Just how this affects graphic designers (and ultimately their clientele), is outlined in section ‘X’ of the new Wisconsin tax code for digital media. While most of the digital media spelled out in the tax code are specifically targeted (movies, books, music) – graphic design gets lumped into ‘Additional Digital Goods,’ and falls into a category called ‘Finished Artwork.’ Finished artwork is defined as the final art usedfor actual reproduction by photomechanical or other processes or for display purposes, but does not include Web site or home page designs. The following items are specifically called out as final artwork, and will be what affects most graphic designers*: Drawings, Paintings, Designs, Photographs, Lettering, Paste-ups (okay… a bit confused on this one – does anyone do paste-ups anymore? And even if they did, they wouldn’t be digital!), Mechanicals, Assemblies, Charts and Graphs, and Illustrative Materials.

It goes a bit further, encompassing e-newsletter and information email designs (and text messages!?) In reading the tax code it seems to be geared primarily to tax for things which used to be tangible (CDs, Books, Newspapers, Movies) and have switched to digital version, and the graphic designer is an acceptable casualty in the effort to emerge from a $5.X billion deficit.

*There are certain exemptions in which the digital media would not be taxed which is dizzyingly illustrated in Section XII – 2: ‘Consumed in Manufacturing.’ You may need some wine to help get through this, or at least to alleviate the headache you will get from reading the example… may I recommend a 2005 Red Bicyclette? (yes, it’s cheap, but hey… we aren’t in this business to become gazillionaires… plus, we are talking about taxes!!)

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

Because of the great exposure that blogs get, and in some cases preferential treatment with search engine indexing, many businesses have hopped on to the bandwagon of blogging. They will use a blog to post their latest news releases, to talk about new projects or products, areas of expertise, and in some cases they utilize the blog format to distribute company memos, or inter-company newsletters.

Lately there have been a lot of stories (yes, some reported on blogs) that have involved companies or other institutions taking action against employees for the things they are saying on their private blogs. Most of these cases are based on sheer stupidity on the part of the employee; posting how much they hate their jobs, how stupid the customers are, or what they did to a pizza before delivering it. What these bloggers don’t realize is that as employees, they are representatives of their company, and even during off hours and personal time, any thing that is spoken or written about that company becomes a possible public relations nightmare, resulting in a possible visit to the HR department.

An unfortunate side effect of blogs is they tend to give an instant outlet for what you are thinking about at the moment. Sometimes it’s useful; sometimes it’s silly; sometimes it’s dangerous.

The blog is a very versatile form of communication, and works well in today’s multi-media technocratic society. However, I sometimes feel that blogs are the equivalent of picking your nose in your car. You feel safe to do it because you are encapsulated in your own private space… but you forget that there are windows and everyone can see in and knows what you are doing.

Blogger beware.

For, even though the graphic designer you select will not physically be located within your company walls, they are in effect an extension of your business. They will design the materials that you will be communicating to your existing customers as well as any potential customers.

Does this mean your graphic designer has to be in the same city as you? In the past this would have been important to some, but with the communication options and high speed internet that are available today, companies just like yours are finding talented graphic designers all over the world.

Successful graphic designers have foresight enough to do research on your company when they know they are in the running for winning your business. It is through this study that they can get some knowledge not only on your company, but also your industry. I’m not talking about learning all of the ins and outs of the business. For example, they don’t need to know how an optical lab grinds lenses for glasses, or how the lab technicians determine axis, sphere, or pupil distance… they don’t need to know what you use to make your pizza sauce so good it’s practically addictive – that’s your job!

But a basic understanding of a company, how it communicates, who it wants to communicate with, what the ROI expected would be, company goals, philosophy, etc. are helpful not only for establishing a feel for the style of the company and building a design strategy, but it’s also helpful for determining how to position your marketing materials to out perform your competition.

Due to the fact that you will be building a long-term relationship with your graphic designer, you need to choose someone that is personable as well as talented. Communications skills are undeniably important, for if they can’t communicate well with you, how are they going to communicate your message to your customers?

Find someone who has a good track record for customer satisfaction. Ask if you can contact some of their existing clients, and maybe some past clients. Ask about the longevity of their client life cycle. If they have a significant portion of their client base that have been with them for a year or more, chances are they are going to be a strong candidate for your company as well.

Advertising agencies are good. They have multi-million dollar accounts – undoubtedly you have seen tons of work from agencies without even thinking about it. They tend to be the items you purchase because of a commercial you saw on television, or the jar of designer spaghetti sauce you just paid $8 for based on the fact you liked the packaging (they got you again!) There are many talented artists within an agency. There are also a lot of other things that you wouldn’t think about when you are looking for design work. You have copy writers, account executives, creative directors, art directors, production artists, media buyers, producers, account planners, traffic managers, and the agency location (space they rent). They all serve a function in making the advertising agency a figurative one stop shop for all their clients’ needs.

The problem, however, is that even if you only want an annual report or brochure designed, those other departments that won’t be used in the process are having an effect on the price of the work created. It’s called overhead, and it’s a major factor when it comes to cost on a project. You are paying for the agency to have those departments even though your project doesn’t require them. This is one reason that agencies tend to be higher cost for design than freelancers, and an element that requires them to seek out large companies as their clients.

Another option is an in-house graphics department. This is a good option if you tend to have a lot of marketing materials that you are using internally and externally. The thing to make certain of is you are getting a good return on your investment. Think of this: if you have a designer, you have the cost of their salary, their equipment, the software, the continued training, the insurance, unemployment insurance, workers compensation, taxes, vacation, sick days, vacation days, overtime, and many other factors. If you take the median salary for a graphic designer – $45,058 (as of this writing), and factor in the items listed above, you will see that you can easily spend upwards of $60,000 for a single graphic designer per year. In most cases, if you hire one designer, you will likely need another to help out with project volume… but let’s stick with one designer for now. In the case illustrated here, you would have to be getting enough return on your investment to warrant the possible $60,000 per year that the company would be spending for having this designer in-house. Granted, the company needs the design work to be done, and if the volume of work is high, an in-house solution would be better financially than if an advertising agency did the same amount of work. The problem with this solutions becomes a factor when the design work is not continuous, when you have a great need for a lot right now because of new branding strategies or a new marketing campaign, but work that gradually decreases over the following months to year.

A good example would be a web site. A company shouldn’t hire a web designer/developer to come in a build a new site, and then put them on webmaster duty for the rest of the year… and at the same annual salary. A designer/developer warrants more money than a web maintenance technician, and frankly if you were to do that to an accomplished designer/developer, they would become bored in a matter of months and move on to another job.

This is where the final option in our study comes into effect. The freelance designer, like schemedia®, is a great solution for the small to medium sized company that is thinking of hiring for an in-house design position. The main factor that makes this option appealing is that you only pay for work that needs to be done. You don’t have an annual salary, or the other expenses that go along with an employee. You don’t have the added expenses of departments you don’t need for your projects (as with an advertising agency).

Most freelance designers will work from home. Don’t let this put you off… the most important thing to realize with this point is that there is no additional overhead. They already own their equipment, they don’t need insurance, etc., so their costs per project tend to be lower. The average rate for a freelance designer is $50-$150 per hour. That may seem like a lot, since if you were an employer, you would hire someone at $22 per hour (based on the annual median rate), but keep in mind that you only pay the designer when you need them. If a company only has $15,000 worth of design expenditures per year  (150 hours at $100/hr), why pay an employee $45,000? Three times as much as what you would have paid to a mid priced freelancer. Another benefit of using a freelancer is since they have multiple clients, they are able to keep things fresh because they are constantly exposed to needs and graphic standards outside of your business design needs. Having a wide variety of projects also helps to hone the skills of the freelancer – as they are free to experiment with new techniques more freely than an in-house employee who has to adhere to guidelines set forth by the branding guidelines.

The main factors in deciding which option is best for your company are: size of your company, what your annual design budget will be, the amount you want in ROI, and how many design projects you will have over a given period of time.