When were motion-picture format conversions, electronic press kits, and promotional screeners nontaxable production services rather than taxable release prints?

Plain-English summary

California separated qualified motion-picture production work from manufacturing taxable release prints.

Converting a qualified motion picture from NTSC to a single master in another format was nontaxable when additional post-production—such as foreign-language credits or a soundtrack—was still required before release copies could be made. Producing multiple broadcast-quality copies in the new format was taxable as manufacturing release prints.

Duplicating electronic press kits was nontaxable only when the copies were not broadcast quality and required further sound editing, color correction, or customization before exhibition or broadcast. If an audit showed the copies were broadcast-ready and used without that work, the exemption did not apply. The opinion expressly said the earlier Annotation 375.0783 was inconsistent and would be removed.

Promotional screeners with overtly visible anti-piracy overlays were not suitable for exhibition or broadcast and therefore were not release prints; their production charges were nontaxable. Screeners without such visible protection that were suitable for exhibition or broadcast were taxable release prints.

The counsel said Annotation 375.0783 was inconsistent with this opinion and would be removed. CDTFA's current 2026 collection still publishes that annotation, so the promised removal is not treated as completed.

Source and live-annotation limits

The letter does not reproduce the December 23, 2003 request or identify the client or any service provider. It supplies no qualified motion picture, source master, raw stock, converted master or copies, EPK, screener, anti-piracy overlay, contract, invoice, buyer certification, sound edit, color correction, subtitle, credit, soundtrack, customization, broadcast or exhibition, audit, tax return, completed transaction, or later outcome. The conclusions rely on represented or assumed conditions rather than examined transaction records. The source prints “NTCS” once after otherwise using NTSC; that defect remains in the original text.

The live annotation preserves the format, EPK, screener, quality, further-work, and overlay distinctions. It omits the unidentified-provider and section 6596 warning, quoted regulatory definitions, consumer-of-stock result, certifications and audit caveat detail, source defect, missing records, and planned removal of Annotation 375.0783. It adds resale and interstate-or-foreign-commerce examples to the multiple-copy paragraph that the supporting letter states only as an unspecified exemption or exclusion. The same live collection still publishes 375.0783.

What this means for you

Studios, duplicators, and tax professionals

Document whether the output is a master or multiple copies, all work still required before broadcast, actual use, broadcast quality, and the visibility of anti-piracy overlays.

Common questions

Q: Was every format conversion nontaxable?

A: No. A single master needing further post-production qualified; multiple broadcast-ready copies were taxable.

Q: Were duplicated electronic press kits nontaxable?

A: Only when further editing or correction was genuinely required before broadcast.

Q: Were promotional screeners taxable?

A: Screeners with overtly visible anti-piracy overlays were nontaxable; broadcast-suitable screeners were taxable.

Citations and references

• California Revenue and Taxation Code §§ 6010.6 and 6596
• California Sales and Use Tax Regulation 1529(a), (b)(2), (b)(3)(A), and (d)(11)(A)
• California Sales and Use Tax Annotation 375.0783 dated January 21, 1997 — called inconsistent and slated for removal, but still published in the live 2026 collection
• December 23, 2003 request, provider identities, service contracts, product samples, buyer certifications, editing records, broadcast use, and audit records — described or referenced but not included

Verbatim support

From the official April 8, 2004 letter:

However, if an audit revealed that the duplicated copies were actually of broadcast quality and were used for exhibition or broadcast without further editing, the exemption would not apply.

I see that Annotation 375.0783 (1/21/97) is inconsistent with the opinion expressed herein. I will have it removed from the Business Taxes Law Guide.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.0057
• Original supporting opinion: 375.0057 PDF

Original ruling text

375.0057

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

CAROLE MIGDEN
First District, San Francisco

450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-2656
FAX (916) 323-3387

BILL LEONARD
Second District, Ontario
CLAUDE PARRISH
Third District, Long Beach

www.boe.ca.gov

JOHN CHIANG
Fourth District, Los Angeles
STEVE WESTLY
State Controller, Sacramento

April 8, 2004

TIMOTHY W. BOYER
Interim Executive Director

Mr. E--- J. M-----, ---, ---, --- & ---, LLP
XXXX --- Street, Suite XXXX
---o, California XXXXX
Re:

M--- of A---

Dear Mr. Miethke:
This responds to your December 23, 2003, letter to Mr. Ramon J. Hirsig, then Deputy Director, Sales and Use Tax Department of the Board of Equalization. You wrote on behalf of your client, the M--- of A--- (M---). I will separately address the three topics on which you sought an opinion. Preliminarily, I note that because your letter did not identify a specific entity that performs any of the services described in your letter, my responses herein cannot serve as a basis for relief under Revenue and Taxation Code section 6596. Format Changes You wrote: “The United States and some parts of the world utilize an ‘NTSC’ format for its videotapes. Other parts of the world utilize other formats, such as ‘PAL’ or ‘SECAM.’ When programming (usually television programming) is sent overseas, it is sent in the converted format, but not in a ‘ready to air’ condition. Overseas, foreign-language credits are added, a foreign-language soundtrack or subtitles may be added and commercial ‘blacks’ are ‘relaxed’ to the appropriate length.” You asked us for an opinion that conversion of tapes from the NTSC format to other formats constitutes “qualified production services,” within the meaning of subdivision (b)(2) of Regulation 1529. That subdivision explains: “(2) QUALIFIED PRODUCTION SERVICES. ‘Qualified production services’ are any fabrication performed by any person in any capacity (including, but not

Mr. E--- M---

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April 8, 2004
375.0057

limited to, an employee, agent, or independent contractor) on film, tape, or other audiovisual embodiment in connection with the production of all or any part of any qualified motion picture. Qualified production services include, but are not limited to, photography; sound or music recording; creation of special effects or animation on film, tape or other audiovisual embodiment, including animation drawings, inkings, paintings, tracings and celluloid ‘cels’; technological modification, including colorizing; adaptation; alteration; computer graphics, including transfers of computer graphics on computer-generated media; sound dubbing or sound mixing; sound or music or effect transferring; film or tape editing or cutting; developing or processing of negatives or positives; timing; coding or encoding; creation of opticals, titles, main or end credits; captioning; and medium transfers (e.g., film to tape, tape to tape). “The term includes any such fabrication whether performed on the qualified motion picture before or after the release date. The term does not include work to manufacture release prints. “Qualified production services include processing performed on a qualified motion picture, except for processing to produce release prints. Processing includes film developing and processing; film to tape transfers; and sound transferring, rerecording, dubbing, and mixing.” It is my understanding from your letter that in a typical transaction, a studio will retain a firm to convert a qualified motion picture from an NTSC format to other formats. To complete the work, the firm purchases raw film or tape stock, uses its machinery to transfer the qualified motion picture onto the raw film or tape, and then sells the resulting product to the studio. If that effort constitutes qualified production services (and assuming the original product is a qualified motion picture), then the charges for converting it to the new format are not taxable, and the company doing the work is the consumer of the raw film or tape stock. (Reg. 1529(a).) As set forth above, the manufacturing and processing of release prints does not constitute qualified production services. (Reg. 1529(b)(2).) Subdivision (b)(3)(A) of Regulation 1529 explains the consequences arising from sales of release print: “(3) RELEASE PRINTS. “(A) The manufacturing of release prints is not the performance of qualified production services. The application of sales tax to sales of release prints is the same as the application of tax to other sales of tangible personal property; that is, the sale of a release print to a person for exhibition or broadcast is a retail sale subject to sales tax. The sale of a release print for resale is not subject to tax. See subdivision (d)(11)(A) for a list of film and tape products which are release prints.”

Mr. E--- M---

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April 8, 2004
375.0057

Therefore, if the company converts a qualified motion picture from an NTCS format into multiple broadcast quality copies (release prints) in a different format, the charges will be taxable, absent some exemption or exclusion. Where the studio provides a master of a qualified motion picture and requests that it be converted into a single master in another format, and additional post-production is required prior to manufacturing of release prints from the newlyformatted master (such as the addition of foreign-language credits and soundtrack), such services constitute qualified production services. In these cases, the charges of the firm performing the conversion would be nontaxable. Electronic Press Kits: You next asked about the tax treatment of charges for sales of electronic press kits (“EPK”). An EPK is either a video tape or a DVD, prepared for movie studios to be distributed to local television stations prior to the release of a new movie. The studio sends a master of the EPK to the duplicating facility, which fabricates several hundred tape or DVD copies of the EPK for the studio. You have explained that an EPK has several interviews with the star or costars, as well as various clips of the movies. An EPK also has gaps or blank time slots between each interview and movie clip, so that local television stations can impose its film reviewers on the tape, and edit and customize the tape or DVD for its needs. You believe that the preparation of the duplicate EPKs on tape or DVD constitutes qualified production services, so that the charges of the duplicating facility to the studio will be exempt pursuant to subdivision (a) of Regulation 1529. You have represented that certain conditions exist which support your contention, namely that further sound editing and color correction are needed before the tape or DVD can be broadcast, and that the buyers will certify to the duplicating facility that the tapes are not of broadcast quality, and are not used for exhibition or broadcast until the further editing and corrections have been accomplished. Under those circumstances, I agree that the preparation of duplicate EPKs constitutes qualified production services, and the charges therefore would be exempt. However, if an audit revealed that the duplicated copies were actually of broadcast quality and were used for exhibition or broadcast without further editing, the exemption would not apply. I see that Annotation 375.0783 (1/21/97) is inconsistent with the opinion expressed herein. I will have it removed from the Business Taxes Law Guide. Screeners On this subject you wrote: “ ‘Screeners’ are promotional or marketing copies of motion pictures that are distributed to video stores, critics, industry executives, etc. for personal use. Routinely, screeners are ‘burned in’ with an anti-piracy warning, making them unsuitable for broadcast or exhibition.”

Mr. E--- M---

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April 8, 2004
375.0057

You have asked us for an opinion that preparation of screeners by a duplicating facility constitutes qualified production services, thereby exempting its charges under subdivision (a) of Regulation 1529. As discussed above, if the screeners constitute release prints, as defined in subdivision (d)(11) of Regulation 1529, then the work to produce the screeners does not constitute qualified production services. (Reg. 1529 (b)(2).) I also note that subdivision (d)(11)(A) of Regulation 1529 identifies a “Screening Copy (Complete)” as “A print used for marketing, goodwill or other promotional purposes,” and states that such a screener is a release print. However, screeners are only release prints if they are suitable for exhibition or broadcast. (Reg. 1529(d)(11)(A).) It is my opinion that if the screeners include anti-piracy overlays that are overtly visible during viewing, they are not suitable for exhibition or broadcast, and thus do not constitute release prints. Charges for such screeners are therefore exempt, and the duplicating facility is the consumer of the materials it purchases to produce the screeners. (Reg. 1529 (a).) However, screeners that do not include overtly visible anti-piracy protection and are suitable for exhibition or broadcast do constitute release prints, and the charges of the duplicating facility for such screeners will be subject to tax. I hope this letter sufficiently addresses your questions. If you need further assistance, please write again.

Sincerely,

Jeffrey H. Graybill
Senior Tax Counsel
JHG/ds
cc:

Culver City District Administrator (AS)
Van Nuys District Administrator (AC)
Mr. Ramon J. Hirsig (MIC: 43)