(a) Consultation services. The performance of consultation or any other services in which no tangible personal property is transferred is not subject to tax.
Example. Market Associates does market research on behalf of its clients and provides consultation and advisory services based upon this research. Market does not transfer tangible personal property to its clients. Market's transactions are not taxable.
(b) Collateral advertising campaigns. In general, the performance of a collateral advertising campaign constitutes the performance of a service transaction in which tangible personal property is transferred, but in which this transfer is an inconsequential component. Therefore, in such instance, the performance of a collateral advertising campaign is not subject to tax.
Example 1. John Artist specializes in designing logos and complementary artwork that businesses will incorporate into their letterhead, business cards, and product packaging. Mr. Artist provides the logos and artwork to his client and the client seeks a printer or other vendor who will produce the letterhead, business cards, and product packaging. Mr. Artist's design transactions are not taxable, whether or not Mr. Artist provides his graphic design work to his client in the form of a composite, disk, or other "printer-ready" property.
Example 2. Mary Purchase designs annual reports on behalf of her clients and, on approval by the client, contracts with a printer for the mass-replication of these reports. Ms. Purchase's design transactions are not taxable. Moreover, it is presumed Ms. Purchase is purchasing the annual reports as an agent or in a representative capacity for her clients. Therefore, Ms. Purchase shall pay tax on the purchase of the annual reports, but is not required to collect tax upon the subsequent transfer of these reports to her clients. However, Ms. Purchase shall retain a satisfactory record of the taxable printing transaction and of the tax paid by her with respect thereto, and shall state, in her invoice to the client, that such tax was paid.
Example 3. Same facts as in Example 2, except that prior to approaching the printer, Ms. Purchase first contracts with a vendor who transforms her design work into a composite, disk, or other "printer-ready" product. Ms. Purchase plans to transfer this tangible personal property to the printer to print the annual reports. As in Example 2, it is presumed Ms. Purchase is acting as an agent or in a representative capacity as to this taxable transaction for printer-ready property.
Example 4. Concept Overhaul creates graphic designs on behalf of business clients which the clients will incorporate into their letterhead, business cards, and product packaging. In addition, Concept contracts with third-party vendors for signs and decorative materials that incorporate Concept's designs and which are to be placed at its clients' offices. Concept's design transactions are not taxable. Moreover, it is presumed that Concept is purchasing signs and decorative materials as an agent or in a representative capacity for its clients. Therefore, Concept shall pay tax on the purchase of signs and decorative materials, but is not required to collect tax upon the subsequent transfer of this property to its clients. However, Concept shall retain a satisfactory record of the taxable third-party vendor transactions and of the tax paid by it with respect thereto, and shall state, in its invoice to the client, that such tax was paid.
(c) Media placement transactions. Media placement transactions constitute the performance of a service in which tangible personal property may be sold, but in which such a sale is an inconsequential component. Therefore, the performance of a media placement transaction is not subject to tax.
Example. Media Maker offers to create and place media advertisements in newspapers, television programs, and public transportation vehicles, including buses. Media develops a media placement plan with its client, then creates the advertisements necessary to implement this plan and contracts with media firms, such as newspapers and television stations, to place these advertisements in accordance with the placement plan. The advertisements created are the property of Media's client, and may or may not be physically transferred (since the advertisements are of de minimis value to the client apart from their media utilization). Media is required to pay tax on all equipment and materials purchased to create the advertisements. However, the placement transactions between Media and its clients, including any charge for the creation of the advertisements, are not taxable.
(d) Sale of collateral properties. In general, an agency or firm does not create collateral properties, though these businesses may create the graphic designs which are incorporated into such properties. However, if there is a transfer of collateral properties by an agency or firm to a client for consideration, such transfer would be a taxable retail sale.
Upon the completion of graphic design work, an agency or firm might contract with a third-party vendor on behalf of that agent or firm's client for the production of collateral properties that incorporate the graphic designs. In general, the agency or firm is acting as its client's agent or in a representative capacity in these transactions. Therefore, tax applies to the transaction by the agency or firm with the third-party vendor. However, no tax applies to the subsequent transfer of the collateral properties from the agency or firm to the client. If such transfer is not inconsequential as compared with the services provided, the transferor shall retain a satisfactory record of the taxable transaction and of the tax paid by the transferor with respect thereto, and shall state, in its invoice to the client, that such tax was paid.
Example. John Artist specializes in designing logos and complementary artwork that businesses will incorporate into their letterhead, business cards, and product packaging. However, Mr. Artist also owns an in-house copy machine and offers to copy fliers and other collateral properties that incorporate his designs. Mr. Artist's design transactions are not taxable. However, when Mr. Artist creates collateral properties on behalf of his clients he is acting as a vendor and must collect the applicable tax on these retail sales. For sales tax purposes, Mr. Artist's creation of collateral properties is treated separately from his design work. Mr. Artist's clients can and often do purchase such design work, then separately contract with a third-party vendor for the production of collateral properties utilizing these designs. The taxable sales price for Mr. Artist's sale of collateral properties includes only his cost of materials and applicable labor in producing these properties. On his client billings, Mr. Artist shall separately state the sales price for any sale of collateral property and also separately state the applicable tax.