Use tax is imposed on consumers. When sales tax does not apply, use tax generally applies to the purchase of taxable items made from an out-of-state retailer for use in California. You may also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items.

Maintaining good books and records will help you keep track of your sales and purchases and assist you when preparing your sales and use tax return. You are required to keep records for at least four (4) years, unless directed by the CDTFA to keep them for a longer period. If you do not maintain records, it may be considered evidence of negligence or perceived as an intent to evade the tax process and may result in penalties.

Your records should be adequate so CDTFA representatives may:

• Verify the accuracy of your tax returns; and
• Determine if you have correctly paid the tax due on your sales and purchases.

Records you should keep include but are not limited to:

• Cash register tapes/receipts
• Purchase invoices
• Sales invoices
• Shipping documents
• Resale Certificates
• Tax returns and supporting documents

For more information on recordkeeping, please see publication 116, Sales and Use Tax Records.

If you hold a California seller's permit, you must report and pay the use tax due on your business-related purchases on your sales and use tax return in the period in which your business first used, stored, or consumed the merchandise in California. To pay use tax, report the purchase price of the taxable items under “Purchases Subject to Use Tax” on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

Some out-of-state retailers are registered with the CDTFA and required to collect and pay California use tax. If your receipt indicates that the retailer collected the correct amount of the use tax on your purchase, you do not need to report that purchase on your sales and use tax return. However, if the retailer did not collect the correct rate of use tax, you would owe any additional tax that should have been collected.

Credit for Paying another State's tax

If you were required to pay, and did pay, another state's sales or use tax on a purchase in which you owe California use tax, you may claim a credit against your use tax liability by doing the following:

• Report the purchase amount under “Purchases subject to use tax” on your return
• Deduct the amount of tax paid under “Credit for tax paid to other state(s)” on your return. You may claim a deduction up to the amount of California use tax due on the purchase

You may not claim this deduction as credit against your sales tax liability. For more information on purchases from out-of-state retailers, see publication 110, California Use Tax Basics.

Inventory Withdrawals

As a registered seller's permit holder, you may purchase property that you plan to resell in the regular course of your business “for resale,” that is, without payment of tax (see Purchases for Resale topic under the Nontaxable Sales – In General section, in the Industry Topics tab). However, if you remove items from your resale inventory and make a use of the property prior to reselling the property, you owe use tax on your purchase price of the property. You must report and pay the use tax due on property withdrawn from resale inventory on your sales and use tax return.

For more information, please see California Use Tax Information.

District taxes are voter-approved taxes imposed by cities, counties and other local jurisdictions and are added to the statewide base rate. As a retailer you are responsible for reporting your retail sales and paying the tax to the CDTFA at the proper rate. If you make retail sales in California from a business located in a taxing district, you are generally responsible for the district sales tax. You are also responsible for collecting, reporting, and paying the district use tax when making sales for delivery into taxing districts in which you are considered “engaged in business in the district.”

Generally, you are “engaged in business in a district” when you:

• Have a permanent or temporary business location in the district, including a warehouse, salesroom, or office,
• Have a representative or agent in the district even temporarily, who, for example, makes sales, takes orders, or makes deliveries for you,
• Receive rental income from the lease of merchandise located in the district, or
• Make annual sales of tangible personal property in California or for delivery in California exceeding $500,000

1. On and after April 25, 2019, a retailer is considered engaged in business in all districts that impose a district tax if in the preceding or current calendar year their total combined sales of tangible personal property in this state or for delivery in this state exceed $500,000. As such, all retailers meeting this threshold are responsible for collecting and paying any district tax on taxable sales made for delivery in any district that imposes a district tax.

For more information on being engaged in business and the correct district tax rates, please see publication 44, District Taxes (Sales and Use Taxes).

You can look up tax rates by city and county or find the full tax rate in your city or county by going to the Find a Sales and Use Tax Rate webpage and entering the address as prompted.

Some common exempt sales transactions include:

Nontaxable Labor

Generally, tax does not apply to your itemized charges for repair or installation labor. However in California, some types of labor charges are subject to tax. For example, charges for fabrication labor are generally taxable whether you itemize your labor charges or include them in the price of the product. For more information, please see publication 108, Labor Charges.

Sales for Resale

You may have customers who purchase goods from you with the intent of reselling those goods in their own regular course of business. If your customer provides you with a valid resale certificate and you accept it in good faith and in a timely manner, your sale to them is not taxable. For more information, please see publication 103, Sales for Resale.

Sales in Interstate or Foreign Commerce

Sales that involve shipments or deliveries from California to locations outside the state are generally exempt from sales or use tax if certain conditions are met. For more information, please see publication 101, Sales Delivered Outside of California.

Sales to the United States Government

Your sales and leases made to the United States government and its instrumentalities are generally exempt from California sales and use tax. However, sales to state, county, and city government agencies are still generally subject to tax. For more information, see publication 102, Sales to the United States Government.

Noncommercial photography includes taking and selling photos for a customer's private use, such as engagements, weddings, portraits (for example, baby, school, etc.), and for fine art prints.

When you provide your customer photographs in a tangible form, such as prints, slides, etc., or as a digital image on a tangible storage medium (for example, DVD, flash drive, CD, etc.), tax generally applies to your entire charge, which may include charges for:

• The physical product you transfer to your customer;
• Labor and services involved in producing or creating the photograph; and
• Reproduction Rights associated with the photograph (such as licenses, copyrights, royalties, etc.).

See the topics below for more information about the services and products that may be related to your sale of photographs.

For example, tax applies to the sales of the following items:

• Still images printed on physical medium
• Proofs
• Transparencies for copy and duplication
• Prints, slides, and movie film
• Videotapes of private events, such as weddings or graduations
• Internegatives and copy negatives
• Flash memory cards, CDs, DVDs, diskettes, or other digital media (containing images or blank)
• Photo albums
• Photo mounting or framing supplies
• Picture frames

Some examples of taxable fabrication labor relating to sales of photographs and photographic products are:

• Printing photographs from slides, negatives, or digital storage media
• Developing film by the reverse method which results in film-positive images such as slides or movies
• Scanning prints or slides and saving them on digital storage media
• Taking photographs with a digital camera
• Mounting photographs or slides
• Matting and framing services
• Matte or luster spraying photos
• Enlargements from prints, slides, or negatives
• Printing on customer-furnished paper
• Retouching coloring, or tinting new photos
• Retouching negatives
• Shooting customer-furnished film
• Creating photographs under a “work made for hire” contract (customer owns the copyright to any photographs you create for them)
• Cropping photographs
• Creating slides or prints from digital images
• Digitizing images, or film, or videotape and placing them on digital media such as CD, flash memory card or DVDs, whether the media is supplied by you or your customer
• Editing (cropping, retouching, or modifying) a digital image when you deliver the resulting image to your customer on a storage medium (for example, CD or DVD)

Example:
A customer brings you five slides and requests that you scan and place them on a flash drive which you will provide. The customer also asks you to print three of the images. Your charges for scanning the slides, the flash drive, the three prints, and any related processing services are taxable, whether you itemize the charges or bill in a lump-sum amount.

For more information on fabrication labor, see publication 108, Labor Charges.

These expenses may include:

• Set up charges, sitting fees (photo session), and overtime charges
• Camera or other equipment rentals
• Travel expenses
• Models', technicians', or assistants' salaries or fees
• Studio rental, computer rental

Example 1:
Invoice for a Wedding Photography event.

1. For illustration purposes, tax is calculated at the rate of 8.00 percent. Be sure to use the correct tax rate to your sale and include any district taxes that apply. Please see California City & County Sales & Use Tax Rates.

In the example above, all materials, overhead, and labor charges that produced the final product provided to the customer (proofs) are subject to tax.

Example 2:
If you do an advanced photo shoot with a wedding party and the wedding is cancelled before you are able to provide photographs to your customer, your charges for shooting the advanced photo shoot and any overhead and project-related expenses would not be taxable, because you did not deliver photographs to your customer.

Example 3:
If you charge a sitting fee and the customer purchased prints, the charges for the sitting fee and the prints are subject to tax. However, tax does not apply to the sitting fee charge if the customer does not purchase any prints.

Example 4:
If you travel for a photo session, travel expenses such as mileage, tolls, and other travel expenditures are subject to tax when associated with sales of physical tangible items (for example, slides, prints, etc.).

Tax applies to your charges or fees (for example, license fees, royalties, copyright fees, etc.) to allow your customer to reproduce, copy, or use a photograph for their own private use (that is not to sell) when you provide your customer the photographic image in a tangible form such as prints, images on a CD/DVD or flash drive, etc.

Example:
You are hired to take photographs of a private, non-commercial event, such as a wedding. You sell the photographs, including- the rights to reproduce the photographs for private use, to your customer. You provided the digital images to your customer on a flash drive. Your charges for the reproduction rights are includable as part of your taxable sale.

Tax does not apply to separately stated delivery charges of taxable merchandise that is delivered by a common carrier (UPS, FedEx, USPS), so long as the delivery charge does not exceed the actual cost of the delivery. If you charge your customer more than the actual cost of the delivery, the excess amount is taxable. It is important that you use terms such as “delivery,” “shipping,” or “postage” on your invoice to identify delivery charges.

Example:
You charge your customer $12.50 for shipping photographs directly to their home. The sale of the photographs is subject to tax and the shipping is by common carrier. The actual cost of shipping by the common carrier is $10.00 and the additional $2.50 is your handling charge to your customer. The $10.00 representing the actual delivery cost is not subject to tax; the $2.50 for handling charges in excess of the actual delivery cost is subject to tax

If you make deliveries of taxable merchandise to your customers using your own vehicle, your delivery charges to your customers are generally subject to tax.

For more information on delivery charges, see publication 100, Shipping and Delivery Charges.

Digital photographs may be transferred electronically by email or over the internet or by file transfer protocol (FTP), downloaded from an online gallery, or directly downloaded to your customer's computer. Your charges for the digital images and all charges related to the creation or production of the digital images are not subject to tax when you do not provide your customer any tangible personal property.

Example:
After a photo session, you charge your customer $600 for the session and creation of digital photos. You provide your customer the digital photos via the internet; you do not provide your customer any tangible form of the photos (for example, prints, negatives, slides, etc.) or storage medium (for example, flash drive, CD, etc.) for the digital images. Your charges for the photo session and the digital photos transferred electronically are not subject to tax.

In instances when you electronically provide a digital photo to your customer without any tangible personal property, you may allow your customer to use the photo for their own use. That is, you do not place copyright restrictions (for example, a watermark on the digital image) on the photos and your customers may have their own prints or copies made. Typically, a photographer will charge their customer for the right to reproduce or copy the photograph. As explained in the example above, your charges for the digital photo and related charges, including any fees for the right to reproduce, copy, or use the photographic image, are not subject to tax because you do not provide any tangible personal property to your customer.

Example 1:
You charge your customer for a photo session and digital photos. You transfer the digital photos by loading the images directly to a flash drive provided by your customer. Your entire charge is subject to tax because you provided the images via a tangible storage medium, the flash drive, even though the customer provided the flash drive.

Example 2:
In a photo session, you charge your customer $1,000 for digitally uploaded images, and $100 for prints. Tax is due on the entire charge of $1,100 since your customer received tangible prints as part of the transaction.

Example 3:
A customer hires you to take photos and also indicates they want to purchase prints. After the photo session, you issue two invoices to your customer. On the first invoice, you charged your customer $1,000 for the photo session and the digitally uploaded images. On the second invoice, you charged your customer $100 for prints. Although there are two invoices, tax is due on the total charges of $1,100 since the customer hired you for the session and the prints.

Your customer may only want to purchase the digital photo from you and have their own copies made. In these instances, you may allow your customer to copy or use the photographic image; that is, you do not place reproduction or copyright restrictions on the photos. Your charges related to creating the digital images that are transferred electronically to your customer, including the charges for reproduction rights, are not subject to tax when you do not provide your customer any tangible personal property (for example, prints, slides, negatives, or tangible storage medium such as DVD/CD, flash drives, etc.).

Per the initial sale of these digital images, there is no agreement or intent for you to later provide your customer the photos in tangible form, as they already have the rights to reproduce your images on their own. If your customer later contacts you to purchase prints of the digital images they initially purchased with the right to copy the images, their subsequent purchase of prints from you will then generally be considered a separate transaction from the original sale. Tax applies to the second transaction only (sale of the prints).

However, if you sell your digital photos with reproduction or copyright restrictions on the photos, and your customer is required to go through you if they later want to make copies in a tangible form, then there is an intent at the time of the initial sale to provide photos in tangible form. If your customer later purchases the images in a tangible form, the initial sale would then be considered the sale of related items and services rendered to create the photos in tangible form, and tax applies to both transactions.

Please see the Technology Transfer Agreement section for more information on the tax implications selling, leasing, and assigning copyright interests in your photographs.

Example:
You charge your customer $1,000 for a photo session, the creation of digital images, and the right to reproduce/copy the digital images. The contract between you and your customer for the digital images clearly states that your customer will receive the images electronically only; that is, no tangible form of the photograph will be transferred to the customer. Tax is not due on your charges for the electronically transferred images.

One week later, your customer contacts you and asks to purchase prints from you of the digital images you previously sold. You charge your customer $100 for the prints. The charge for the prints is subject to tax because it is a separate transaction unrelated to the original transaction.

Example:
You charge your customer $1,000 for digitally uploaded images; you do not provide your customer the images in tangible form, but you attach a copyright restriction by adding a watermark on the digital images. Your initial sale was not immediately taxable because you did not sell your images in tangible form at that time. A year later, the same customer contacts you to purchase prints from the digital images you previously sold. You charge your customer $200 for the prints. Tax applies to your entire charge of $1,200 for both transactions since the original sale of the digital images is related to the later sale of tangible prints.

Examples can include charges for:

• Airbrushing a customer's print to restore or repair it
• Retouching a customer's print to restore or repair it
• Other film or print processing charges that restore a customer supplied item to its original condition

Example:
Your customer asks you to retouch old digital images so that the scratches or other imperfections on the images are less visible. This service is considered a repair labor and is not taxable.

As a seller, you must obtain a valid resale certificate from the purchaser in good faith and in a timely manner. The resale certificate is considered timely if it is taken at any time before you bill the purchaser for the property, or any time within your normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser. Accepting a valid and timely resale certificate from the purchaser in good faith relieves you (the seller) from liability for the tax.

Example 1:
You create fashion photographs showing different kinds of hairstyles for an interior designer who will frame the photographs and sell them to hair salons for display. Your photographs will be resold to hair salons and will not be reproduced. Therefore, you may accept a resale certificate from the interior designer. If you accept a valid, timely resale certificate from the interior designer, your charge for the photographs is not subject to tax.

For more information about sales for resale, see publication 103, Sales for Resale.

You can provide CDTFA-230, General Resale Certificate, to your vendor when purchasing merchandise you will resell in the regular course of your business operations. You should not provide a copy of your seller's permit in-lieu of a resale certificate.

Generally, you may issue a resale certificate to purchase:

• Finished items for resale (items to which you will make no alterations);
• Materials that become a physical part of the photographs and finished art you sell, such as slide mounts, photographic paper, frames and framing material, spray coatings, printer paper and inks, and mounting and matting supplies; and
• Digital storage media (DVDs, CDs, flash memory, diskettes, removable disks) you sell to your customers rather than retain in your business.

As the purchaser, you should not use a resale certificate when buying merchandise that you will:

• Use rather than sell,
• Use in your business before you sell it,
• Use for a personal purpose, or
• Hold as an investment for appreciation in value and for sale in the future.

Film, Internegatives, and Copy Negatives

Whether you may use a resale certificate to buy film you expose and process, or internegatives and copy negatives generally depends on the final product you will sell. Definitions of the different types of film, and a table showing how tax applies to your film purchases are found below.

Definitions – Types of Film

• Color-reversal Films – When developed, these films become positive transparencies, slides, or movies. The film itself does not become a part of subsequent prints.
• Negative Films – When developed, these films become negative transparencies that are used to make prints. The film itself does not become a final ingredient or part of the prints.
• Polaroid-type Films – These films are products that use the Polaroid process to become prints “instantly” after exposure.
• Internegative Films – These films are intermediate images formed from a positive original image and then used to create another positive image.

Issuing Resale Certificates for Purchases of Film, Internegatives, and Copy Negatives

Notes

1. If you use Polaroid film to check exposure or for another purpose and do not sell the Polaroid prints to your customer, you may not purchase the film for resale.
2. If you transfer ownership of the internegative or copy negative to your customer before you use it to make a print, you may purchase the negative for resale.

For more information, please see publication 103, Sales for Resale.

• Items are shipped directly to the customer located outside of California, and
• You use your own business vehicles, the U.S. Mail, or a common carrier to ship/deliver the items.

For more information, see publication 101, Sales Delivered Outside of California.

For more information, see publication 102, Sales to the United States Government.

Preliminary art is tangible personal property prepared for the purpose of demonstrating ideas, concepts, or design product services you provide to your customer. It is a physical artwork you prepare prior to the finished product. Preliminary art is not suitable for reproduction.

Separately stated charges for the concept or design to create preliminary art are not taxable if all of the following conditions apply:

• You create the preliminary art under the direction of your commercial customer;
• You create the preliminary art for the purpose of delivering your ideas, concepts, or message for the customer's project;
• You present the preliminary art to your customer for approval;
• You retain ownership and permanent possession of the preliminary art (but you can temporarily transfer it to your customer who is involved in the design process);
• Your contract does not transfer any preliminary art to your customer or the right to permanently own it; and
• The separately stated charges clearly indicate that the charges are for services performed to convey ideas, concepts, looks, or messages to client.

If you transfer ownership or permanent possession of the preliminary art in tangible form to your customer, the charge for the preliminary art is subject to tax. If you transfer only a portion of the preliminary art you created in tangible form, for example, some of the proofs, tax applies only to the portion transferred to the customer.

Example 1:
You are hired to take photographs and capture images of beaches for an advertising campaign. You took 20 proofs and presented them to the advertising company. The proofs show your concepts and ideas, and are considered preliminary art. The company selected 10 proofs to keep which is 50 percent (10 out of 20 proofs) of your work. Therefore, tax applies to your charge for the preliminary art proportioned to the amount of art you transfer to your customer. However, if your customer decides to keep all the proofs of your creative work, your entire charge for that work is subject to tax.

Example 2:
If you provide a tangible preliminary art proof to your customer for review only, and your customer makes some changes to your design, and then returns the proof back to you, tax does not apply to your charge since there is no transfer of ownership or permanent possession to your customer.

Example 3:
A customer hires you to take a photo of a specific object for a training manual and you use your own creative skill to select the best light and angle for the shot. You make several digital images from the photo shoot and you select one image to print for your client's use. Because you provide one photo to your client for use instead of presenting a concept or design to your client, the digital images you created do not qualify as preliminary art. Your entire charge for that work is subject to tax. (See next heading, Finished Art.)

Finished art is the final photographic artwork you sell or lease to commercial customers for reproduction or display.

Tax applies to your charges for the sale of tangible finished art. This holds true whether your customer keeps the finished art (a sale) or returns it to you after reproducing it (a lease). The amount of tax due depends on the value of the art and how much you bill your customer. For more information on how the tax applies, see the topic, Billing Methods – Photographs Sold for Commercial Use.

Finished art may be delivered in the following tangible forms:

• Printed image (processed print or digital print)
• An exposed piece of film
• Digital file on a storage medium
• Digital file you electronically transfer to customer by modem or in person from a DVD/CD or other electronic storage medium that you keep

However, if the finished art is electronically transferred to your customer and you do not provide your customer any tangible personal property, the finished art is not subject to tax.

This may include ink, film, paper, and chemicals. When you are the consumer of the supplies and materials you should not purchase these items for resale from your vendor. If you purchase these items from an out-of-state retailer who does not charge you tax, you should report the purchases on your sales and use tax return as purchases subject to use tax.

You may sell or lease photographs to your customers and charge your customers for rights included in the transfer that is for reproduction, copyrights, or distribution rights. This may involve granting your customer the right to reproduce and use the photographic image without restriction or the use may be limited. For example, you may specify how the photographs can be reproduced, the frequency of reproduction, or duration of the right, etc. The right to use may also be described as a license to use.

Regardless of the terms used in connection with your granting a customer the right to use your photographs, when you sell or lease your photographs in tangible form, (for example, prints, or digital images provided on tangible storage medium), your entire charge is subject to tax, including charges for the right to use/reproduce the photographs. However, if you sell or lease a photograph with any rights but do not transfer the photograph to your customer in tangible form, the sale of the photograph and corresponding right is not taxable.

If you have a written agreement (such as contract, invoice, or purchase order) with your customer that grants a copyright interest in your photograph for the purpose of reproducing and selling other property subject to the copyright interests, your agreement may be a Technology Transfer Agreement (TTA). The tax application to a TTA is different than that of a general, unwritten right to use/reproduce a photograph. For more information, see the section, Technology Transfer Agreement (TTA).

Example 1:
If you sell a photograph with the right to reproduce and ship the images on a CD to your customer, tax applies to all your charges (whether referred to as license fees, royalties, etc.) for any rights sold with the finished art.

Example 2
You transfer a photograph, in tangible form, to your customer so they can reproduce and use the photograph as part of their advertisement campaign. You specify to the customer that they must return the photograph to you when their project is complete. Because the customer is required to return the photograph to you, you are making a lease of the photograph to your customer. Your entire charges, including any licensing or royalty fees are subject to tax.

Your charges for a commercial photography project may cover all the creative work you performed, from the initial concept to the final sale of your finished art. The application of tax may vary, depending on how you invoice your customer– (that is, whether you itemize each charge separately, or bill as one lump-sum).

If you separately state charges for preliminary art and finished art, your charge for conceptual services/preliminary art (that is, design charges, concept development, etc.) are generally not taxable, assuming you do not transfer ownership or permanent possession of preliminary art to your customer. The separately stated charge for finished art, as well as any labor, expense amounts, photo sessions, etc., that reflect your charges for creating or producing the finished art, are subject to tax.

If you bill as one lump-sum charge for only preliminary art and finished art (such as, finished photographs or digital images), you may base tax on 25 percent of your total lump-sum charge when it can be reasonably supported that the ratio of charges for the project are 25 percent taxable and 75 percent nontaxable. You should keep records to support your ratio.

It is not appropriate to use the 25 percent taxable method for a lump-sum charge if your lump-sum billing includes other charges in addition to preliminary art and finished art, such as printed matter (brochures, catalogs, etc.). In these instances, you must compute the taxable portion of the retail value of the finished art. When calculating the retail value of the finished art, you must include the following:

• Cost of direct labor to create the finished art, including amounts you pay to third parties, such as model or technician fees. The cost of labor also includes the value of your own labor—even if you are a sole proprietor.
• Cost of other direct charges required to create the finished photograph. This includes lighting or other equipment rental, studio rental, and prop construction or rental. Travel expenses such as airfare and car rental, or meals and lodging, are also included for the purposes of calculating the value of finished art.
• Cost of items you purchased and physically incorporated into the finished art, such as paper, inks, and certain chemicals (see Photographic Chemicals under the Miscellaneous section).
• Cost of any “intermediate production aids” used to make the finished art. Intermediate production aids include items such as artwork, illustrations, photographic images, photo engravings, and similar materials which are used to produce finished art or special printing aids, but are not physically incorporated into finished art or special printing aids.
• A reasonable markup based on your operations.
• Charges for taxable reproduction rights.

The difference between your calculated retail value of the finished art and the total lump-sum charge is considered the nontaxable charge for your conceptual services/preliminary art.

Example:
Following your client's approval of preliminary art illustrating your ideas for a public relations campaign, you create finished art: 15 prints of models posing in a park. The photos will be used on advertising billboards. Your total lump-sum charge for the job is $15,000. The costs related to producing the photograph and reproduction rights are:

Notes

1. Markup of 15% shown for example only. Your markup may be higher or lower.
2. Rate shown for illustration only. The rate for your sale may be different.

Tax does not apply to amounts received for the licensing or assignment of a copyright interest as part of a TTA. If you transfer a physical photograph to your customer in tangible form, such as a print, slide, negative or digital image on a CD, you must determine its taxable value. However, if you transfer a digital photograph to your customer via email or internet, load and leave electronic transfer, or temporary transfer of the image on a digital storage medium provided the customer returns the medium to you within a reasonable amount of time, tax will not apply.

Example 1:
You provided to your customer digital photos via CD that will be printed in books sold for profit. You keep the copyrights but provide your customer a written permission for specific intent of use. Your agreement with the customer is a TTA as it meets the three conditions listed above. Therefore, tax applies to the fair market value of the photographs and not to the charges or fees of the license, copyright, royalties, etc.

Example 2:
You have a written agreement with your customer in which you sell your customer photographs that they will use in a series of billboards as part of their advertising campaign to promote their products. The agreement includes charges for license fees. This agreement does not qualify as a TTA because the customer will not reproduce the images or incorporate them into products that are for sale and subject to the copyright interest. Instead, your customer purchased the photographs for their commercial use.

For more information on TTA, see Regulation 1507, Technology Transfer Agreements.

“Creative art services” are services performed to convey ideas, concepts, looks, or messages related to production, distribution, or exploitation of a “qualified motion picture.” Creative art services do not include services that create photographic products your client will reproduce or display.

“Qualified motion picture” is any motion picture, whether finished or not, created for any purpose, including any commercial, advertising, promotional, industrial, business, nonprofit, or educational purpose.

Qualified motion picture does not include motion pictures created for private noncommercial use such as motion pictures of weddings used as family keepsakes or student films to be used for class projects.

Qualified motion pictures must be intended for commercial use including:

• Motion pictures produced for display at theaters, amusement parks, television shows, commercials, trailers, television, promos or sneaks, corporate training, sales presentation, music videos, credits on films or other motion picture media or digital media
• Original and adapted versions including productions adapted to another language or medium
• Motion pictures produced for the federal government, foreign governments, and state and local government and their political subdivisions

As a photographer, when you create exposed film, photographs, negatives, transparencies, prints, scans, laser graphics, visual prototypes, and electronic or digital imagery or other tangible property to convey ideas, concepts, looks, or messages related to the production of a “qualified motion picture,” these services are regarded as “creative art services.” However, if your client later displays or reproduces your work, tax would be due based on the purchase price of transferred items.

When you provide qualified creative art services to your customer for a qualified motion picture these services are not subject to tax even if you transfer your concept/designs to your customer in a tangible form. As such, you are the consumer of the tangible personal property, such as CDs, chemicals, paper, etc., used in producing or creating the tangible products used to convey your concepts/design to your customer for a qualified motion picture.

Example:
You contracted with a movie studio to create images of airplanes for a feature film (a qualified motion picture). Your images are intended to express ideas on how to advertise the film. As part of the contract, you provided the studio preliminary designs in the form of printed and digital images. Your activities qualify as creative art services since the transfer of designs is only to express ideas and concepts and the movie studio may not make copies or display them. Therefore, your charges for the designs and the images are not subject to tax. However, you are the consumer of the paper and other materials used in producing the images and must either pay tax on your purchase from your supplier, or if you purchase the products without paying tax to your supplier (for example, from an out-of-state retailer), you must pay and report the use tax on your sales and use tax return.

For more information, see Regulation 1529, Motion Pictures.

Out-of-state retailers that are engaged in business in California and that make sales for use in California are required to register with the CDTFA for a Certificate of Registration – Use Tax, collect use tax from California customers, and pay the use tax to the CDTFA. A retailer engaged in business in California includes: a retailer that has a representative, agent, salesperson, canvasser, independent contractor, solicitor, or any other person operating in California on the retailer's behalf, including a person operating in California under the authority of the retailer or its subsidiary, for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property, or otherwise establishing or maintaining a market for the retailer's products.

If you are an out-of-state photographer hired by a customer to do a photoshoot in this state for an occasion or event at a specific location(s) in this state, such as a graduation ceremony, wedding, birthday or retirement party, etc., you would generally be considered to be engaged in business in this state. Similarly, you would be engaged in business in this state if a California business, such as a hotel, hires you to take pictures at their California business location for their brochures or other advertising materials.

On the other hand, if you are hired by an out-of-state client to shoot scenic pictures at various locations in this state for a brochure, catalog, etc., that, by itself, would likely not cause you to be engaged in business in California. However, you would be engaged in business in this state if you were also to engage in selling activities or activities that otherwise establish or maintain a market for your products in California.

As a photographer, you may provide images to a stock photography agency to market for you while you retain ownership of the images, or you may sell the images and all ownership rights to the agency. Tax applies to your sale when you transfer a physical product to the stock photo agency and the agency pays you for the transfer. But tax does not apply if either of the following are true:

• You transfer the photograph electronically; or
• The agency does not pay you anything when you transfer the photograph, but instead will base its payments on its sales or leases of the photograph. If the agency will lease your actual physical photograph to customers, the agency may give you a resale certificate.

If you rent a photo booth to your customer with a mandatory operator, you are providing a photography service rather than leasing tangible personal property (the photo booth) to your customer. When you provide photography services (a photo booth with a mandatory operator) and physical prints to your customer, the entire amount charged to the customer will be subject to tax. However, if the pictures are only transmitted electronically and there is no intent of transferring a physical print later to your customer, the entire package is not taxable.

If your customer has the option to rent or lease the photo booth from you with or without an operator, the photo booth is considered a lease to your customer. In general, your lease receipts (rental charges) for a lump-sum amount are subject to tax unless, as the lessor, you timely paid sales or use tax measured by your purchase price of the booth and related equipment, and the photo booth is leased in substantially the same form as acquired by you (for example, in completed condition). Sales or use tax is considered to have been paid timely if it is paid either to your vendor upon purchase or directly by you to the CDTFA when you first lease the photo booth to your customers.

If you acquired the photo booth in its completed condition and paid the sales or use tax at the time of purchase, including on all the necessary equipment (for example, printer, touch screen, etc.) to operate the booth, the lease receipts are not subject to tax. As long as you bill one lump-sum fee for the use of the rental you would be the consumer of the supplies used in creating the prints (for example, toner, ink, and papers) and should pay tax when you purchase these items.

On the other hand, if you do not have a rental agreement with a customer, you are generally considered the retailer of any prints you sell from the booth. For example, if you set up your booth at an event, such as a festival, or at a park, and sell prints from the booth to the general public on a “pay-per-print” basis, the tax applies to your charge for the print only.

Example 1:
You purchase parts and equipment to custom build your photo booths. You offer customers use of the photo booth and they may choose from three photo packages based on the duration of the customer's event. A basic package is a two-hour photo booth time for $450 with onsite printing option of $50 ($25 per hour). Because the photo booth will not be leased in the same form as acquired (that is, you custom-built the booths by purchasing parts and equipment), tax applies to entire amount charged of $500 because the photo booth package includes photo booth rental and tangible prints to the customer.

Example 2:
You charge a flat rate of $500 for a four-hour photo booth rental. You paid sales tax on your purchase of the photo booth and you rent it out in substantially the same form as acquired. Customers may rent the photo booth from you without an operator. The photo booth provides unlimited prints of pictures during the event and the pictures are also uploaded on an online gallery where the customer can download the pictures for free. You also offer a scrapbook to the customer. Tax is not due on the rental receipts because you paid the tax on the initial purchase of the photo booth and you lease it out in substantially the same form as acquired. Although you are the consumer of your booth that includes unlimited prints to the customer, you are the retailer of the scrapbook you sell to your customer. You will need to make a separate charge for the scrap book and tax will apply based at the fair retail selling price.

Example 3:
You purchased the photo booth in a completed condition from an out-of-state retailer who did not collect California use tax from you. You did not pay the use tax to the CDTFA upon placing the photo booth in rental service. You rent the photo booth and you allow your customers to operate the photo booth during the event. Prints are also provided during the event. Tax is due on your lease of the photo booth. Tax is due on the rental receipts from the photo booth rental, prints and services since it is all part of the agreement.

As a photographer, when your agreement or contract with the online gallery clearly states that you transfer ownership and/or the right to reproduce and sell the photographs to the online gallery, the online gallery is considered the retailer of the photographs. In this instance, the online gallery is responsible for collecting and remitting the tax when it sells the photograph in tangible form (prints, slides, tangible storage medium, etc.).

Example 1:
You contract with XYZ Pic-Time, an online gallery, to reproduce your photos and sell copies/prints to your customers. Your agreements or invoices with your customers state that their photo package includes digital photos only. The contract directs your customer to XYZ-PicTime online gallery to download the photos. If your customer wants to purchase tangible prints, the customer must purchase the prints from XYZ-PicTime. In addition to providing copies/prints to your customers, XYZ-PicTime assists your customer with any issues, ships the product, and receives the payment directly from your customer. XYZ-PicTime is the retailer of the copies/prints and is responsible for any tax due.

If you only use the online gallery to display and provide access to your photographs to your customers and you do not transfer ownership and/or the right to reproduce and sell the photographs to the online gallery, you would generally be considered the retailer of your photographs sold in tangible form through the online gallery.

However, under the Marketplace Facilitator Act (Act), beginning October 1, 2019, a marketplace facilitator that is registered or required to be registered as a retailer with the CDTFA is responsible for paying the sales tax or collecting the use tax on all retail sales to California customers facilitated through its marketplace for marketplace sellers.

You should check with the online gallery to determine if they are the marketplace facilitator (and registered with the CDTFA) with respect to the retail sales of your photographs. You should then also obtain and keep documentation, such as your agreement with the online gallery that indicates they are registered with the CDTFA as a retailer and responsible for the collection and payment of tax on sales facilitated through their marketplace (online gallery).

For more information, including the definitions of marketplace, marketplace facilitator, and marketplace seller for purposes of the Act, see our online tax guide, Marketplace Facilitator Act.

Chemicals that become a physical part of Photographic Products

You may purchase certain chemicals for resale when you use them in processing photographic film and prints that become a physical part of the processed film or print that you sell.

You may purchase these items for resale provided you:

• Buy the chemicals to use in processing the film, slides, or prints you will sell directly to your customer
• Do not use the film, slides, or prints before you sell them to your customer

Example 1: Freelance photographer who sells slides
You sell mounted slides directly to outdoor magazines without first making prints. If you process your own slides, you may issue a resale certificate to purchase the processing chemicals that will become a physical part of the finished slides you process and sell. If you have the slides developed by a photo lab, you may issue a resale certificate to the lab.

Example 2: Photo supply store that sells chemicals and offers in-house processing
You sell films, cameras, other photographic materials, and also provide in-house custom film-processing and printing services. You may purchase for resale any chemicals you will sell directly to your customers.

However, if you buy full cases of chemicals that you both sell to customers and also use in your darkroom, you may want to follow one of the following practices:

• Purchase all of your chemicals tax-paid and then claim a “Cost of tax-paid purchases resold prior to use” deduction for the chemicals you sell in your store, or
• Purchase all of your chemicals for resale, then pay use tax for the chemicals you use in a taxable manner in your darkroom

Example 3: Photographer creates preliminary art and finished photographs for commercial display
You contract to create design concepts and finished photographic prints for display at a fashion show. You may purchase for resale the chemicals that are incorporated into the final prints you sell. However, you are the consumer of all chemicals you use to create the preliminary art and you must pay the tax on those purchases.

Chemicals that do not become part of a film or paper during processing

• Black and white developer/replenisher
• Activator
• Stop bath
• Reducer
• Cleaners
• Fixers (without hardener)
• First developer/replenisher
• Reversal bath/replenisher
• Color bleaches
• Developer starter
• Prebleach/replenisher
• Bleach fix/replenisher
• Bleach starter