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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
S
515.0000 Service Enterprises Generally—Regulation 1501
Annotation 515.0011.775
(a) In General—Service Distinguished from Sale
515.0011.775 Licensing Agent—Providing Artwork. A taxpayer is a licensing agent for owners of certain intellectual property rights such as cartoon characters (properties). Under the various license agreements with the owners of the properties, the taxpayer's art department agrees to provide artwork incorporating the properties for use by licensees. Under the agreements, all uses of the properties by third party licensees shall enure to the benefit of the owner. The taxpayer shall not have any interest or property rights in any of the properties. Under the various licensing agreements (except one), the taxpayer receives a licensing fee of 40% of the gross receipts paid by licensees. In the one exception, the taxpayer will receive a five percent increase in the royalty payments if any artwork is provided by its art department.
Under the contracts with the owner of the properties, the taxpayer is providing both a service and a sale of tangible personal property (artwork). Since the taxpayer provides a variety of services to the owner for a fee and does not separately state a charge for the artwork, the portion of the fee attributable to the sale of artwork is subject to tax on the fair retail selling price of such property. (Regulation 1540(b)(1).)
In the case where there is a five percent increase in the licensing agent fees when artwork is provided, the increased amount is consideration for the transfer of the artwork and, therefore, it is the measure subject to sales tax. 2/28/95.