Wisconsin Sales Tax for Graphic Designers

OR – IN THE BEGINNING THERE WAS THE SALES TAX CODE

So it used to be pretty simple. A graphic designer would perform a service such as developing a brochure or creating a logo, they would then hand over camera ready art slicks and an invoice for the design service. At the bottom of the invoice would be a section for the ‘Sales Tax,‘ a percentage of the transaction that would be gleefully set aside and sent in to the state government on a regular basis.

When I started my graphic design company back in 1996, I had questioned the sales tax on graphic design, because what we do is a service. I was told by the Department of Revenue at that time that I had to charge sales tax for all of the work I was doing (with a few exemptions…see below). So, not wanting to be a bad citizen, I did as I was directed to do.

I learned that certain items were exempt from the sales tax including ads that were placed in a newspaper, any packaging that would end up on a store shelf, web sites, and many other items based on the fact that they lose their individual identity in their final destination. That box of cereal you grab at the store was designed by someone and there was no sales tax on that because it has so many other items to compete with. I wonder if there was a store that strictly sold Cocoa Puffs would I have to charge sales tax on any packaging I did for that?

Anyway, I continued charging sales tax for all the graphic design work that I did, until in 2005 when a client told me they shouldn’t get charged sales tax because they weren’t the end user of their product. I was of the impression he was the end user and should be taxed. Hey! You got your chocolate in my peanut butter!

After much discussion between us, I called the nice folks at the Department of Revenue once again to see if they could lend any insight to help me try and settle this dispute. It turned out because my client was having us design a publication that he turned around and distributed for free, he would indeed be the end user (not going to say ‘told you so’)… However, and this is where it gets interesting, he is not charged sales tax because I never actually hand him a tangible item.

This particular publication, along with 99.5% of the graphic design projects I do were delivered electronically to either the customer, or a commercial printer. And because there was no physical transaction of property, I should not be charging sales tax.

That was quite a shock to me, since I had been doing just the opposite for almost 10 years! I had paid thousands of dollars in sales tax that should never have been collected in the first place. I asked when that went into effect, and the DOR representative told me that it kind of evolved into that as more and more people began transferring the files electronically, and intangibles can’t be taxed. I wanted to double check, so I called again the next day and spoke with someone else at the Department of Revenue, who confirmed what I had been told the previous day.

He went a bit further to tell me that any graphic design work that I do that is not taxed, should be taxed if I ever supply any of the files to my customer on disk, removable hard drive, thumb drive, etc. So I would have to go back into my records, find what the client paid, and add the sales tax that would have been charged to the new invoice for creating the cd (which also gets charged sales tax).

I am sure that this policy will change soon as the state is losing a ton of revenue on items that were previously taxable under a different delivery process. I am almost hoping they do since as a graphic designer I work on the right side of my brain (thanks Mayer!) which doesn’t do to well with numbers and such. And the fewer numbers I have to crunch and keep track of, the more time I have for pushing buttons on a computer, making things pretty, and having a great time doing it!

Quick tax code reference for creative people such as graphic designers, photographers, web designers in Wisconsin:
Packaging is NOT taxable

Brochures are taxable – unless the file is transmitted electronically. If the file goes to a printer, they will be charging the sales tax on the finished printed pieces.

Web Sites are NOT taxable

Newspaper ads NOT taxable

Logo design is taxable if any hard copy or tangible material such as CD, DVD, etc. are provided, electronic transfer through FTP, or email is not taxed

Direct Mail is taxable unless delivered to the client or printer in an electronic way (ftp, email)

Photography is ALWAYS taxable

Video is ALWAYS taxable

Any company that is tax exempt is NOT taxable (self explanatory)

And of course, all items that are produced in Wisconsin for clients out of Wisconsin are NOT taxable