How did California tax temporary stock-photo publication rights when the photographer delivered a print or transparency?

Plain-English summary

An unidentified stock photographer negotiated prices for specified publication uses, delivered an original photograph to a client or its publisher, received it back after printing, retained copyright and could sell other rights. Counsel treated that temporary physical use as a photograph lease, regardless of delivery through the publisher. The December 30 request and agreements are absent.

Lease tax depended on acquisition. A developed photograph bought tax-paid from a retailer—print or transparency—could be leased untaxed in the same form. When the photographer supplied film to a lab, a resulting print likewise was same-form acquired after paying tax on film/processing. A transparency was the transformed film itself, so rent was taxable while film/processing could be bought for resale. Self-processing was expressly left for a later opinion.

Assuming taxable rent, transaction 1's $400 flat fee for one-year calendar rights was fully taxable. Transaction 2's 5% net-sales royalty was taxable when paid; three annotations supported royalty inclusion, while the body visibly cites malformed Section 62D3 for timing. Transaction 3's advertising photograph generally was taxable, except possession without title for one reproduction in a newspaper issued at average intervals no longer than three months under Regulation 1660(d)(2).

Regulation 1501 did not turn the deal into a nontaxable idea/service: Simplicity Pattern distinguished a manuscript valued solely for thought from physically useful master films. Nor could examples 1/2 clients issue resale certificates merely because the image appeared in printed matter. Former Regulation 1540(d) treated the photograph as used/consumed unless physically incorporated. Added 2001 notes warn Regulation 1540 changed effective April 23, 2000 and point elsewhere; the letter does not restate the new rule.

No agreements, physical items, invoices, actual uses/publications, royalty statements, certificates or later tax outcome is supplied. The live annotation publishes only the print/transparency acquisition distinction, omitting the three scenarios, arguments and later-rule warning.

Common questions

Did retaining copyright make the transaction a nontaxable service?

No. The opinion focused on the client's temporary use of a physical photograph and treated that as a lease.

Were every print and transparency treated differently?

No. A tax-paid developed photograph bought from a retailer was same-form whether print or transparency. The distinction applied when the photographer's film went to a lab: the acquired print stayed same-form, while that film became the transparency.

What if the photographer processed the film?

The source reserved that issue and asked the photographer to request another opinion.

Were flat fees or royalties excluded from taxable rent?

No. On the stated taxable-rent assumption, the entire $400 one-year fee and 5%-of-net-sales royalties were taxable.

What newspaper use was excepted?

One reproduction, with possession but not title transferred, in a newspaper issued at average intervals not exceeding three months.

Could a publisher or advertiser issue a resale certificate?

Not merely because it reproduced the image. The source said the photograph was consumed or used in production, not physically incorporated into the printed product.

Does the source establish Revenue and Taxation Code section 6203?

No. The visible PDF prints Section 62D3; this page does not silently correct that malformed citation.

Is the quoted advertising regulation current?

The source itself says Regulation 1540 changed in 2000 and points to other subdivisions without supplying the updated text.

Citations and references

• Regulation 1660(c)(1)-(2) — rent-payment collection and same-form tax-paid treatment
• Annotations 295.0480/.0520/.0540 — royalties included in taxable lease price; supporting texts absent
• Printed Section 62D3 — malformed royalty-timing citation left unresolved, not normalized to section 6203
• Regulation 1660(d)(2) — one-time qualifying newspaper reproduction
• Regulation 1501; Simplicity Pattern, 27 Cal.3d 900 — physically useful property versus idea/service
• Former Regulation 1540(d) — used/consumed photograph versus physical incorporation; changed in 2000 per notes
• December 30 request, enclosed Regulation 1660 and transaction/payment/tax records — absent
• February 26, 1986 Dick letter — acquisition/use-dependent analysis with self-processing reserved
• Official Annotation 330.2305.775 — print/transparency branch without other scenarios/limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2305.775
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2305-775.pdf

Original ruling text

330.2305.775

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 26, 1986

This is in reply to your December 30, 1985 letter regarding the application of sales tax to your charges for "stock" photographs. You provided the following explanation of your business: "… I maintain a file of original photographs of a variety of subjects. When a publisher needs a photo from my files, I negotiate a price based on the intended use of the photo. I deliver the original photo to the publisher, and, after the final product has been printed, the original photo is returned to me. The client has purchased specific use rights to the photo, but I hold the copyright and I may sell other use rights to another client." Before addressing the specific transactions you listed, we note that, when you allow a client the temporary use of photographs for a charge, whether you provide the photograph directly to the client or to another person, such as a publisher, on behalf of the client, your transaction is a lease of the photograph. We are enclosing a copy of Sales and Use Tax Regulation 1660, Leases of Tangible Personal Property - In General, for your further information. Generally, the applicable tax on leases of tangible personal property is the use tax upon the use of the property in this state by the lessee. The lessor must collect the tax from the lessee at the time rentals are paid by the lessee (Regulation l660(c) (1)). Tax does not apply to a lease of tangible personal property leased: in substantially the same form as acquired by the lessor" as to which the lessor has paid sales tax reimbursement or has timely paid use tax measured by the purchase price of the property (Regulation 1660 (c) (2) ). Applying such criteria to your leases of photographs, if you purchase a developed photograph, whether a transparency or a print, and pay sales tax reimbursement to the retailer of the photograph, tax does not apply to your lease receipts from the lease of the photograph, since you would lease the photograph insubstantially the same· form as acquired. We will assume that you do not process your own film to develop the photographs; however, if you do process your film, please notify us, so that we may give an opinion as to the application of tax. When you take a photograph and have a laboratory process your film to develop the photograph, the application of tax: depends upon whether the photograph is a print or a transparency. If the photograph is a print, tax does not apply to your lease receipts, because you lease the print in substantially the same form as you acquire it. You should pay sales tax

reimbursement on your purchase of the film and the processing. If the photograph you lease is a transparency, .tax does apply to your lease receipts. A transparency is composed of the same film from which it is developed; consequently, you would not lease the transparency in substantially the same form as acquired. You may issue a resale certificate on your purchase of both the film and the processing. Turning now to the specific transactions you listed, we will assume in each transaction, the tax applies to the lease receipts under the criteria explained above. "1.The client is a publishing company, which produces a book, calendar, greeting card, or .other paper product, for sale. I am paid a flat fee, e.g. '$400 for l-year calendar rights.” Tax applies to the total $400 that you receive from the one-year right to use that you grant to the client. “2. The client produces a paper product, as above, and I am paid a royalty on the sale of the product, e.g. ‘5% of net sales.’ Royalty charges for the use of tangible personal property are part of the taxable sales price upon which lease receipts are taxed (See Sales and Use Tax Annotations 295.0480, 295.0520, and 295.0540). Tax applies to' your royalties at the time the royalties are paid by the lessee to you (Section 62D3, Revenue and Taxation Code). “3. The client is an advertiser, who purchases the right to use a photo in an advertisement, and then pays a magazine or other medium to publish the advertisement.” Generally, tax applies to your lease of the photograph to a client to use in an advertisement; however, tax does not apply to your lease of a photograph, whether or not produced to the special order of the consumer, when the possession, but not the title, of the photograph is transferred for the purpose of being reproduced one time only, in a newspaper regularly issued at average intervals not exceeding three months (See Regulation l660(d) (2)). You noted that some of your clients have argued that your providing photographs for a charge results in your providing a nontaxable service under Sales and Use Tax Regulation 1501, because the photograph is "an idea… expressed in the form of tangible personal property" similar to an author's original manuscript. The California Supreme Court rejected a similar argument in the case, Simplicity Pattern Co. Inc. v. State Board of Equalization, 27 Cal.3d 900, where the court found a difference between a manuscript, which is a document valued solely as an expression of the author's thoughts, and master films, which, though having intellectual content, are physically useful. You noted that other clients have offered you resale certificates in lieu of tax in examples 1 and 2 above. You should not accept resale certificates from clients who lease photographs from you to use in producing printed matter. In this regard, Sales and Use Tax Regulation 1540, Advertising Agencies, Commercial Artists and Designers, provides at subdivision (d), in relevant part:
*Note: change to Regulation 1540 effective 4/23/00 SPJ 8/7/01

“An advertising agency, artist, or designer is the consumer of property such as photographs and art which it uses in the preparation of tangible personal property as to which it is acting as a seller unless, prior to any use having been made· of the property, the property is sold or becomes an ingredient or component part of other tangible personal property sold. The agency, artist, or designer may purchase for resale photographs and art which, prior to any use, are sold or become physically an ingredient or component part of other tangible personal property that is sold by the agency, artist, or designer. “The term 'ingredient or component part of other tangible personal property' includes only those items that become physically incorporated into the property sold and not those which are merely consumed or used in the production .of the property sold. A photograph, for example, does not become an ingredient or component part of property sold merely because the image of the photograph is reproduced as part of the property sold. A photograph or art is regarded as having been used when a reproduction is made from the photograph or art.” We hope this answers your questions; however, if you need further information, feel free to write again.

Very truly yours,

R. L. Dick
Tax Counsel

RLD : S r
Enc.

*Note see now Reg1540 (a) (3) (b) & (e), as well as other changes to the regulation effective 4/23/00 SPJ 8/7/01