When a design firm bills a 'design fee' plus reimbursed expenses for producing annual reports, is sales tax charged on the whole bill or just the design work?

Plain-English summary

Corporate Graphics, Inc., designs annual reports for publicly held corporations. Its contracts charge a "design fee" that is an overall charge for the design work plus reimbursement of expenses — travel (air, rail, local, hotel, meals, tips), telephone, messengers, freight, parking, auto rentals, copies, stats, and photos — as well as "on-press expenses" (the firm's travel and phone costs to review the printer's first run). The client picks and pays the printer directly. The firm asked, while under audit, whether it must collect tax on these charges.

The Department held tax is due on the entire charge, including all reimbursed expenses.

• The firm makes a retail sale of tangible personal property. It delivers printer-ready designs — tangible personal property — so it is making a taxable retail sale under § 1105(a).
• "Receipts" means the whole payment. A "receipt" is the sale price "valued in money . . . without any deduction for expenses" (§ 1101(b)(3)). The regulation drives the point home: "All expenses 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" (20 NYCRR § 526.5(e)). So the design fee, reimbursed expenses, and on-press expenses are all part of the taxable receipt (citing Matter of Fred Gardner Co., TSB-H-80(200)S).
• Where the tax is collected. Tax is charged for the jurisdiction where the property is delivered to the customer or its designated printer (20 NYCRR § 525.2(a)(3)). If delivery happens outside New York, no tax is due.
• The one-time payment to the printer. The firm once paid the printer and was reimbursed. If it made that payment as the client's agent and sales tax was paid to the printer, the firm collects no further tax. Otherwise, the firm was buying the finished reports for resale and must collect tax from the customer on the full amount charged.

What this means for you

You can't back expenses out of the taxable base. If your sale is taxable, the tax applies to everything the customer pays you to make that sale — including costs you pass through as "reimbursements." Separately listing travel, freight, or messenger charges on the invoice does not make them tax-free.

Design and creative work delivered as a tangible product is a sale of goods. When the end product you hand over is tangible (printer-ready art, mechanicals, finished pieces), the transaction is a sale of tangible personal property, and the whole charge is taxable — not just the "materials."

Delivery point sets the tax. New York tax attaches based on where the property is delivered. Out-of-state delivery to the customer or its printer means no New York sales tax.

Agent vs. resale matters when you pay a vendor for the client. If you pay a subcontractor as the client's agent and tax is paid there, you don't re-tax it. If instead you buy the finished goods and resell them to the client, you charge tax on your full price.

Common questions

Q: I bill clients for my design fee plus reimbursed travel and freight. Is the tax only on the design fee?
A: No. If the sale is taxable, tax applies to the entire charge, including reimbursed expenses — § 1101(b)(3) and 20 NYCRR § 526.5(e) bar deducting expenses, even separately stated ones.

Q: What if I deliver the finished work to a printer or client outside New York?
A: Tax follows the place of delivery. If delivery is outside New York, no New York sales tax is due.

Q: I sometimes pay the printer and get reimbursed. How is that taxed?
A: If you paid as the client's agent and tax was paid to the printer, you collect no further tax. If you instead bought the reports for resale, you charge tax on the full amount you bill the client.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on receipts from retail sales of tangible personal property
• Tax Law § 1101(b)(3) — "receipt" is the sale price valued in money, without any deduction for expenses
• Tax Law § 1101(b)(4) — definition of "retail sale"

Regulations:

• 20 NYCRR § 526.5(e) — all expenses a vendor incurs in making a sale are not deductible from receipts (with photographer billing example)
• 20 NYCRR § 525.2(a)(3) — the applicable tax is that of the jurisdiction where delivery to the purchaser occurs

Authority cited:

• Matter of Fred Gardner Co., Inc., State Tax Commission (Oct. 3, 1980), TSB-H-80(200)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(43)S
Sales Tax
December 7, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810929B

On September 29, 1981, a Petition for Advisory Opinion was received from Corporate
Graphics, Inc., 655 Third Avenue, New York, New York 10017.
Petitioner inquires as to its obligation to collect sales tax on its charges for the designing of
corporate annual reports. Petitioner is presently under audit.
Petitioner is engaged in the business of designing annual reports for publicly held
corporations. Its contracts with its customers provide for the payment of a "design fee," representing
an "overall charge for the designing of the booklets, as well as for the reimbursement of expenses.
Such expenses include "travel expenses (air, railroad, local, hotel, meals, tips, etc.), telephone calls,
costs of messengers, freight, parking, auto rentals, xeroxes, stats, pictures (black and white and color
(C-prints)." Other reimbursed expenses include photographers' travel expenses (although
photographers' fees are paid directly by the client) and "On Press Expenses," which are normal travel
and telephone costs incurred by Petitioner in fulfilling its contractual obligation to examine and
approve or disapprove the printer' s first run of the annual reports. The printer engaged to produce
the reports is selected and paid directly by Petitioner's client (except for one instance during the audit
period at issue, where Petitioner made a subsequently reimbursed payment). After the completed
design is approved by the customer, it is sent to the client's designated printer either by the client or
by Petitioner. After production the reports are shipped by the printer to Petitioner's client. Finally,
the contract between Petitioner and its client provides that if the client causes a delay in the
scheduled operations, the client is required to pay Petitioner $1,000 for each day of overtime
necessary to bring the job back on schedule.
Section 1105(a) of the Tax Law, contained in Article 28, imposes the State sales tax on "the
receipts from every retail sale of tangible personal property, except as otherwise provided in this
article." The term "retail sale" is defined, in relevant part, in section 1101(b)(4) of the Tax Law, as
"a sale of tangible personal property to any person for any purpose, other than (A) for resale . . ., or
(B) for use by that person in performing" certain taxable services under specified circumstances. The
term "receipt" is defined, in relevant part, in section 1101(b)(3) of the Tax Law, as "the amount of
the sale price of any property and the charge for any service taxable under this article, valued in
money . . . without any deduction for expenses . . . ." The foregoing is equally applicable to the New
York City, Yonkers and Metropolitan Commuter Transportation District sales taxes imposed under
sections 1107, 1108 and 1109 of the Tax Law, respectively, and to local sales taxes imposed under
the authority of Article 29 of the Tax Law. The applicable tax in each instance is that imposed by

ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

-2­
TSB-A-82(43)S
Sales Tax
December 7, 1982

or for the jurisdiction within which the point of delivery to the purchaser or his designee is located.
20 NYCRR §525.2(a)(3).
In the present instance Petitioner is engaged in making retail sales of tangible personal
property (printer-ready designs), and is accordingly required to collect the sales tax applicable at the
place of delivery of such property to Petitioner's customer or such customer's designated printer.
Where such delivery takes place outside of the State, no tax is due. The "receipts" on which the tax
is to be based is the entire payment by the customer to Petitioner, as outlined above, including the
design fee, reimbursed expenses and on-press expenses. Matter of Fred Gardner Co., Inc., State Tax
Commission, October 3, 1980, TSB-H-80(200)S. This conclusion is in accord with section 526.5(e)
of the Sales and Use Tax Regulations, which provides as follows: "Expenses. All expenses 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.
Example 1:

A photographer contracts with a customer to furnish photographs at
$50.00 each in addition to expenses. The customer is billed as
follows:
Photographs (2)

$100.00

Model fees

60.00

Meals

10.00

Travel

25.00

Drops (Flowers)
Total Due

5.00
$200.00

Receipt Subject to Tax $200.00 . . . . " 20 NYCRR 526.5(e).
As to the single instance where Petitioner made a subsequently reimbursed payment to the
printer, the following would apply. If the payment to the printer was made on behalf of the client,
as agent therefor, and the appropriate sales tax was paid to the printer, then no tax need be collected
from the customer. In any other case Petitioner would be purchasing the completed catalogues for
resale, and would be required to collect tax from its customer in the full amount charged.

DATED: November 17, 1982

Frank J. Puccia
Director
Technical Services Bureau