Laws, Regulations and Annotations


Business Taxes Law Guide—Revision 2024

Sales and Use Tax Annotations

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120.0000 Automatic Data Processing Services and Equipment—Regulation 1502

Annotation 120.0108.500

(a) In General

120.0108.500 Graphics on Computers. A graphic artist, an independent contractor, contracts with clients to create and transfer artwork in the following ways:

(1) The graphic artist uses the client's computer to create artwork which is saved on the client's hard disk.

(2) The graphic artist creates the artwork on its own computer and saves the data on a floppy disk. This diskette is then taken to the client's place of business, inserted into the client's computer, and saved on the hard disk. Some additional work may or may not be accomplished.

(a) The diskette is retained by the graphic artist.

(b) The graphic artist leaves the diskette, with the client for backup purposes.

(3) The graphic artist creates the artwork on its own computer and saves the data on a hard disk. This hard disk is then taken to the clients' location and connected to their computer by means of a cable. The data is then transferred to the clients' hard drive.

With the exception of situation (2)(b), sales tax does not apply to the graphic artist's charges in the other situations. In situation (2)(b), the graphic artist's transferring a diskette to the client results in the graphic artist making a retail sale of tangible personal property.

When a person performs labor which is merely the operation of clients' computer system, the labor is not fabrication labor whether the clients' computer is new or used. Saving work to the permanent internal storage (hard drive) of the computer is not fabrication of the computer.

On the other hand, tax applies to charges for artwork when the artist saves the work to a medium which is typically separate from the permanent internal storage of the computer. For example, if the artist were to create the artwork and save it to a disk or print a hard copy, the transfer to the customer of that medium would be a sale of tangible personal property. The artist's transfer of artwork on a new "customer furnished" diskette would be a taxable sale. (Regulation 1502(c)(2) and (c)(4).) 03/05/96.