APRIL 2022
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ADVERTISING AGENCIES
• You present the preliminary art to your client for acceptance or approval purposes only,
• You retain ownership and permanent possession of the preliminary art used to convey the idea or concept.
However, you may temporarily transfer it for review purposes directly to your client or to another advertising
agency, a graphic design firm, another commercial artist, or another party involved in the design process, and
• Nothing in your contract transfers title to the preliminary art or the right to permanent possession to your
client. However, you may transfer to your client the ownership of the intellectual property embodied in the art
(ideas, concepts, designs, etc.), or agree not to use the preliminary art for any other client.
If you permanently transfer possession or ownership of some of the preliminary art products to your client, tax
applies to your itemized charge for preliminary art in proportion to the amount of art you transfer in a tangible
format. In other words, if your client keeps or owns all of the products of your creative work, your full charge for that
work is taxable. If the client keeps or owns 50 percent of the products, 50 percent of your charge is taxable.
Example: Your microbrewery client requests a label design for its Nice ‘n Spicy Winter Holiday Ale. You provide
color sketches for six different designs, which constitute preliminary art. Your client selects one for further
development and asks if he can keep three of the sketches. The client likes their holiday feel and wants to
frame and display them in the reception area of the brewery. You separately charge $3,000 for creating the six
sketches. Since the client is keeping three of the sketches, tax applies to $1,500.
Please note: You are the consumer of supplies and materials you use to create nontaxable preliminary art, including
film, paper, paint, art supplies, chemicals, internegatives, ink, etc. You must pay tax to your supplier at the time of
purchase or, when applicable, pay use tax on those items when you file your sales and use tax return.
Charging for preliminary art
As explained previously, itemized charges for preliminary art are not taxable unless you transfer ownership or
permanent possession of all or some of the tangible preliminary art prepared in-house to your client. If you
itemize your charges in your invoice or contract, be sure to identify charges for preliminary art as “design charges,”
“preliminary art,” “concept development,” or another description that clearly indicates the charges are for the
development and creation of preliminary designs, not for finished art. If you prefer not to itemize your charges
for preliminary art, you may bill your client one lump-sum amount for preliminary and finished art. For lump-sum
billing options, see page 21.
Finished art
As explained on page 17, finished art is the final product you provide to a client for reproduction or display
purposes. Typically, finished art is delivered to clients in one of the following forms:
• A tangible drawing, whether done by hand or by computer
• An exposed piece of film (for example, a transparency, slide, film positive, or film negative)
• Camera-ready mechanical assembly
• A digital file on storage media, such as a CD, DVD, flash memory, or removable disk
• A digital file you electronically transfer to your client by modem or in person from a CD or other electronic
storage media that you keep (not taxable, see
page 7)
• A three-dimensional object, such as a sculpture
Tax generally applies to your charges for the retail value of the tangible finished art you sell, license, or lease. This
holds true whether your client keeps the finished art (a sale), a copy of the finished art (licensed copy), or returns it
to you after reproducing it (a lease). The amount of tax due will depend on the value of the art, which in turn can
vary depending on how you bill your client (see “Alternative billing methods,” on page 20).