Was a Glendale tape editor's charge exempt if it delivered customer-owned edited tapes directly to the customer's Hollywood record-pressing plants?

Plain-English summary

An unidentified owner hired a redacted Glendale company to edit tapes that remained the owner's property throughout. The edited tapes went to ABC and XYZ pressing plants in Hollywood to make masters from which records were pressed for sale to the owner's customers. The source duplicates words in describing them as used to "make the make the masters."

The owner's September 17, 1959 letter asked whether tax treatment differed if the editor sent the tapes directly to the Hollywood plants instead of first shipping them to the owner's Waco, Texas office, which would send them back to those plants.

Historical section 606(b), quoted in the response, defined a sale to include processing tangible personal property for consideration for consumers that directly or indirectly furnished the materials. The Board interpreted that rule to cover editing customer-supplied tapes or film.

Because the owner was treated as consumer and the tapes were not incorporated into a product it manufactured, Assistant Counsel Stanly G. Lerner—the source's spelling—treated the Glendale editor's work as a taxable retail sale.

Counsel then described an outside-shipment exemption when the sales contract required retailer delivery outside California using the retailer's facilities or a carrier. He invoked an unidentified Supreme Court Commerce Clause holding but gave no case name or citation.

Direct editor delivery to ABC and XYZ was different: the plants received the tapes for the owner in California, so there was no interstate-commerce transaction and the editing sale was taxable. The Board therefore would not authorize direct Hollywood shipment as a tax-exempt procedure. The described alternative first sent the tapes to the owner in Waco before the owner returned them to Hollywood.

The source documents no actual editing charge, shipment or tax proceeding. The live annotation publishes the no-exemption result and required outside-customer shipment but omits the circular Waco-to-Hollywood alternative, masters, records and legal-source gaps.

Common questions

Why was tape editing treated as a retail sale?

Section 606(b) included processing for consideration when the consumer furnished the materials, and the Board applied that definition to customer-supplied tape or film editing.

Why was direct delivery to the pressing plants taxable?

The Hollywood plants took delivery for the customer in California, so counsel found no interstate-commerce delivery.

What outside shipment did the owner propose instead?

The editor would send the tapes to the owner's Waco office, and the owner would then send them back to ABC and XYZ in Hollywood.

Did counsel approve the Waco route in an express holding?

He described the outside-delivery rule and rejected only direct Hollywood delivery as exempt. The letter supplies no completed shipment or later audit of either procedure.

What Supreme Court case supported the Commerce Clause statement?

The source does not identify it by name, citation or quotation.

Were the tapes incorporated into the records?

Counsel's analysis says the tapes were not tangible personal property incorporated into a product the owner manufactured; the plants used them to make record masters.

Citations and references

• California Sales and Use Tax Law § 606(b) — historical processing-for-consideration definition quoted
• Unidentified outside-shipment exemption — stated without a statutory or regulatory citation
• U.S. Constitution Commerce Clause and unidentified Supreme Court holding
• September 17, 1959 tape-owner request — identified but not reproduced
• September 28, 1959 Assistant Counsel response — direct Hollywood delivery not authorized as exempt
• Official Annotation 325.1060 — publishes the charge and outside-customer delivery rule

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1060
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1060.pdf

Original ruling text

325.1060

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September '28, 1959

Your letter September 17
Attention:
Gentlemen:
You state that you engage the --- company in Glendale, California to edit your tapes which at all times remain your property. These tapes are sent to the ABC and XYZ pressing plants in Hollywood where they are used to make the make the masters from which records are pressed for sale to your customers. You inquire as to whether there would be any difference in the application of the California Sales and Use Tax Law to the transaction if the --- company sent these tapes directly to the ABC and XYZ pressing plants rather than have them ship these tapes to your office in Waco, Texas, from where you would, in turn, ship them to the ABC and XYZ pressing plants. Under Section 606(b) of the California Sales and Use Tax Law a "sale" is defined as: "The producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing, or imprinting." We have interpreted this paragraph as applying to a situation where a firm edits tapes or film supplied by the customer. Consequently, insofar as you are the consumer of the tapes (the tapes not being tangible personal property incorporated into the product which you have manufactured) supplied by you to the --- company, we would regard the transaction as a retail sale pursuant to the above-quoted section, by the --- company and, hence, subject to sales tax. However, where the tangible personal property involved in the transaction is shipped to a point outside this State (California), pursuant to the contract of sale, by delivery by the retailer to such point by means of 1) facilities operated by the retailer, or 2) delivery by the retailer to a carrier for shipment to such point, then such transaction is exempt from the sales tax. The transaction is in interstate commerce; and the Supreme

Court of the United States has held that the imposition of sales tax on the transaction would violate the Commerce Clause of the United States Constitution. On the other hand, if the tapes are delivered directly by --- company to the pressing plants in Hollywood, the delivery is then made to you or to someone on your behalf here in California and, since there is not interstate commerce involved, the transaction would be subject to the sales tax. Consequently, the State Board of Equalization cannot authorize the direct shipment by the --- company to the pressing plants in Hollywood as a tax-exempt procedure. We hope that this letter clearly explains the situation. However, if we may be of any further assistance to you in this matter, do not hesitate to contact us. We are enclosing an extra copy of this letter for your convenience.

Very truly yours,

Stanly G. Lerner
Assistant Counsel

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