Were an out-of-state radio programmer's charges for tapes, discs, hard disks, playlists, consulting, and copyrighted content taxable in California?

Plain-English summary

An out-of-state company's unreproduced October 3, 1990 letter called its offering programming services. It said California clients received reel-to-reel tapes, compact discs, DAT, hard disks, playlists and consulting, and that it leased tapes containing copyrighted works to FCC-licensed radio stations. Counsel said the information did not reveal the nature of its California transactions.

Leased tapes remained tangible personal property notwithstanding copyrighted content. The lessee owed use tax measured by sales price. Section 6203 treated the company as a retailer engaged in California because it derived rent from leased tangible property situated there, requiring it to collect, report and pay the tax.

That was not a decision that every charge was taxable. The company's letter indicated that some amount might cover professional services separate from the property lease. Counsel also said Regulation 1527, Sound Recording, might exempt a large part of lease receipts. The identified enclosure is not reproduced.

An audit contact, Mr. Zahm, had repeatedly requested a detailed charge explanation and property description. Those requests are absent. Counsel characterized the response as extensive argument against sale treatment with little specific property description. He sent Mr. Zahm a copy and suggested closing the audit on available information, issuing a determination if warranted, and leaving the company to petition for redetermination and request a hearing if it disagreed.

Live Annotation 330.2850 publishes the tangible-tape, copyrighted-work, California retailer, lessee-liability and collection holdings. It omits counsel's inability to discern transaction nature, possible separate services, possible large Regulation 1527 exemption, repeated unanswered audit requests and proposed audit/petition procedure.

No request, audit inquiry/response set, media, playlist, consulting work, customer contract, transfer/return terms, copyrighted-work rights, invoice/charge allocation, California location/period, Regulation 1527 enclosure, audit workpaper, determination, petition, hearing, payment, claim, appeal or later outcome appears.

What this means for you

Document every physical and service deliverable, customer possession and property location, copyright/license rights, each charge and allocation, service separability and the sound-recording rule. A service label did not erase a physical lease, but the source did not determine that the undefined entire bundle was taxable.

Common questions

Did calling the offering programming service avoid lease tax?

No. Supplying leased physical media remained a tangible-property transaction.

Did copyrighted content change that result?

No. The supporting letter and live annotation reject that distinction for the tape lease.

Did counsel determine the taxable share of all charges?

No. Separate services and a possible sound-recording exemption remained unresolved.

Could Regulation 1527 matter materially?

Yes. Counsel said it might exempt a large portion, but the record did not support a calculation.

Why was no more precise result given?

The company had not supplied enough detail about the property and charges.

What procedural step did counsel recommend?

Finish the audit on available information, issue a determination if warranted, then use redetermination and hearing procedures if disputed.

Is the later audit result available?

No.

Citations and references

• Section 6203 — California-situated rental property and retailer collection duty
• Regulation 1527, Sound Recording — possible large exemption; enclosure absent
• October 3 request and repeated audit inquiries — absent
• Media/service/contract/charge/location and audit/outcome records — absent
• Live Annotation 330.2850 — categorical physical-tape result without unresolved branches

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 330.2850
• Original supporting opinion: 330.2850 PDF

Original ruling text

330.2850

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

December 3, 1990

Mr. [K]
Senior Vice President
[A]
XXX --- ---.
--- ---, -- XXXXX
S- -- XX-XXXXXX
Dear Mr. [K]:
This is in reply to your October 3, 1990 letter regarding the application of sales tax to charges by [A] for what you describe as programming services. Based on the information you provided, we are unable to discern the nature of your transactions with your customers in California. Although you categorized your transactions as services, you note that you provide your clients reel-to-reel tapes, compact discs, DAT, hard disk, playlists, and consulting. You note that you lease tapes to FCC licensed radio stations and that the tapes contain copyrighted works. The lease of such tapes is a lease of tangible personal property. The lessee is liable for use tax measured by the sales price. [A], as a retailer engaged in business in California, is required to collect the use tax from the lessee and report and pay it to this Board. See Revenue and Taxation Code section 6203 which defines “retailer engaged in business in this state” to mean any retailer deriving rentals from a lease of tangible personal property situated in this state. We conclude that tax applies to your charges for leasing tangible personal property in this state. You letter indicates that some of your charge may be for professional services that are separate from your lease of tangible personal property. It is even possible that a large portion of your lease receipts may be exempt from use tax under the provisions of Sales and Use Tax Regulation 1527, Sound Recording, a copy of which is enclosed. Nevertheless, I understand that Mr. Zahm has repeatedly requested a detailed explanation of your charges and a detailed description of the tangible personal property which you provide to your client. Instead, your response consists generally of extensive arguments as to why you believe that you are not selling

Mr. [K]

-2-

December 3, 1990
330.2850

tangible personal property but not much of a description of the specific tangible personal property which you provide to your clients. In order to resolve this case, I am suggesting to Mr. Zahm by a copy of this letter that he conclude his audit with whatever information is available and, if warranted, issue a determination of any tax due. If you disagree with the determination, you may petition for a redetermination and request a hearing before a hearing officer. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr
Enc.