RST Status of Graphic Designs
Information and Disclaimer
This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a retail sales tax publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.
Interpretation Letter AGD-0005, August 2004
Thank you for your facsimile letter dated June 3, 2004 regarding the application of Ontario retail sales tax (RST) to your business.
This interpretation is based on the information provided and which is conveyed in the "Understanding of Facts" portion of this ruling. Please review the information for its completeness and accuracy. If it is determined that the information is incomplete or inaccurate, this interpretation will not be binding. In the event that our understanding of the facts is incomplete or inaccurate, please notify the undersigned, in writing, so that we may reconsider our opinion.
Understanding of Facts
It is our understanding that Company A is a graphic design company. Company A has some customers who believe that they should not pay RST on the design work. Rather, they should only pay RST on the printing.
Company A is requesting general information on the application of RST to its business.
Legislation and/or Administrative Policy
Under subsection 2(1) of the Retail Sales Tax Act (Act) every purchaser of tangible personal property (TPP) must pay RST on the consumption or use of that TPP. The general rate of RST is 8% on the fair value. TPP is defined under subsection 1 of the Act to be "personal property that can be seen, weighed, measured, felt or touched, or that is anyway perceptible to the senses . . . "
Artwork and/or Graphic Design Services
The creation of lay-outs, designs, typesetting, camera-ready or plate-ready artwork is the production of TPP and is taxable. Graphic designers must charge, collect and remit RST on the charges to clients for designs that will be used, either by them or an outside printer, to produce taxable printed matter for the customer since the design forms part of the fair value of the printed matter. If the design is being used to produce exempt printed matter or the printed matter is being purchased by the client for the purpose of resale, the client must provide a properly completed Purchase Exemption Certificate (PEC) in order to claim an exemption from RST. If a PEC is not received, RST must be charged, collected and remitted.
The items listed below are examples of taxable printed matter.
- brochures, direct mail flyers, logos, coupons, gift certificates, posters, catalogues, business cards, letterheads, envelopes.
Where artwork or graphic designs are sold to clients and transferred via the Internet or electronically via a modem to the client or to the client's printer, on behalf of the client, no RST should be charged to the customer. This is the provision of a non-taxable service. The provider of the non-taxable service must pay RST on any materials, equipment or taxable services purchased in order to provide the non-taxable service. Where a proof or approval sheet is faxed, mailed or given to clients to show them what was sent to the printer, RST does not apply to the charge for these sheets.
However, where artwork or graphic designs are sold on disks or other hard copy formats, then RST applies to the total selling price billed to Ontario clients (unless the client claims a conditional exemption and provides a properly completed PEC).
The nature of the transaction must be agreed to at the time of purchase and should be spelled out in the contract between the vendor and the purchaser. If artwork or graphic designs are sold to the customer both in hard copy format and via the Internet and/or electronically, then the entire transaction is subject to RST.
Analysis and Conclusion
When graphic designs are sold on disks, CDs or other hard copy formats, RST applies to the total selling price billed to clients, unless the client claims a conditional exemption and provides a properly completed PEC. Where graphic designs are sold to the customer both in hard format and via the Internet and/or electronically, the entire transaction is subject to RST.
Company A is required to charge, collect and remit RST on any hard copy sales of artwork or graphic designs unless its client provides a properly completed PEC.
Company A must also charge, collect and remit RST on the charges to clients for designs that will be used, either by them or an outside printer, to produce taxable printed matter since the design forms part of the fair value of the printed matter.
However, there are conditional exemptions under the Act for certain types of books, magazines, newsletters and newspapers, bulletins and publications of religious, benevolent or charitable organizations. Please refer to RST Guide # 507 - Publications - (enclosed) for more information on exempt publications.
Where a graphic design is created for placement into such publications, no RST is to be charged to the client since the design is being placed in either an exempt publication or a publication for resale. The client must provide Company A with a properly completed PEC in order to purchase the graphic design exempt from RST. However, if no PEC is provided, then Company A must charge, collect and remit RST on the total charge for the graphic design. Artwork is considered part of the fair value of printed matter.
Enclosed for further information are RST Guides #204 - Purchase Exemption Certificates, and #402 - Printing. If you have any further questions, please contact our office.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2005
