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California Sales Tax

Could someone help me define exactly what I am supposed to be charging sales tax on? Media, Services, etc.

Jo Dee Massanari Controller Fuel

In Michigan we are by law supposed to charge sales tax on our entire invoice. The only type of work/services exempt are consumer packaging and ad placement. This is a little-known law here. The Michigan State Treasury was auditing one of my clients a few years ago and called to inform us we should be charging/collecting sales tax. Ask a tax specialist/accountant to check the CA laws for you!

Randy Borns Barns LLC

I recommend contacting California's Department of Revenue. They will provide you with a list of what is taxable and what is not taxable. As I understand it, many states only allow tax to be added to an invoice if the creation is added to a final, deliverable product, i.e. logos are not taxable, but if the logo is applied to a brochure, business card or anything printed, then you may add sales tax to every element on the invoice. However, you must purchase the printing and pass the cost on. If they client purchases the printing, then no tax may be applied.

User

We recently inquired with our attorney about sales tax for CA - I too was unclear about when to charge it. We do not have a resale number. If a vendor charges us tax we pass that on to the client under a task of "tax". Hope this helps. " In California, sales tax is imposed on retail sales of tangible personal property unless an exemption applies [Rev. & Tax. Code ã 6051]. A sales tax permit must be obtained for any retailing business [Rev. & Tax. Code ã 6071]. Sales tax does not apply to the sale of real property or intangible property [Rev. & Tax. Code ã 6051]. Sales tax only applies to sales of tangible personal property which is defined as property that can be seen, weighed, measured, felt, or touched, or is perceptible to the senses in any other manner [Rev. & Tax. Code ã 6016]. A service is not a sale of tangible personal property and is not subject to sales tax and any transfer of tangible personal property merely incidental to the performance of a service is not subject to tax [18 Cal. Code Reg. ã 1501 ].

Based upon what I know about your business, California Sales Tax does not apply to your company. California sales tax is only imposed on retail sales of personal property. Your company on the other hand primarily provides a service. Although some personal property may transfer as a result of your services, it is clear to me that any item of personal property which changes hands is incidental to the performance of your services rather than a sale of the personal property item itself. Consequently,I am of the opinion that California Sales Tax is not applicable for your business. "

Jennifer Whittier Vice President Schiedermayer & Associates, Inc.

In Michigan we are by law supposed to charge sales tax on our entire invoice. The only type of work/services exempt are consumer packaging and ad placement. This is a little-known law here. The Michigan State Treasury was auditing one of my clients a few years ago and called to inform us we should be charging/collecting sales tax. Ask a tax specialist/accountant to check the CA laws for you!

Randy Borns Barns LLC

Each state is different, but I am in Ohio and we charge sales tax on jobs that have a finished product such as a brochure, datasheets, designs, trade show graphics etc. We do not charge sales tax on media or public relations service fees or ads created for media placement.

Ohio law says the tax rate is based on the "site of the sale", so we charge our individual county rate.

Deanna Cummins David K Burnap Agency

There is quite a section in the tax guide for advertising firms and I agree with you it seems odd that we should be charged, but its been going on for years.

Thanks again.

Jo Dee Massanari Controller Fuel

Thanks so much for getting back to me so quickly...its a difficult process to get a handle on as here in California the law states we should charge sales tax on any services/costs related to any printed material. But I see in our records that we never charged sales tax on media of any kind, including print media...so I'm confused..the tax guide is difficult to understand and the staff at the State office is as confused as me!

Thanks again

Jo Dee Massanari Controller Fuel

I think our law here is about the same. I have the tax guide, but its difficult to understand and the staff at the State seem just as confused as me!

Thanks again.

Jo Dee Massanari Controller Fuel

The sales tax requirements faced by advertising agencies, commercial artists, and designers are detailed in the California State Board of Equalization's Regulation 1540. Where issues relating to Printing and Related Arts arise, Regulation 1541 prevails. Both regs. can be downloaded from the State Board's web site @ www.boe.ca.gov. Also, a summary of the issues tackled by these regulations was presented in the June 2000 issue of the Tax Information Bulletin also issued by the Board.

One of the welcome changes present in Regulation 1540 addresses the fact that much of advertising agency services are not related to the transfer of tangible personal property; however, such property often characterizes the medium through which artwork is transferred. This change is the allowance for "graphic atists to claim 75 percent of their total lump-sum charges for commercial artwork as nontaxable services." This is quite an easy rule to follow.

Clients and Profits' use of task based billing and sales tax calculation allows for the straight-forward, easy, application of this exemption. What I have done is set up two sales tax tasks for any job in which I am going to claim the 75% exemption. One sales tax task is tax exempt, the other taxable. When issuing an estimate or an invoice, I manually calculate sales tax on 25% of the lump sum billed. Once I know what the sales tax should be, I net it against the figure C&P has calculated based on actual job tasks. Caveat: if the C&P sales tax figure based on final art vs. prelimanary art & account service is less than what it would be using the 75% exemption, stick to that figure. Do not make any adjustments. If, however, the sales tax differential from using the exemption results in tax savings, I take this difference, divide it by the sales tax rate, and use the result to adjust both sales tax tasks. The tax exempt task receives the positive adjustment, the taxable task an equal but negative one. We issue billings without task detail so the in and out itemization of these adjustments is masked within group totals. The final product, whether invoice or estimate, presents a seamless execution of the 75% exemption. Employing the exemption may save the client money and is legal. Gotta love it when the system works logically.

Hope this helps.

Lee G. Stewart Controller Tygenhof & Partners, Inc.

The California sales tax regulations pertaining to advertising agencies (and related fields like graphic arts and printing) changed significantly earlier this year. Even the people at the California Board of Equalization will tell you that advertising is one of the most complicated industries when it comes to sales tax law. (Here's an example: if you produce a print ad and send it to a publication on CD or disk, it's taxable. If you e-mail it, the entire job may be exempt from tax!)

We've just been through a sales tax audit, so I know that there are no simple answers. I've made it a habit to contact the Board for clarification whenever I am unsure of how tax applies (get it in writing,though!) and they almost always need to research it before they are able to answer.

I'd suggest requesting a copy of the revised booklet published by the Board for Ad Agencies.

Dorinda Sample Janzen IdeaCorp Operations Manager

I am not sure about California or Ohio, but here in Maryland, the Printing Industries of Maryland Offers a State Sales and Use Tax Guide Specifically written for design firms. Check with your local organizations for guidance in this area. In any case, I believe a good rule of thumb is that if your client is the end-user of the product, they should be charged sales tax. Hope that helps some.

Terry L. Jones, Jr. Controller Harvey and Daughters, Inc.

Some other suggestions would be to have the state make a ruling and get a letter in writing to cover you. The other suggestion would be and I do this sometimes for those gray areas, is charge sales tax on the invoice. This would cover you and then let the client be responsible for saying if it is taxable or not. You can always write off the tax later if needed.

Deanna Cummins David K Burnap

Several alternatives

A. Create a task in the task table for the sales tax and make the credit GL the sales tax payable account. Add the sales tax on to the job ticket. When entering a billing for the job, add this task to the job ticket and enter the amount of the sales tax. If you are using task groups, make a group number for the sales tax and make it a larger number than the other task groups. This will make the task appear at the bottom of the billing invoice. If you are not using task groups then assign the Sales Tax task the largest sort number so that it will appear at the bottom of the printed invoice.

Disadvantages of doing this would be the following:

1. You would still have to manually calculate the tax.

2. If you are using the Sales Tax Report (Accounting > Accounts Receivable >

File > Print Reports > Analysis > Sales Tax) to track sales tax, this sales tax would not appear on the Sale Tax Report. You would have to use the sales

tax payable account to track the sales tax.

3. The billing of the sales tax as a task would cause it to appear on the job ticket as a billing amount affecting the Jobs Profitability (Billing less net costs and net labor=net profit).

B. Another alternative would be to use Sales Tax #2 for this sales tax. To do this you can go to the task table and for each task that the tax will apply to, select the box for sales tax #2 in the Edit Task window for that task. You can give the sales tax a title by going to Setup > Preferences > Sales Tax and enter the title for the sales tax in the "Description:" field for "http://www.clientsandprofits.com/sales Tax 2". This title will appear on the invoice for Sales Tax #2. To enter the sales tax rate, go to each client record that the sales tax will apply to and enter the rate in "Billing Info" in the "Rate 2:" field along with the tax payable account number. The rate would be 25% of the normal sales tax rate (i.e. normal sales tax divided by 4).

Advantages:

1. The sales tax rate would be calculated automatically on the printed invoice. 2. The sales tax would show on the Sales Tax Report. 3. The job profitability would not show the sales tax as a billing on the Job Ticket, thereby, not affecting the job's profitability. 4. The sales tax would appear in the Sales Tax portion of the printed invoice.

Disadvantage would be that you could not do this if you are already using Sales Tax #2.

Mike Ferguson Clients & Profits Helpdesk

I have been a Clients and Profits consultant trainer since 1994 as well as working as a freelance agency controller. Every California client I have worked with has interpreted the application os sales tax law differently! However, there really is no way to give you a specific answer of what is taxable because the law is different depending on how you bill your clients. Do you have a letter of agency agreement on file for your client? Do you charge a lump sum for the work? Do you transfer finished work electronically? Who holds title to the finished artwork? Are you primarily a direct mail shop? Do you have items that are considered to be fabricated in house? Do you charge a separate monthly client retainer that also covers creative fees for ads you create?

Up until this past year many of the answers to these questions were quite vague according to the law. However, the sales tax regulations were revised as they apply to advertising and design firms (although they are still quite complicated). I advise my clients to review the changes to the law with their tax specialist. In some cases just putting specific language on the client invoice can make items taxable or non taxable. Some client have also found it helpful to write to the California State Board of Equalization and explain exactly the relationship they have with their clients and how they state their charges for the work they perform. The State Board of Equalization will send them a letter of interpretation / determination that can be helpful in the future during an audit if a question arises.

You can download regulations 1540 and 1541.5 from the California State Board of Equalization website, as well as other regulations at www.boe.ca.gov/staxregs.htm

Robert Roll Integral Circuits, San Francisco Clients and Profits training and consultation

Your response is pretty much where I am at. It makes it somewhat difficult to bill through C & P when trying to specifically identify the non-taxable items (like copywriting, account planning, quality control review, etc). It is even harder to explain it to a client.

I was on the Board of Equalization's website yesterday and was unable to find regulation 1529 for Motion Pictures. Specifically I was wondering what parts are taxable and non-taxable when we are producing a TV tag. Do you know where I can find 1529 short of contacting the Board directly?

Thanks for the response.

Ann Adams

The best place to get the information is from the source so I would call the State Board of Equalization. Explain what you do and they will send you the most up to date regulations and information pamphlets. C&P allows you to mark each line item as taxable or non taxable on an invoice or estimate by double clicking on the task in the invoice or job ticket windows. If you are unclear on how to apply the tax for what you do write to the State Board and they will write back to you. This letter, from the Board of Equalization, might be helpful to send to clients if they question the application of sales tax.

Robert Roll, Clients and Profits Consultant-San Francisco Integral Circuits