In summary, my recommendations are as follows:
It is clear that unless there is NO transfer of personal property (e.g.: electronic files, computer data, comps, mechanicals, printed materials, fabricated materials...) all phases of the same job are taxable.
Other than exempt use, exempt organizations, and out of state services, they only time graphic designers' don't have to charge sales tax, on any of their job phases in NYS, is when they engineer no transfer of ownership by contractually agreeing with clients that the client is only being granted reproduction rights (specific, restricted rights, limited use). In this case it then becomes important to split work into two or more contracts thereby separating out the production phases like printing & fabrication since these are always taxable. Billing must be separate too.
I am recommending sales taxes on all phases of all jobs where a transfer of personal property (e.g.: electronic files, computer data, comps, mechanicals, printed materials, fabricated materials...) takes place. Here only one contract is necessary and combined billing can happen too since its all taxable.
In addition, I recommend consider proposing, as an option to your clients, specific, restricted, limited use, reproduction rights where this can fit their needs and save them money. It may in fact be more of a legal matter than one of substance to them and this could give you more ownership & control allowing you to enforce contracts & collections if you articulate the terms properly to your clients. If you do this you must separate your contracts & billing between that which is and that which is not taxable.
One exception will always be corporate id & logo work. Unfortunately all phases are taxable since NYS will not recognize arrangements for specific, restricted, limited, reproduction rights for this type of work.
We can discuss this. Please contact me. Your contracts must be revised to reflect these guidelines or you and your Co. could face unwanted sales tax exposure. You must also revise your billing procedures.
There may be an opportunity to propose work differently and to create an advantage to both you and your clients in order to save them money & give you more control & enforcement regarding collections. I propose we explore this as well.
Arthur Troast, C.P.A.
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