Unlike other creative professionals such as painters and sculptors, whose work product mostly comprises tangible items like oil paintings or clay busts, the deliverables of graphic designers typically take the form of things like electronically delivered art files or web pages that are accessed through the internet. This can complicate things when it comes to business matters like charging sales tax.
Whether or not a graphic designer should charge sales tax depends on 2 things:
- Whether they are hired to perform a service, deliver a physical item, or both
- The particular state in which the services and/or products are to be provided
In general, services are not taxable but physical objects are.
Dealing with a state tax agency for failing to charge sales tax to clients or having to go back to clients who have already paid and recover sales tax from them, are hassles that no graphic designer wants to deal with and by performing the proper amount of due diligence, they are completely avoidable. Read on to learn about the pitfalls of sales tax facing graphic designers and how to steer clear of them.
Should Graphic Designers Charge Sales Tax?
Much in the way that lawyers dispense legal counsel and CPAs furnish accounting know-how to their clients, graphic designers are professionals whose primary job is to provide a service, namely creative and artistic expertise. But one issue facing many graphic designers is whether they should charge sales tax to their clients along with their design fees.
The answer is wholly dependent on the particular state in which the graphic design services are being provided, as matters relating to sales tax are governed by state law. It is therefore necessary to become familiar with the sales tax requirements pertaining to graphic design services in any state in which a design professional plans to practice their craft.
To get a general sense of how states treat sales tax issues relating to graphic design, it is worth surveying the regulations of select states. According to the U.S. Bureau of Labor Statistics, these five states have the highest number of graphic design jobs in the country:
- New York
It is therefore worth taking a look at the sales tax laws in each of these states to see how they apply to graphic designers, starting with California, which leads the nation in terms of graphic design positions.
Should Graphic Designers Charge Sales Tax in California?
California’s Department of Tax and Fee Administration oversees the enforcement of the state’s sales tax laws and its Sales and Use Tax Regulations include provisions specifically pertaining to graphic design and whether its practitioners are required to charge sales tax to their clients. Here are the highlights:
- Generally speaking, graphic designers do not need to charge sales tax for most types of graphic design services, including consultations, concept development, preliminary art, and art direction
- If, however, there are tangible items (i.e., physical objects) that are within the scope of a project, such as a flash drive containing files or an item like a poster or banner, then those deliverables are subject to sales tax
- Website design services that do not involve the transfer of any physical items are not taxable nor are any copywriting services
California’s sales tax laws applicable to graphic designers are fairly cut and dry with the main distinction being whether it is a service or physical item that is being charged to a client.
Should Graphic Designers Charge Sales Tax in New York?
New York’s sales tax laws treat graphic design work similarly to California’s in that by and large, graphic design services without the transfer of any physical items involved in the scope of work, are generally not taxable.
It is worth noting that it is common practice for graphic designers and design firms in New York and elsewhere, to expressly state in their service agreements that they (not the client) retain ownership rights to most work products for this very purpose (i.e., to avoid having to charge sales tax).
In the event that a project involves both nontaxable services and the taxable transfer of physical items, separate invoices should be generated and presented to the client.
Should Graphic Designers Charge Sales Tax in Texas?
The Comptroller of the State of Texas deals with graphic design services differently than California and New York by requiring that graphic designers charge sales tax for virtually all of the work they perform for clients, including:
- Logo design
- Website graphics
- Business stationery
- Corporate branding materials
The state of Texas places a heavier sales tax burden on graphic designers as with few exceptions, nearly all commercial activities performed by graphic designers are taxable to their clients.
Should Graphic Designers Charge Sales Tax in Florida?
- Concept development
- Design and layout
- Photography and artwork
Where tangible goods are involved, however, sales tax would apply and it is best practice to invoice these separately.
Should Graphic Designers Charge Sales Tax in Illinois?
In the state of Illinois, sales of services (which presumably includes graphic design) are not taxable. However, the transfer of any physical property that falls within the scope of a graphic design project would be taxable and care should be exercised to ensure that proper billing practices are maintained and that Illinois sales tax is properly applied to qualifying transactions.
Beware of Certain States Like Connecticut
Connecticut is a perfect example of why it is important to check sales tax laws and regulations in the particular state in which graphic design services are provided because its laws regarding the sales tax obligations of graphic designers differ from most other states in that:
- Graphic design is considered to be a form of commercial activity falling under the category of advertising services
- Accordingly, all fees and charges associated with the rendering of graphic design services, whether or not they involve the transfer of tangible personal property, must also include sales tax
- Therefore, graphic designers doing business in Connecticut are responsible for charging sales tax to their clients
It is worth noting that limited exceptions to these regulations do exist, such as certain services qualifying as marketing activities, so it is important to read the fine print.
Even for a profession like graphic design, which entails free-flowing creativity and artistic energy, there is a business side that must be kept in order, particularly when it comes to matters like knowing if and when to charge sales tax.
Much will depend on the state in which graphic design services are being offered and then determining whether the project involves strictly services or if tangible deliverables are also within the scope of work. Ultimately, it is the graphic designer’s responsibility to become thoroughly familiar with whatever sales tax regulations may apply.