February 19, 1980

You inquire whether the sales or use tax applies to charges made by your client, a commercial artist who designs trademarks, corporate logos, artwork for magazines and newspaper ads, brochures, menus, stationery designs and other commercial illustrations. The artist bases his charges on hours expended.

Massachusetts General Laws Chapter 64H imposes an excise on the total sales price of tangible personal property. Chapter 64H, Section 1(14) provides that any amount paid for any services that are a part of the sale must be included in determining the sales price, and that no deduction may be taken on account of the cost of materials used, labor or service cost, or other expenses.

A tax generally applies to the entire amount charged by a commercial artist for items of tangible personal property such as drawings, paintings, designs or sketches sold to a client, whether or not the property is suitable for display or is useful for actual reproduction by photomechanical or other processes. No deduction may be taken for modeling, retouching, consultation, services or labor costs included in the artist's charges for tangible personal property.

However, separate charges for preliminary art are not subject to tax, except where such art is used as a part of tangible personal property sold by the artist. "Preliminary art" refers to roughs, visualizations, layouts and comprehensives, title to which does not pass to the client, but which are prepared by a commercial artist solely for the purpose of demonstrating an idea or message for acceptance by the client before a contract is entered into for production of finished art or before approval is given for preparation of finished art to be furnished by the artist to his client. "Finished art" means the final art used for actual reproduction by photomechanical or other processes, or for display purposes, including charts, graphs, and illustrative materials not reproduced.

Based on the foregoing, it is ruled that your client's charges are subject to tax, except where they constitute charges for preliminary art not to be used as part of tangible personal property to be sold.

The charges for preliminary art must be billed separately to the client, either on a separate billing or by a separate charge on the billing for the finished art. They must be clearly identified on the billing as preliminary art charges. Proof of ordering or producing the preliminary art, prior to the date of the contract or approval for finished art, must be shown by purchase orders of the buyer, or by work orders or other records of the artist.

Where charges for preliminary art are not subject to tax, your client must pay a tax on his purchase of the materials from which it is made.

The Department of Revenue soon will issue a regulation (830 CMR 64H.05) on the application of the sales and use tax to the advertising industry and related professions including commercial art. You will be sent a copy of the regulation when it becomes available.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers

Commissioner of Revenue

LJH/JXD/jmcd

LR 80-7