Was retouching a customer’s photographic negatives taxable when the finished negatives were destined for an out-of-state photographer?

Plain-English summary

A CPA's July 22, 1993 letter asked about a redacted client's negative-retouching charges. The CPA referred to a 1985 opinion requested by redacted audit staff. The 1993 response recounts that prior conclusion, but neither the earlier request nor the opinion is reproduced.

The reported 1985 result exempted retouching sold to out-of-state photographers when the retoucher did not use the negative to make prints before shipping it outside. It taxed the retouching when the company made California prints first. The CPA asked whether that taxable result assumed an express agreement passing title to the customer before use.

Senior tax counsel said no title clause was needed on the described facts. The retouching charges concerned new photographs and therefore constituted taxable fabrication labor, while the negatives already belonged to the purchaser. The retouching sale occurred in California even without an express title-passage clause.

Section 6396 nevertheless exempted the sale if the retoucher merely shipped the finished negatives outside before making any California use of them on the purchaser's behalf. When the retoucher instead used the customer's negatives to make prints in California first, the retouching was a taxable California retail sale.

The source supplies no negative, photograph, retouching order, title agreement, charge, invoice, print, use or shipment record. It also records no taxable or exempt measure, audit disposition, assessment, payment, claim, appeal or later result.

The live annotation preserves the fabrication rule, outside-shipment exemption and California-printmaking result. It omits the CPA's title-clause question, the absent 1985-opinion provenance, purchaser ownership, missing transaction evidence and lack of an applied outcome.

Common questions

Was negative retouching treated as fabrication labor?

Yes on the stated assumption that the charges were for retouching new photographs.

Why was an express title-passage clause unnecessary?

The negatives already belonged to the purchaser. Counsel therefore treated the retouching sale as occurring in California without a separate clause transferring title.

When did section 6396 exempt the retouching sale?

When the retoucher made no California use of the finished negatives on the purchaser's behalf and merely shipped them to the outside location.

What California use made the sale taxable?

Using the customer's retouched negatives to make prints before outside shipment.

Is the 1985 opinion included?

No. The 1993 letter describes its conclusion, but the prior request, opinion, factual record and authorities are absent.

Does the source show a particular charge or tax assessment?

No. It supplies no order, invoice, charge, taxable or exempt measure, return, assessment, payment or later outcome.

Citations and references

• Revenue and Taxation Code section 6396 — cited for pre-use outside shipment; complete authority, conditions, proof and current law not supplied
• 1985 audit-staff request and opinion — described but absent; only the later letter's account of their conclusions is available
• July 22 request and transaction records — title-clause question summarized; parties, negatives, photos, orders, charges, prints, use and shipment evidence absent
• August 27 response — applies fabrication, ownership and shipment rules without a transaction measure or later result
• Official Annotation 325.0570 — preserves the rules but omits the title question, prior-opinion provenance and evidentiary limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0570
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0570.pdf

Original ruling text

325.0570

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

August 27, 1993
BURTON W. OLIVER
Executive Director

Mr. C--- L. N---, CPA
XXXX --- --- ---, XXth Floor
--- ---, CA XXXXX
Dear Mr. N---:

Re: A--- C---, Inc.
SY -- XX-XXXXXX

This is in reply to your July 22, 1993 letter regarding the application of sales tax to your client's charges for negative retouching. As you noted, we responded to a request for an opinion from the --- audit staff in 1985. We concluded that tax does not apply to A--- C---'s sales of retouching to out-of-state photographers when A--- C--- retouches the negative and does not use the negative to make prints prior to shipping the negatives out of state. In accordance with Revenue and Taxation Code Section 6396 we also concluded that, when A--- C--- does use the negatives to make prints in California prior to shipping the negatives out of state, sales tax applies to A--- C---'s sale of the retouching. You asked whether our conclusion that sales tax applies to A--- C---'s sale is based on the assumption that A--- [C---] and its customer entered into an explicit agreement passing title to its customer prior to use. Of course, our opinion was based on A--- C---'s charges being for retouching new photographs which would constitute taxable fabrication labor. We do not believe that, under the described facts, a title clause is necessary in order for a taxable sale to occur in California. The negatives which A--- [C---] retouches already belong to the purchaser. The sale of the retouching occurs in this state. If A--- [C---] were to merely ship the retouched negatives to the out of state location prior to making any use of them in this state

Mr. C--- L. N---, CPA

-2-

August 27, 1993
325.0570

on behalf of the purchaser, A--- [C---]'s sale would be exempt from sales tax pursuant to Revenue and Taxation Code section 6396. However, when A--- [C---] uses the customer's retouched negatives in this state to make prints, A--- [C---]'s sale of the retouching is a retail sale in this state and subject to sales tax. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:plh