Were separately stated motion-picture lighting-equipment and operator charges a lease, and did operating the lights qualify as production-service fabrication?

Plain-English summary

A company provided lighting direction, lighting equipment, and equipment operators to qualified motion-picture producers. It separately stated service and equipment charges but never supplied the equipment without its operators.

California said operating lighting equipment did not itself fabricate film, tape, or another audiovisual embodiment, so it was not a qualified production service under the cited definition.

The arrangement nevertheless was not an equipment lease. Because customers could not obtain the equipment without the owner's operator, they did not receive possession and control. The company used the equipment to perform lighting services and was its consumer.

The company therefore owed sales-tax reimbursement or use tax when acquiring the equipment rather than treating the customer transaction as an equipment rental.

Source and live-annotation limits

The letter does not reproduce the April 22, 1995 request or identify the CPA's client or any producer. It supplies no production, lighting plan, equipment, operator, billing, service or rental contract, charge, possession-or-control record, equipment acquisition, tax-reimbursement or use-tax payment, tax return, audit, completed transaction, or later outcome. The source itself does not resolve why its formal first page is dated May 13, 1996 while its continuation header says June 3, 1997.

The live annotation preserves the separately stated charges, operator-required equipment, no-fabrication result, no transfer of possession or control, service-not-lease conclusion, provider-consumer rule, and acquisition-tax result. It omits the redacted CPA and client, April 22 request, client's prior rental treatment, qualified-producer limitation, statutory basis for Regulation 1529's definition, formal first-page date conflict, missing records, conditional reliance on the stated facts, and later-outcome gap.

What this means for you

Production-equipment providers and tax professionals

Document whether a customer can obtain equipment without the owner's operator, who controls it on set, and whether the work directly fabricates the audiovisual product. Separately stated charges did not control the result.

Common questions

Q: Was operating the lighting equipment a qualified production service?

A: No.

Q: Was the equipment transferred under a lease?

A: No, because the owner always supplied the operator and retained possession and control.

Q: Who was the equipment's consumer?

A: The lighting-services company.

Citations and references

• California Revenue and Taxation Code § 6010.6(b)(4)
• California Sales and Use Tax Regulation 1529(b)(2)
• April 22, 1995 request — described but not included
• Client, producers, productions, lighting direction, equipment, operators, billings, contracts, charges, possession, control, acquisitions, and tax records — described or assumed but not documented

Verbatim support

From the official letter, whose first and continuation pages bear conflicting dates:

We do not believe that operating lighting equipment results in a fabrication of any audio-visual embodiment to be within the definition of “qualified production services.”

When, as in the case you note, the owner of the property requires the customer to contract for the owner of the property to operate the property, we do not believe the owner transfers possession and control of the equipment to the customer.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.0878
• Original supporting opinion: 375.0878 PDF

Original ruling text

375.0878

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION – MIC: 85
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-2653
FAX (916) 324-2618

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego

KATHLEEN CONNELL
Controller, Sacramento

May 13, 1996

JOHN CHIANG
Acting Member
Fourth District, Los Angeles

E. L. SORENSEN, JR
Executive Director

Mr. D--- M. D---, CPA
Vice President
--- --- --- --- Incorporated
XXXX --- Road, Suite XXX
---, CA XXXXX

Dear Mr. D---:
This is in reply to your April 22, 1995 letter regarding the application of sales tax to your client’s charges for providing lighting direction, lighting equipment and equipment operators to qualified motion picture producers. You note your client has treated the transactions as rentals of lighting equipment coupled with concurrent services. You explain that the charges for the services and the equipment are separately stated on billings to the producers, and in no case is the equipment provided without the services. You ask whether your client is using the equipment to provide “qualified production services” as defined in Sales and Use Tax Regulation 1529(b)(2). The definition of “qualified production services” in Regulation 1529 is based on the definition at subdivision (b)(4) of Revenue and Taxation Code section 6010.6. The term is there defined to mean any fabrication performed by any person in any capacity on film, tape, or other audio-visual embodiment in connection with the production of all or any part of any qualified motion picture. We do not believe that operating lighting equipment results in a fabrication of any audio-visual embodiment to be within the definition of “qualified production services.” That is not to say the application of tax is different, because we do not believe your client is leasing out its equipment under the facts you provide.

Mr. D--- M. D---

-2-

June 3, 1997
375.0878

In determining whether a person leases equipment or merely provides a service and uses his or her equipment in providing the service, we look to whether the customer could have obtained the property without the operator. When, as in the case you note, the owner of the property requires the customer to contract for the owner of the property to operate the property, we do not believe the owner transfers possession and control of the equipment to the customer. Rather, the owner makes the use of his or her equipment. We agree with your conclusion, that, given the facts you provided, your client is the consumer of equipment used to provide lighting services and should pay sales tax reimbursement or use tax at the time of acquiring the equipment used to provide the services. We hope this answers your question; however, if you need further information feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr
cc:

Sacramento District Administrator - KH