Nov 02, 2015
From KPMG TaxWatch
Recently, the Texas Comptroller addressed the taxability of various fees charged by an architectural design firm. The taxpayer requested guidance on the taxability of design plans and accompanying services, as well as computer-assisted drawing services that it purchased.
The Comptroller first considered the tax treatment of the taxpayer’s design plans. The taxpayer sold two types of design plans: original, custom design plans, and copyrighted, so-called stock design plans. The taxpayer updated some stock plans for code compliance purposes and made site-specific modifications for particular sites. The Comptroller first concluded that when the stock plans were sold without modifications, they were subject to sales tax as sales of tangible personal property. When the taxpayer modified a stock plan for a particular client, the modified plan and the associated services may or may not be subject to sales tax. If the taxpayer makes modifications which require use of specific professional training and expertise, those modified plans (and services associated therewith) are nontaxable. However, if the taxpayer modifies the stock plans based on specifications and requirements furnished by its clients, the modified plans and services are subject to sales and use tax.
In addition to selling design plans, the taxpayer charged clients for other additional “services” such as document preparation, uploading documents, converting documents to .pdf format, mailing fees, and copying. The Comptroller determined that when the design plan was subject to sales and use tax, these other “services” were also taxable, even if they would not be taxable on a stand-alone basis. In Texas, if the “true object” of a “mixed” transaction is to obtain taxable property, then the service element is incidental and the entire transaction is taxable. The fact that a “professional” performed these additional services did not render the services nontaxable professional services.
Finally, the Comptroller addressed the computer-assisted drawing services purchased by the taxpayer. When purchasing the services, the taxpayer provided draftsmen with specifications to complete the drawings. Under Texas law, detail drawings done to specifications provided by the customer are sales of tangible personal property. Therefore, when providing nontaxable architectural design services, the Comptroller clarified that the taxpayer may not issue a resale certificate to the computer-assisted drawing draftsman. However, when the taxpayer sold taxable stock design plans, the taxpayer could purchase the drawings under a resale exemption. For more information on this Texas letter ruling, please contact David Davis at 214-840-6791.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.