JACKSON — When is a Web site designer a computer programmer? That question has been a sticking point lately between ad agencies, Web designers, freelancers and the Mississippi State Tax Commission.
If Web designers are programmers, generating code to various programs, the tax commission contends that Web development is a taxable service. But here’s where the lines blur: the principle task of Web site development is design, not programming; programming is a part of the process in some Web site design; and a Web site is not tangible property.
“Web site design is a high growth aspect of our industry,” said Hap Owen, president and CEO of Communication Arts Co. in Jackson. “In many instances, it is replacing print and broadcast media as the primary agent of information delivery. If Web site design is allowed to go unchallenged as a taxable enterprise, then all of our other tasks seem vulnerable to this capricious interpretation by the tax commission.”
In the last few months, the Mississippi State Tax Commission has audited tax returns for several ad agencies, Web designers and freelancers, bringing the definition of programming to the forefront. Communication Arts was one of the audited companies, and its Web site design services for the previous three years were assessed for sales tax.
“We assumed it was a design service, just like the services we provide for print that isn’t taxable,” he said. “It’s done the same way. We’ve never been notified it’s a taxable service and haven’t seen it in print. If it is, it is. But it seems unfair to assess tax on the prior three years, plus a penalty on top of that. It’s too late then to go back and collect sales tax from our clients.”
Owen requested a hearing and demonstrated the layout and print command of a simple flyer from a PageMaker program. Then he took the same program, transferred the layout to HTML, and opened it in a Web browser.
“Tax commission representatives asked a lot of questions about programming and programming languages of which we knew nothing about,” he said. “They were contending it was computer programming. They eventually upheld our argument and withdrew their demand.”
“Another point was…if we did design for a brochure for a client and gave the client the design on a disk, and the client went elsewhere to get it printed, then no sales tax was involved. But if we got it printed for them, even if it was a straight pass through, then the state tax commission said the design service becomes a part of printing and tax is owed on all of it. Again we were excused, but I’m worried that we’ll have the same problem later without a clear ruling.”
Steve Tadlock, creative director of Broderick/Bates Advertising Inc. in Jackson, said he doesn’t know how to design a Web page by writing code. But he designs many Web sites with the same program he uses to create newspaper ads.
“I make newspaper ads with pictures and text and send the file to the newspaper for printing,” he said. “I can bring in text and images and upload them to a Web site and someone can call that up and print it out. I can’t see what the difference is. I was blown away when the state tax commission wanted to tax us for this because I’m not a programmer.”
When asked if Web designers are considered programmers simply because they use the software, Meg Barnes of the commission’s sales tax division said, “I don’t know that I view them as a programmer. I view them as generating code that creates an application that is used on a computer.”
Barnes said she’s not familiar with QuarkXpress, a layout program for printed material.
“It sounds like a word processing application to me,” she said. “That does not generate code. That does not generate an executable application.”
When asked if the difference depended on the output being sent to paper or screen, Barnes said, “Section 27-65-23 of the state code taxes computer software sales and services. It doesn’t give you any more direction than that. And the tax commission has ruled that Web site design is in fact a matter of computer software sales and service.”
Ralph Bisland, Ph.D., a computer science professor at the University of Southern Mississippi, well-known for his expertise in software engineering, the Internet and CGI programming, confirmed that several programs can output either to paper or screen and that pages generated by advertisers for the Internet are generally informational (static) or CGI, designed for interacting with a server.
“Even with Microsoft’s Word program, you can do the same thing,” he said. “You have an option to save it in HTML. That doesn’t mean you are programming. You’re creating a static Web page and once you create it and you log on to the Web page, it’s going to produce the same thing over and over.”
The Computer Science Accreditation Board considers Internet Concepts, one of the computer science courses offered at USM, a non-programming course. The course teaches students how to create Web pages with text editors and the part of Netscape that creates Web pages. Pages can be saved as HTML; it is not an executable program. HTML is a language that produces or renders a Web page.
The accreditation guidelines do not view this as a programming exercise, said Bisland.
“The vast majority of pages on the Internet are only informational pages and there is no programming involved with that,” he said. “It does not produce what we would consider executable code because it produces a language in HTML that your browser would render in a form that is pleasing to the user. Links in pages are also not considered executable code. There is no programming involved there that you would write. You don’t write any of that code and you do not generate that code. It’s part of the browser.”
The use of CAD programs is also not considered generating code, Bisland said.
“The users are using code, which has already been written in the program, which they bought off the shelf,” he said.
Architects and engineers working with CAD programs are producing informational pages, just like Web designers.
“They are using code that somebody else has generated so they can do their jobs — just like programs for accountants,” he said. “They don’t write any code. As long as it’s going to a static page, it’s the same as being printed out.”
If ad agencies, Web designers and freelancers in Mississippi are forced to assess sales tax on fees, they will not be able to compete with out-of-state designers who are not subject to sales tax, Owen said.
“This would effectively stifle a growing segment of the market economy doing business in Mississippi,” he said.
Contact MBJ contributing writer Lynne Wilbanks Jeter at email@example.com or (601) 853-3967.