January 31, 1985

You request a ruling regarding the application of the Massachusetts sales tax to several projects completed by __________ ("Company"). The Company is a design business and was hired by __________ ("Client"), a software company. The Client hired the Company to design a corporate logo, a direct mail circular, and exterior packaging and manuals for three new software programs. The Company contracted with a printer to print stationery with the corporate logo, the direct mail circular, the exterior packaging, and the manuals. The Company also charged the Client for a series of small jobs, which were part of the larger transactions, some of which were performed in-house; others were subcontracted out to specialty houses. All charges were in turn separately itemized on invoices to the Client, but no total charge was made for each separate project (the corporate logo, the stationery, the direct mail circular, and the exterior packaging and manuals for the software programs). You inquire whether different charges associated with the production of the projects are subject to the sales tax.

I. Sale for Resale, Ingredient and Component Parts

You state that the Client presented the Company with a resale certificate for the projects. The Client claimed that no sales tax was due because the projects would be resold to the Client's customers. You inquire whether the Company should have accepted the resale certificate in lieu of charging sales tax to the Client.

Massachusetts General Laws Chapter 64H, Section 2 imposes a five percent sales tax on retail sales of tangible personal property in Massachusetts. A retail sale is defined as "a sale of tangible personal property for any purpose other than resale in the regular course of business." (G.L. c. 64H, § 1(13)). All of a vendor's gross receipts are presumed to be from retail sales unless the vendor takes in good faith a resale certificate from the purchaser. (G.L. c. 64H, § 8(a)).

The Client will not resell the corporate logo stationery, the direct mail circular, or the manuals and exterior packaging for the software programs in the regular course of business. Therefore, the Company should not accept a resale certificate for the charges for the corporate logo stationery, the direct mail circular, or the manuals and exterior packaging for the software programs.


Chapter 64H, Section 6(r) exempts from the sales tax "[s]ales of materials...which become an ingredient or component part of tangible personal property to be sold."

Chapter 64H, Section 8(f) provides that "[i]f tangible personal property is purchased by a person who will use such property in a manner which exempts it from the tax imposed by [Chapter 64H], he may give an exempt use certificate to the vendor, certifying that the property being purchased will be so used."

The manuals and exterior packaging will become ingredient and component parts of the software programs to be sold. Therefore, if the Client presents the Company with a valid exempt use certificate all of the Company's charges attributable to the manuals and exterior packaging for the software programs are exempt from the sales tax.

The corporate logo stationery and the direct mail circular will not become ingredient or component parts of tangible personal property to be sold. Therefore, all of the Company's charges attributable to the corporate logo stationery and the direct mail circular are subject to sales tax.

II. Printing to Special Order

You state that the Company paid a printer to imprint stationery with the Client's logo, to print the direct mail circular and the exterior packaging and manuals for the software programs. The Company in turn itemized the printing costs in its bills to the Client. You inquire whether the printer's charges to the Company or the Company's charges to the Client are subject to sales tax.

The Massachusetts sales tax is imposed on retail sales of tangible personal property. (G.L. c. 64H, § 2). A sale is defined as any transfer of title or possession for consideration, including a lease or a rental. (G.L. c. 64H, § 1(12)(a)). Included among the definitions of a sale is "[a] transfer for a consideration of the title or possession of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, or of any publication." (G.L. c. 64H, § 1(12) (e)).

Chapter 64H, Section 1(14) defines the sales price subject to sales tax as "the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise." In determining the sales price, the cost of materials used, labor or service cost, the cost of transportation of the property prior to its sale at retail, and any amount paid for any services that are a part of the sale should be included. (G.L. c. 64H, § 1(14)(a), (b)).

The Sales and Use Tax Regulation on Printing provides that

[a] [s]ale for resale occurs when a printer sells printed matter...to his customer, who will resell that printed matter in the normal course of business. The printer shall not be obligated to collect the sales tax on printed matter if the printer accepts a resale certificate in good faith from his customer. (830 CMR 64H.o4(3)(a)).

The Company transferred title to and possession of the stationery, the direct mail circulars, and the exterior packaging and manuals for the software programs to the Client, and thus sold the printed materials to the Client. Therefore, the printer could accept in good faith a resale certificate from the Company, and no sales tax was due on the printer's sale of materials to the Company.

The Company's sale to the Client of the stationery and the direct mail circular is subject to sales tax. ( See p. 2 supra). Therefore, the Company's charges to the Client for imprinting and printing the materials are included in the total sales price subject to sales tax.

The Company's sale to the Client of the manuals and exterior packaging for the software programs is exempt from the sales tax. ( See p. 2 supra). Therefore, the Company's charges to the Client for printing the manuals and exterior packaging are included in the total sales price of the manuals and the exterior packaging and are also exempt from the sales tax.

III. Mechanicals

You state that the Company charged the Client for mechanicals produced in-house. A mechanical is a camera-ready lay-out on an art board or a series of art boards. The art board may contain text, photographs, and other materials. The printer takes a photograph of the entire mechanical, and the reproduction of the mechanical becomes printed pages.

The Client was charged for mechanicals used in the production of the direct mail circular and the manuals and exterior packaging for the software programs. The Client did not receive title to or possession of the mechanicals.

As stated above, sales of ingredient and component parts of tangible personal property to be sold are exempt from the sales tax. (G.L. c. 64H, § 6(r)). But the Sales and Use Tax Regulation on Printing states that "[p]repress items, although they may be part of a continuous production process, do not become ingredient or component parts of printed matter to be sold." (830 CMR 64H.04(9)(a)). Prepress items include photographs, artwork, and flats. (830 CMR 64H.04(2)(a)).

Mechanicals are prepress items. The Company's charges for mechanicals are part of the cost of materials used in producing the manuals and exterior packaging for the software programs and the direct mail circular. Therefore, the Company's charges for mechanicals are included in the sales price of the manuals and exterior packaging for the software programs and the direct mail circular.

The Company's charges for the mechanicals for the direct mail circular are included in the total sales price subject to sales tax. The Company's charges for the mechanicals for the manuals and exterior packaging for the software programs are part of the sales price for ingredient and component parts (manuals and exterior packaging) of tangible personal property to be sold and are exempt from the sales tax.


IV. Design and Lay-Out

You state that the Company designed the corporate logo, the lay-out of the exterior packaging and manuals for the software programs, and the lay-out of the direct mail circular. The Company's charges for design fees were part of the production costs for the logo, the exterior packaging and manuals for the software programs, and the direct mail circular. You inquire whether the design fees are subject to sales tax.

The Company's charges for design fees are included in the sales price of the logo, the exterior packaging and manuals for the software programs, and the direct mail circular. The Company's charges for the design of the logo and the lay-out of the direct mail circular are included in the total sales price subject to sales tax. The Company's charges for the lay-out of the manuals and the exterior packaging are exempt from the sales tax.

V. Typography

You state that the Company charged the Client for typography produced in-house. The typography charges were part of the production costs for the manuals for the software programs, the corporate logo stationery, and the direct mail circular. You inquire whether typography charges are subject to the sales tax.

Chapter 64H, Section 6(gg) exempts from the sales tax

[s]ales by a typographer, compositor, or color separator of composed type, film positives, film negatives, or reproduction proofs thereof, for use in the preparation of printed matter to be sold, or the fabrication or transfer of such film positives, film negatives, reproduction proofs, or impressed matters where the fabrication is for and the transfer is to a printer or publisher for use in printing.

The Sales and Use Tax Regulation on Advertising Agencies, issued for advertising agencies and commercial artists such as the Company, provides that if a sale of tangible personal property is subject to the sales tax, all charges for the acquisition of the property are subject to the sales tax "notwithstanding any typography charges...which may have been incurred in connection with the preparation of the property sold." (830 CMR 64H.05(2)(g)).

Typography charges are generally exempt from the sales tax, but the typography charges incurred to produce the stationery and the direct mail circular are part of a taxable transaction. Therefore, the Company's charges for typography for the stationery and the direct mail circular are included in the total sales price subject to sales tax.

The typography charges incurred to produce the manuals and exterior packaging for the software programs are part of an exempt sale. Therefore, the Company's charges for typography for the manuals and exterior packaging are exempt from the sales tax.


VI. Photostats

You state that the Company charged the Client for photostats ("stats") produced in-house. A photostat is a high-quality reduction or augmentation of artwork. The stats were used by the Company in preliminary lay-outs for the direct mail circular, the corporate logo, and the manuals and exterior packaging for the software programs.

The stats were prepress items used by the Company for purposes other than resale in the regular course of business or as ingredient or component parts of tangible personal property to be sold. Therefore, the Company's charges to the Client are included in the sales price of the direct mail circular, the corporate logo, the manuals, and the exterior packaging.

The Company's charges for the stats used for the direct mail circular and the corporate logo are included in the total sales price subject to sales tax. The Company's charges for the stats used for the exterior packaging and manuals for the software programs are part of an exempt transaction and are not subject to tax.

VII. Illustrations

You state that the Company hired artists to draw illustrations for the direct mail circular, the exterior packaging, and the manuals. The Company acquired possession of the illustrations for the limited purpose of designing and printing the direct mail circular, the exterior packaging, and the manuals, but the artists retained title to their original works. The Company itemized the artists charges for the illustrations on its bills to the Client. The Client never acquired possession of or title to the illustrations. You inquire whether the artists' charges to the Company or the Company's charges to the Client are subject to sales tax.

Chapter 64H, Section 1(13)(c) excludes from the definition of a retail sale "professional, insurance, or personal service transactions which involve no sale or which involve sales as inconsequential elements for which no separate charges are made." The Massachusetts Supreme Judicial Court set out the standard for determining whether or not a transaction is a service transaction in Houghton Mifflin v. State Tax Commissioner:

[t]he test is the object of the transaction. If the buyer's fundamental object is to obtain the item of tangible personal property transferred to it, the sale of that property cannot reasonably be considered "inconsequential" and the transaction cannot reasonably be considered one for personal service. (373 Mass. 772, 775 (1977)).

The Company's fundamental object in hiring artists was to obtain illustrations, items of tangible personal property. Therefore, the artists' charges to the Company are subject to sales tax.


The illustrations are prepress items. The Company's charges to the Client for artists' fees are part of the cost of producing the direct mail circular, the exterior packaging, and the manuals. Therefore, the Company's charges to the Client for the illustrations for the direct mail circular are included in the total sales price subject to sales tax. The Company's charges to the Client for the illustrations for the exterior packaging and the manuals are part of an exempt transaction and are not subject to sales tax.

VIII. Photography

You state that the Company hired a photographer to produce photographic prints to be used in the direct mail circular and the manuals for the software programs. The Company acquired possession of the photographs; the photographer retained title to the photographs. The Company itemized the photographer's fee in its bills to the Client. The Client did not acquire title to or possession of the photographs.

The photographs were purchased by the Company for purposes other than resale in the regular course of business or use as an ingredient or component part of tangible personal property to be sold. ( See 830 CMR 64H.05(1)(a)). Therefore, the photographer's fee to the Company for the photographs price is subject to sales tax.

The Company's charges to the Client for photography were part of the total sales price of the direct mail circular and the manuals for the software programs. Therefore, the total sales price of the direct mail circular, including all charges for photography, is subject to the sales tax. The total sales price of the manuals, including all charges for photography, is exempt from the sales tax.

IX. Internegative Transfers

You state that the Company paid a graphics firm for internegative transfers ("ints"). An internegative transfer is a piece of pressure-sensitive film. It may contain a copy of artwork or lettering. The Company used ints to transfer graphics onto mechanicals used to produce the direct mail circular, the corporate logo, and the manuals and exterior packaging for the software programs. The Company itemized the charges for the ints on its bills to the Client. The Client did not acquire title to or possession of the ints.

The ints were purchased by the Company for purposes other than resale or use as ingredient or component parts of tangible personal property to be sold. Therefore, the graphics firm's charges to the Company for ints are subject to sales tax.

The Company's charges to the Client for the ints are included in the sales price of the direct mail circular, the corporate logo, and the manuals and exterior packaging for the software programs. The Company's charges for the ints used in the production of the direct mail circular and the corporate logo are included in the total sales price subject to sales tax. The Company's charges for the ints used in the production of the manuals and exterior packaging for the software programs are not subject to sales tax.


X. Delivery

The Company charged the Client for the delivery of the projects to the Client. Neither title to nor possession of the finished projects transferred to the Client until delivery. You inquire whether the delivery charges are subject to the sales tax.

Chapter 64H, Section 1(14)(a) provides that "the cost of transportation of the property prior to its sale at retail" is included in the sales price subject to sales tax. "[T]ransportation charges separately stated, if the transportation occurs after the sale of the property is made" are excluded from the sales price subject to sales tax. (G.L. c. 64H, § 1(14)(c)).

The charges for delivery of the projects to the Client were separately stated, but transportation occurred before the transfer of title or possession, and thus before the sales were made. Therefore, the delivery charges attributable to the corporate logo stationery and the direct mail circular should be included in the total sales price subject to sales tax. Delivery charges attributable to the Client's exempt purchases of the manuals and exterior packaging for the software programs are also exempt from the sales tax.

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson

Commissioner of Revenue

IAJ:JES:loc

LR 85-13