How did California treat corporate training-video production, raw stock the client claimed to own, duplicate copies, and private noncommercial videos?

Plain-English summary

A company produced scripts, scene tapes, and final masters for corporate training and safety videos. Clients used the programs internally and sometimes requested a small number of duplicates.

California said charges for producing a qualified training video were nontaxable. The producer consumed and owed tax on raw stock and other tangible property used to make the completed master.

The statement that the client “owned” all production materials did not change that result by itself. If the producer actually bought materials and sold them to the client before using them, the producer was the retailer and tax applied to that sale.

Duplicate release copies were taxable. Finished wedding, graduation, or other private noncommercial videos also were taxable in full rather than qualified motion pictures.

The producer said 99 percent of its work was corporate training-video production and one percent was duplication. It occasionally supplied five or fewer duplicates with a final master, but reported no duplication requests so far that year and said it bought duplicate tape at retail and paid sales tax.

Source and live-annotation limits

The letter does not reproduce the July 6, 1992 request or its enclosed Regulation 1529. It does not identify the producer or clients, or supply any idea, script, scene tape, master, raw stock, other material, title-transfer record, training or safety use record, private video, duplicate, release-print use, purchase, contract, charge, invoice, tax return, audit, completed transaction, or later outcome. The producer's statement that each client owned all production materials is not documented; counsel answered conditionally for materials the producer bought and sold before use.

The live annotation preserves the client-supplied idea, client ownership claim, scripts, scene tapes, master, internal training-or-safety use, qualified-video result, producer-consumer rule, pre-use material-sale result, and taxable release-print duplicates. It omits the redacted request, 99-percent/one-percent business mix, occasional five-or-fewer copies, absence of year-to-date duplication requests, retail tape-purchase and tax statement, private noncommercial wedding-and-graduation guidance, missing records and enclosure, and later-outcome gap.

What this means for you

Training-video producers and tax professionals

Document when title to materials passes, whether any sale occurs before production use, the video's business or private purpose, and the number and function of duplicate copies.

Common questions

Q: Were corporate training-video production charges taxable?

A: No, when the video qualified.

Q: Did saying the client owned all materials make raw stock a resale purchase?

A: Not by itself. The producer had to sell the materials before using them.

Q: Were release-print duplicates and private noncommercial videos taxable?

A: Yes.

Citations and references

• California Sales and Use Tax Regulation 1529(b), (b)(3), and (d)(11)
• July 6, 1992 request and enclosed copy of Regulation 1529 — described or referenced but not included
• Clients, ideas, scripts, scene tapes, masters, materials, raw stock, duplicates, private videos, contracts, charges, and transactions — described or assumed but not documented

Verbatim support

From the official August 31, 1992 letter:

If you mean that you purchase the materials and sell them to clients prior to your using the materials, then you are the retailer of such materials and tax applies to your sale of the materials to the client.

Also, when you provide duplications for your clients to use as release prints, tax applies to your sale of the duplications.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.0795
• Original supporting opinion: 375.0795 PDF

Original ruling text

375.0795

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

1020 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

August 31, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. B--- H--H--- I---, Inc.
P. O. Box XXXX
---, CA XXXXX
Dear Ms. H---:
This is in reply to your July 6, 1992 letter regarding the application of sales tax to your charges for videotapes under the following facts: “H--- I---, Inc is a film and video production company. Ninety-nine percent of our work is providing corporate clients with training video production services while one percent involves video duplication. “Our procedure for providing corporate training production are:

1. Client comes to us with an idea for video tape.
2. H--- I--- produces: Script, Scenes Tapes and the Master Tape
   which is the final program.
3. The Client owns all materials used in the production of their product.
4. Their final product is used in house as a training or safety aid for their
   employees and is not offered for sale.
   “Most of our clients take their program master and have duplications made on an as needed basis. Occasionally a client may request 5 or fewer duplications from H--- I--- to be delivered with the final master. To date this year we have had no requests for duplications. “When duplications are requested we purchase tape from retail outlets and pay the appropriated sales tax.”

Ms. B--- H---

-2-

August 31, 1992
375.0795

Enclosed is a copy of Sales and Use Tax Regulation 1529, Motion Pictures, as amended September 22, 1988. As provided in subdivision (b), when you produce a film or videotape which is a “qualified motion picture,” tax does not apply to your charge to the client. Rather, you are the consumer of, and tax applies to the sale to you of, tangible personal property which you use in making the qualified motion picture, including the raw stock which you process to transfer to the client as the completed film or videotape. You note that the “Client owns all materials used in the production of their product.” If you mean that you purchase the materials and sell them to clients prior to your using the materials, then you are the retailer of such materials and tax applies to your sale of the materials to the client. Not all films and videotapes are qualified motion pictures. When you produce a motion picture film or videotape for a private noncommercial use, such as a film or videotape of a wedding or graduation, you are the retailer of, and tax applies to the total gross receipts of, your sale of the finished videotape to your client. Also, when you provide duplications for your clients to use as release prints, tax applies to your sale of the duplications. See Regulation 1529, subdivisions (b)(3) and (d)(ll). 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:sr
Enc.