Which editing, audio, duplication, film-to-tape, raw-stock, overhead, equipment, and release-print charges did California classify as qualified production services or taxable sales?

Plain-English summary

California listed color correction, online and offline editing, audio laydowns and laybacks, sound mixing and sweetening, Foley and ADR recording, sound-effects editing, sound duplication, nonexhibition videotape duplication, and qualifying film-to-tape transfers as nontaxable production services when performed on a qualified motion picture.

The entire qualified-service charge was nontaxable regardless of billing method or separately stated raw stock, labor, equipment, rent, or overhead. The memorandum also names “list cleaning,” viewing, and computer use as included charges; the official page image confirms that unusual wording. The provider consumed raw film, tape, equipment, and supplies and owed tax on their cost.

Manufacturing release prints or duplicate tapes for exhibition or broadcast was taxable on total charges unless another exemption applied. Raw stock for those taxable copies could be bought for resale, and tax-paid stock later resold could support the described credit.

The memorandum directed untaxed raw stock, equipment, and supplies to line 2 of the sales-and-use-tax return. For tax-paid raw stock used to make release prints or exhibition/broadcast duplicates, it allowed a tax-paid-purchases-resold credit on line 10.

A 1996 Legal Division review states that it reviewed the 1989 memorandum and agrees with its conclusion, then reproduces only the list of qualifying color, editing, audio, duplication, and film-to-tape services. The PDF does not say that Legal Division adopted the memorandum's separate definitions, billing, raw-stock, return-line, resale-credit, or equipment analyses.

Source and live-annotation limits

The 1989 author expressly says only the Board itself can issue rulings and characterizes the response as his opinion. The source does not reproduce the December 6, 1988 request or identify the recipient or facility. It supplies no qualified picture, postproduction service, raw stock, release print or duplicate, exhibition or broadcast, equipment or supply, invoice, billing method, vendor purchase, resale or interstate-commerce record, tax return, line 2 report, line 10 credit, completed transaction, audit, assessment, refund, or later outcome.

The 1996 review identifies its author and recipient but supplies no underlying file or review analysis. The live annotation preserves only the list reproduced in the 1996 review and the two dates. It omits the ruling-authority limitation, recipient and facility, December 6 request, section 6010.6 definitions and effective date, billing rule, raw-stock and equipment consumer rules, return-line directions, taxable release-copy analysis, resale treatment and credit, absent records, and later-outcome gap.

What this means for you

Postproduction facilities and tax professionals

Classify each service and output by actual use, then separate consumed raw stock and equipment from resale stock used in taxable exhibition copies. Billing presentation did not change the service result. The 1996 review does not establish that Legal Division adopted every conclusion in the 1989 memorandum.

Common questions

Q: Did separately stating raw stock or overhead make qualified services taxable?

A: No.

Q: Who consumed raw stock used in qualified services?

A: The postproduction provider.

Q: Were exhibition or broadcast duplicates taxable?

A: Yes, unless another exemption applied.

Q: Did the author issue a Board ruling?

A: No. He said only the Board itself could issue rulings and offered his opinion.

Q: What did the 1996 Legal Division review republish?

A: Only the list of qualifying color, editing, audio, duplication, and film-to-tape services and their exhibition-or-broadcast exceptions.

Citations and references

• California Revenue and Taxation Code § 6010.6
• December 6, 1988 request — described but not included
• Qualified pictures, services, raw stock, release copies, equipment, purchases, returns, credits, and tax records — described or assumed but not documented

Verbatim support

From the official combined opinion and review:

As a preliminary matter, only the Board itself can issue rulings. I can, however, provide you with my opinion concerning the issues addressed in your letter.

Qualified production services are nontaxable regardless of the billing method used and whether or not the various components (i.e. raw stock, labor, overhead, etc.) of the total charge are separately stated.

However, charges for the manufacture of release prints or duplicate tapes for exhibition or broadcast are subject to tax unless otherwise exempt (i.e. resale, interstate commerce, etc.).

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.0903
• Original supporting opinion: 375.0903 PDF

Original ruling text

STATE OF CALIFORNIA

375.0903

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-0387

January 30, 1989

Mr. --- ----- --- --XXX --- ----- ---, CA XXXXX

Dear Mr. ---:
In your December 6, 1988 letter, you requested a ruling concerning your interpretation of Section 6010.6 of the Sales and Use Tax Law. Based upon the issues addressed in your letter, it appears --- --- is a post production facility performing audio and video recording, editing, duplicating and transferring on both film and tape. As a preliminary matter, only the Board itself can issue rulings. I can, however, provide you with my opinion concerning the issues addressed in your letter. Under Section 6010.6 charges for “qualified production services” are nontaxable beginning September 22, 1988. “Qualified production services” are defined in Section 6010.6 as any fabrication performed by any person 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 do not include services or other work to manufacture release prints or to duplicate tapes for exhibition or broadcast. Further, “qualified motion picture” is defined in Section 6010.6 as any motion picture, whether or not completed, which is produced, adapted, or altered for exploitation in movie theaters, through television, in amusement parks, on commercial carriers, etc. for entertainment, commercial, advertising, promotional, industrial or educational purposes. As such, qualified motion pictures include episodic and special television programs, cable television programs, non-theatrical/TV programs, trailers and promos. Qualified motion pictures do not include private non-commercial motion pictures such as weddings, graduations, etc.

Mr. --- ---

-2-

January 30, 1989
375.0903

Accordingly, the entire charge made to your clients for qualified production services is nontaxable including charges related to materials, supplies, equipment, overhead, etc. This also includes charges for list cleaning, viewing, computer use, etc. that are part of the charge for your qualified production service. Qualified production services are nontaxable regardless of the billing method used and whether or not the various components (i.e. raw stock, labor, overhead, etc.) of the total charge are separately stated. The following transactions listed in your letter are nontaxable qualified production services if performed on a qualified motion picture:
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Color corrections
Online editing
Offline editing
Audio laydowns and laybacks
Sound mixing and sweetening
Foley and ADR recording
Sound effects editing
Sound duplications
Videotape duplication
(except duplicate tapes for exhibition or broadcast)
− Film to tape transfers and related services
(unless for the manufacture of release prints or
duplicate tapes for exhibition or broadcast)
When providing qualified production services, you are the consumer of all raw stock (film, tape or other audiovisual embodiment) used. As a consumer of raw stock, you should pay tax reimbursement to your vendor when purchasing this raw stock. If the raw stock consumed has been purchased without tax (i.e. for resale or from an out-of-state vendor) you must report the cost of the raw stock on line 2 of your Sales and Use Tax Return. However, charges for the manufacture of release prints or duplicate tapes for exhibition or broadcast are subject to tax unless otherwise exempt (i.e. resale, interstate commerce, etc.). This includes charges for raw stock, (film, tape or other audiovisual embodiment), equipment, rent, overhead, etc. Accordingly, raw stock used in the production of release prints or duplicates tapes for exhibition or broadcast may be purchased for resale. If you pay tax reimbursement to your vendor when purchasing raw stock, you may claim a “Tax Paid Purchases Resold Credit” on line 10 of your Sales and Use Tax Return for the cost of raw stock used to manufacture release prints or duplicate tapes for exhibition or broadcast. With respect to other purchases, you are liable for tax on the cost of all equipment and supplies used in the operation of your business and should pay tax reimbursement to your vendors at the time of purchase. However, if you purchase equipment or supplies without tax (i.e. from out-ofstate vendors), you must report the cost of these items on line 2 of your return.

Mr. --- ---

-3-

January 30, 1989
375.0903

In summary, charges for qualified production services are nontaxable and you are liable for tax on the cost of raw stock (film, tape or other audiovisual embodiment) used in providing these services. Charges for manufacturing release prints or duplicate tapes for exhibition or broadcast are generally taxable and you may purchase this raw stock without tax (i.e. for resale). You are liable for tax on the cost of all equipment and supplies used in your business operations. I hope this information is helpful. If you any additional questions, please let me know. Sincerely,

Glenn A. Bystrom
Principal Tax Auditor

GAB:gjm
0439S

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
375.0903

To:

Mr. Glenn Bystrom

Date:

May 29, 1996
and
1/30/89

From:

Gary Jugum

Subject:

Non-Attorney Opinions

I have reviewed your memorandum of January 30, 1989 to --- ---. We are in agreement with his conclusion, as follows:

Qualified Production Services. The following are regarded as non-taxable qualified production service if performed on a qualified motion picture color corrections off-line and on-line editing audio laydowns and laybacks sound mixing and sweetening foley and adr recording sound effects editing sound duplications videotape duplication (except for exhibition or broadcast) film to tape transfers and related services (unless for the manufacture of release prints or duplicates tapes for exhibition or broadcast). 1/30/89

Gary Jugum