California Sales and Use Taxes
I'm starting a freelance design business and am trying to get a firm grasp on the sales tax collection rules in California. Anyone on here working in CA or understand the rules please read and correct or affirm.
In regulation 1540:
"Finished Art" Defined as "the final artwork used for actual reproduction by photomechanical or other processes, or used for display." So in otherwords everything a Designer would produce to get a job printed wether it be tangible (painting, illustration, film) or an electronic file.
Transfers of "electronic Art" which could also be referred to as "finished art" are taxable unless said transfer is not in tangible form. To acheive this intangability one sends the file via the internet or physically takes the files to the client and loads them on their system personaly. (the second method must be documented to be valid)
According to regulation 1540,1507 and AIGA pdf:
When sending the file on disc copyrights and finished art are taxable even if the disc is only loaned to the client or printer. The amount is determined as follows:
1)Lump sum-conceptual services and charges to create the finished art and the copyright of the work all in one fee. Assume 25% of the sum is subject to sales tax.
2)If your contract/invoice etc states a seperate amount for the copyright sales then it can be removed from the amount taxed.
3)Simular items done in the past that do seperate out charges that is simular to the current item can be used to calculate current tax charges.
4)If conceptual services, finished art creation charges and copyrights are line item seperated the taxes are charged at 200% of the costs of materials and third-party labor costs (If all work done to create the final work is done by a sole proprietor then the tax is 200% of the cost of the media the files are recorded on to be delivered to client)
So in other words if at all possible avoid sending or giving the client or printer the final files on disc. In this way you avoid sales and use taxes entirely. If you do send or diliver them on disk make sure your invoice seperates these 3 types of charges: conceptual, creation of finished art and copyrights.
Have I correctly spelled out how it's broken down?