGIBLE property, so its design charges aren't subject to sales tax at all — the same principle already applied to electronically delivered music and other digital content. But when the same finished design is instead delivered on a physical DISK, Doyle Partners is selling tangible personal property, and the whole charge (design fees plus any reimbursed expenses, whether or not separately stated) becomes taxable — sourced to wherever the disk is delivered, so a disk delivered and used outside New York escapes New York tax.

The logo-for-stationery scenario adds a bundling wrinkle. If Doyle Partners has a SEPARATE contract just to create the logo, and delivers that logo electronically, the logo charge stays untaxed even if the client separately has the logo imprinted on stationery by Doyle Partners or an outside vendor (that separate printing/imprinting charge is taxable on its own if delivered in New York). But if Doyle Partners is instead hired for ONE combined job — creating the logo AND providing the imprinted stationery — with no separate charge broken out for the logo's creation, the Department treats the ENTIRE charge as taxable, because the intangible design work is folded into an overall taxable sale of printed goods/imprinting services.

What this means for you

Graphic designers, branding studios, and creative agencies

Deliver final artwork electronically and you generally escape sales tax on your design fee — but the moment you deliver the same work on a disk (or any tangible medium) for a charge, the whole fee becomes taxable. If your work feeds into a printed product (stationery, packaging, signage), keep the design/logo-creation contract and fee SEPARATE and SEPARATELY STATED from any printing/imprinting charge if you want the design portion to stay untaxed.

Businesses hiring designers who also handle print production

Ask your designer to break out the logo/design creation fee from any printing or imprinting charge on your invoice — a single bundled fee for "design plus printed stationery" will be taxed in full, even though the design work alone would have been untaxed if billed separately.

Accountants and tax professionals

This ruling extends the by-now well-established electronic-vs-tangible-delivery framework (seen across digital music, video, and now design/artwork rulings) to creative-services businesses, and adds a useful bundling rule specific to the design-then-print workflow common in branding and marketing agencies.

Common questions

Q: Is my design fee taxable if I deliver the final artwork by email or file transfer?
A: No — electronically delivered final designs are intangible property and aren't subject to sales tax.

Q: What if I deliver the same design on a USB drive or disk?
A: That's a taxable sale of tangible personal property, taxed based on where the disk is delivered.

Q: Does bundling my design fee with a printing job change anything?
A: Yes — if there's no separate, stated charge for the design/logo creation, the Department treats the whole bundled charge (design plus printed product) as taxable.

Q: Can another design studio rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another studio's delivery methods and contract structure need to match to reach the same result.

Citations and references

Statutes and regulations:

• Tax Law §§ 1101(b)(3), (4), (5), (6) (receipt; retail sale; sale; tangible personal property)
• Tax Law § 1105(a), (c)(2) (retail sale; producing/fabricating/printing services)
• 20 NYCRR 526.5(e), 526.7(e)(1), 526.8(a)

Prior rulings/cases referenced:

• Debra Horn Stachura, TSB-A-04(26)S
• Universal Music Group, TSB-A-01(15)S
• Martin R. Timm, TSB-A-05(34)S
• Matter of Zagoren Group, DTA No. 808189
• Gentile, Wiener, Pena & Co. CPA's PC, TSB-A-96(91)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(32)S
Sales Tax
December 29, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S050427A

On April 27, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Doyle Partners, 1123 Broadway, Suite 600, New York, NY 10010.
Petitioner, Doyle Partners, provided additional information pertaining to the Petition on May 18,
2005.
The issue raised by Petitioner is whether its charges for graphic designs and design
services are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner enters into a contract with a client (Company X) for on-going graphic design
services. These services include the design and development of ideas regarding Company X’s
identity, branding and merchandising. Petitioner is not granting reproduction rights or selling a
license to reproduce, rather the end products of Petitioner’s design services are fully transferred
and Company X acquires full ownership. Company X does not qualify as an exempt
organization and is located in New York State. The final design is only delivered to Company X
electronically.
Some of Petitioner’s other clients are given their final designs on disks. In some
instances when Petitioner is designing a client’s company logo, the client may request that
Petitioner also electronically send the logo to an outside vendor or that Petitioner have the logo
imprinted on stationery by an outside vendor. In these instances, the completed products from
the outside vendor (e.g., the imprinted stationery) are directly shipped and billed by the outside
vendor to the client.
Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(3) Receipt. The amount of the sale price of any property and the charge
for any service taxable under this article . . . without any deduction for expenses
or early payment discounts and also including any charges by the vendor to the

-2­

TSB-A-06(32)S
Sales Tax
December 29, 2006

purchaser for shipping or delivery . . . regardless of whether such charges are
separately stated in the written contract, if any, or on the bill rendered to such
purchaser and regardless of whether such shipping or delivery . . . is provided by
such vendor or a third party. . . .
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, . . .
*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor.
(6) Tangible personal property. Corporeal personal property of any nature....
Section 1105(a) of the Tax Law imposes a tax on “The receipts from every retail sale of
tangible personal property, except as otherwise provided in this article.”
Section 1105(c)(2) of the Tax Law imposes a tax on the receipts from every sale, except
for resale of the following services:
Producing, fabricating, processing, printing or imprinting tangible personal
property, performed for a person who directly or indirectly furnishes the tangible
personal property, not purchased by him for resale, upon which services are performed.
Section 526.5(e) of the Sales and Use Tax Regulations provides:
Expenses. All expenses, including telephone and telegraph and other service
charges, incurred by a vendor in making a sale, regardless of their taxable status and
regardless of whether they are billed to a customer are not deductible from the receipts.
Section 526.7(e)(1) of the Sales and Use Tax Regulations provides:
Except as otherwise provided in paragraph (3) of this subdivision, a sale is taxable
at the place where the tangible personal property or service is delivered, or the point at
which possession is transferred by the vendor to the purchaser or his designee.
Section 526.8(a) of the Sales and Use Tax Regulations provides, in part:

-3­

TSB-A-06(32)S
Sales Tax
December 29, 2006

Definition. The term tangible personal property means corporeal personal
property of any nature having a material existence and perceptibility to the human senses.
Tangible personal property includes, without limitation:
*

*

*

(3) artistic items, such as sketches, paintings, photographs, . . .
Opinion
Petitioner enters into a contract with Company X for graphic design services. Company
X receives the final design electronically. Some of Petitioner’s other clients receive their final
designs on disks. It is presumed, for purposes of this Opinion, that Company X and Petitioner's
other clients acquire full ownership of the final design.
When Petitioner’s final design is delivered to Company X or a designated outside vendor
electronically, Petitioner’s charges to Company X are for the sale of intangible property.
Therefore, Petitioner’s charges pursuant to its contract with Company X are not subject to sales
tax. See Debra Horn Stachura, Adv Op Comm T&F, November 22, 2004, TSB-A-04(26)S;
Universal Music Group, Adv Op Comm T&F, April 18, 2001, TSB-A-01(15)S; Martin R. Timm,
Adv Op Comm T&F, September 27, 2005, TSB-A-05(34)S.
When Petitioner’s final design is delivered to a client or a designated outside vendor on a
computer disk, Petitioner is selling tangible personal property and Petitioner’s charges to the
client, including design costs and reimbursable expenses regardless of whether or not such items
are separately stated, are subject to sales tax under section 1105(a) of the Tax Law, unless the
purchase of the tangible personal property is otherwise exempt. See Matter of Zagoren Group,
Dec Tax App Trib, May 19, 1994, DTA No. 808189; Gentile, Wiener, Pena & Co. CPA’s PC,
Adv Op Comm T&F, December 27, 1996, TSB-A-96(91)S; section 1101(b)(3) of the Tax Law;
and sections 526.5(e) and 526.8(a) of the Sales and Use Tax Regulations. Petitioner is required
to collect the applicable sales tax at the rate in effect at the place of delivery of such property to
Petitioner’s client or designated outside vendor. See section 526.7(e)(1) of the Sales and Use
Tax Regulations. Petitioner is not required to collect sales tax if the disk is delivered outside
New York for use outside New York.
Petitioner may also be required by the client to provide logos electronically to a printer to
imprint the logo on stationery. Petitioner’s receipts from the sale of the logo delivered
electronically to the client or the client’s designee (the outside vendor performing printing
services or selling tangible personal property) are not subject to sales tax. If however, Petitioner
has been contracted to provide its client with printed material (stationery furnished by Petitioner)
or printing services (performed on stationery furnished by the client), Petitioner’s receipts from
such sales (whether performed by Petitioner or subcontracted to an outside vendor) are subject to

-4­

TSB-A-06(32)S
Sales Tax
December 29, 2006

tax under section 1105(a) or 1105(c)(2) of the Tax Law if the stationery or property upon which
the printing and imprinting services are performed is delivered to the client in New York State.
To the extent Petitioner was contracted by the client to create the logo separate from the contract
to provide the printed material or printing services, the separate charges for the sale of the logo
may be excluded from the taxable receipts, provided the logo is delivered electronically and the
charge for the logo is reasonable in relation to its value. But if Petitioner was contracted to
provide the imprinted stationery to the client without a separate contract for the creation of and
sale to the client of the logo used by Petitioner in producing the imprinted stationery or in
providing the printing service (notwithstanding that Petitioner may have subcontracted all or
some part of such services), the entire charge to the client for the property or services delivered
in New York would be taxable.

DATED: December 29, 2006

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.