The Arizona Department of Revenue ruled that custom video production, marketing and graphic design services are not subject to Transaction Privilege Tax (TPT). The retail classification of the TPT is imposed on the gross receipts from the business of selling tangible personal property at retail, and there is an exemption for gross receipts of “[p]rofessional or personal service occupations or businesses which involve sales or transfers of tangible personal property only as inconsequential elements.” A.R.S. § 42-5061(A)(1). Under Arizona regulations, sales of tangible personal property are inconsequential elements of a sale if: (1) the purchase price of the property to the person rendering the service is less than 15% of the total charge, (2) the property transferred is not in a form which is subject to retail sale, and (3) the charge for the property is not separately stated. A.A.C. R15-5-104(C). The Department ruled that videography is an exempt professional service and the video is an inconsequential element because “[t]he service of creating or developing the customized video (rather than the video itself) is the dominant purpose of the transaction” although sales of stock images are taxable because they do not involve a professional service and are stated separately on the invoice. Similarly, the Department ruled that marketing and graphic design services are not taxable. However, the Department ruled that custom-printing is taxable under the job printing classification of the TPT.

Arizona Private Taxpayer Rul. LR 18-008 (Dec. 10, 2018).