Sales Tax Memo for Massachusetts Graphic Artists

If you are a graphic artist doing business in Massachusetts, you may need to collect sales tax from your clients.

Here is a general discussion of the sales tax rules affecting graphic artists doing business in Massachusetts. As always, there are exceptions. If you are JS+A client, we will be happy to help you refine your procedures and policies best to reflect the rules and your business.

Massachusetts taxes sales of tangible personal property within the state. Business services are NOT taxed. Therefore, hourly fees for design work and such are NOT sales taxed. Small, unimportant amounts of property that are sold in connection with a service do not require sales tax. For example, if you make a design, and deliver it on a Zip disk, you need not charge your client sales tax for the Zip disk. (Likewise, we, as your accountants, will not have to charge sales tax on paper we use to print your tax returns.)

But what about the design house that also produces and sells significant things? The best example here is printed matter.

In the past couple of years, Massachusetts has issued regulations explaining how such transactions should be treated for sales tax purposes.

If you have a printer bill your client directly, then you need not charge the client sales tax. This will be the printer's job.

If you have the client bill you, and you pay sales tax to the printer, and you report to the client on your invoice the amount of sales tax you paid, and you do NOT charge a markup to the client on the printing, then you do not have to charge sales tax to the client.

If you have the client bill you, and you do NOT pay sales tax to the printer, and you charge the client for the printed material, then you MUST charge sales tax on the printing to the client - unless the client is sales tax exempt or the printed matter will be resold.

If you do a turnkey job that includes design and printing, then you charge sales tax on the whole job. If you break out services, you can charge sales tax only on the printing. In any case, separately stated reasonable shipping is NOT subject to sales tax.

While there is nothing illegal about paying sales tax to the printer, marking up the bill, and charging the client a marked up amount plus sales tax, it is a silly thing to do. If you do not have to pay sales tax to the printer, and if the client is willing to pay the marked-up amount, then you are just leaving money on the table by paying sales tax to the printer when you do not need to.

For example:

Orc Design designs a business card for its client. Orc arranges for the printing as well. Orc fails to give a resale certificate to the printer, who therefore charges Orc $105 for the printing ($100 to print the cards and $5 for sales tax). Orc marks the $105 up 25% to $131.25 and bills its client this amount, plus $6.56 sakes tax on the marked-up amount. The client is happy to pay the $131.25 and understands why it owes the sales tax.

Well, Orc lost $5 on this deal. The client was happy to pay $131.25 and would have done so whether Orc paid $100 or $105 to the printer. Orc should give the printer a resale certificate and party on!

You can get into trouble if you charge your client for the printing, especially with a markup, and DON'T charge sales tax. If you have done so and are a client, let us know so we can help you correct any errors you may have made in this regard.

You can read much more about this issue in the actual Regulation as issued by the Massachusetts Department of Revenue here.

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