Are a patent draftsman's formal drawings sold to patent attorneys subject to New York sales tax?

Plain-English summary

Peter Cotsis is a patent draftsman whose main business is creating formal technical drawings for patent attorneys, who then submit those drawings with patent applications to U.S. and foreign patent offices. Cotsis asked whether his drawings are subject to sales tax, or whether they're exempt as part of a nontaxable legal service.

New York treats drawings, sketches, and similar artistic or technical works as tangible personal property, and Cotsis's formal patent drawings squarely fit that category -- so selling them to his attorney clients is an ordinary taxable retail sale. The fact that patent applicants are commonly advised (even by the U.S. Patent and Trademark Office itself) to use a professional patent draftsperson doesn't change that; drafting formal patent drawings isn't considered part of the practice of law, and an applicant isn't required to be represented by an attorney at all to use this service. That also means the attorneys can't buy Cotsis's drawings tax-free under the resale exclusion -- New York's rule is that tangible personal property bought for use in performing a nontaxable service (like legal services, which aren't taxable) doesn't qualify as a purchase "for resale," since the attorney isn't reselling the drawing as such but incorporating it into an already-nontaxable legal service. The upshot: Cotsis must collect sales tax on his drawings regardless of the fact that his clients are attorneys performing a nontaxable service.

What this means for you

Patent draftspeople, illustrators, and similar specialized drawing/drafting services

Selling formal drawings, illustrations, or similar artistic/technical work product to a professional client (even an attorney) is a taxable sale of tangible personal property -- the fact that the end use is embedded in a larger nontaxable professional service doesn't exempt your own sale.

Attorneys and other professionals buying specialized drawings, illustrations, or exhibits

You can't buy this kind of tangible work product tax-free under a resale certificate, because your own underlying service (like practicing law) isn't itself a taxable sale -- the resale exclusion only works when the buyer is reselling the item as part of its own taxable sale or service.

Accountants and tax professionals

This is a clean application of the "no resale exclusion when the buyer's own service isn't taxable" rule (20 NYCRR § 526.6(c)(7)) to a specialized drafting service -- useful any time a client sells physical drawings, models, or similar artistic/technical deliverables to professionals like attorneys, architects, or engineers whose own services aren't separately taxed.

Common questions

Q: Are formal drawings sold to a patent attorney exempt from sales tax as part of the patent application process?
A: No -- the drawings are tangible personal property, and drafting them isn't considered part of the practice of law, so they're taxed as an ordinary retail sale.

Q: Can an attorney buy a draftsperson's drawings tax-free using a resale certificate?
A: No -- because the attorney's own legal services aren't a taxable sale, the attorney isn't "reselling" the drawing in the way the resale exclusion requires.

Q: Does it matter that the Patent and Trademark Office recommends using a professional draftsperson?
A: No -- that recommendation doesn't change the drafting service's legal character; it still isn't part of the practice of law, and the drawings remain a taxable sale of tangible personal property.

Q: Does this ruling apply to my drafting, illustration, or technical-drawing business?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own clients and services would need their own analysis.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_48s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(48)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S970513D

On May 7, 1997, the Department of Taxation and Finance received a Petition
for Advisory Opinion from Peter S. Cotsis, 106 Long Vista Lane, Chester, New York
10918.
The issue raised by Petitioner, Peter S. Cotsis, is whether receipts from
the sales of his patent drafting service are subject to sales tax or if this
service is considered part of a nontaxable legal service.
Petitioner is a patent draftsman whose primary service is to create formal
drawings for sale to patent attorneys. These drawings are then submitted by the
attorneys to the United States and foreign patent offices with applications for
patents.
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:
*

*

*

(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, or (B) for
use by that person in performing the services subject to tax under
paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of
section eleven hundred five where the property so sold becomes a
physical component part of the property upon which the services are
performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax ....
(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 ....
(6) Tangible personal property.
of any nature ....

Corporeal personal property

-2­
TSB-A-97(48)S
Sales Tax

Section 1105(a) of the Tax Law imposes sales tax on the "receipts from
every retail sale of tangible personal property, except as otherwise provided in
this article."
Section 526.6(c)(7) of the Sales and Use Tax Regulations provides:
(7) Tangible personal property purchased for use in performing
a service not subject to tax is not purchased for resale.
Section 526.8(a) of the regulations provides in part:
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,
moving picture films and recordings ....
Opinion
Petitioner’s formal drawings for submission by attorneys as part of the
patent application process constitute tangible personal property. Accordingly,
receipts from Petitioner’s patent drafting service that results in the retail
sale of these drawings to Petitioner’s patent attorney clients are subject to
sales tax. (See, Awad Architectural Models, Inc., Adv Op Comm T&F, February 14,
1986, TSB-A-86(9)S; Leslie H. Barker, Adv Op Comm T&F, June 23, 1994,
TSB-A-94(26)S.)
Although formal drawings are essential to certain patent
applications and the United States Patent and Trademark Office recommends, for
example, in its Guide to Filing a Design Patent Application (Washington, D.C.
[1996]; http://www.uspto.gov) that an applicant for a patent retain the services
of a professional patent draftsperson, this specialized service is not considered
to be part of a patent attorney’s practice of law, nor is it required that the
applicant be represented by counsel or otherwise in such a matter.
It is noted, Section 526.6(c)(7) of the Sales and Use Tax Regulations
provides that tangible personal property purchased for use in performing a
service not subject to tax is not purchased for resale. Petitioner’s patent
attorney clients are performing a service that is not subject to sales tax.
Thus, the attorneys are not purchasing Petitioner’s drawings for resale within
the meaning and intent of Section 1101(b)(4) of the Tax Law.

DATED: July 23, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau
The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.