How did California treat film-to-tape, editing, duplication, equipment-with-operator, equipment-only rentals, tape stock, resale certificates, and subcontracted postproduction?

Plain-English summary

A company supplied production equipment and labor, film-to-tape and editing services, duplication, and videotape stock to motion-picture and advertising clients.

California treated film-to-tape, editing, and other qualified postproduction work as nontaxable services. The provider consumed tape stock used in that work. Duplicate tapes manufactured for exhibition or broadcast were taxable release prints.

When the provider supplied equipment with its services, it used rather than rented the equipment and owed tax when acquiring it. If it rented equipment without an operator, had paid tax at acquisition, and rented it in substantially the same form, rental receipts were nontaxable; a separate tape-stock sale remained taxable.

The provider should not accept resale certificates for qualified services because it sold no tangible property, but could accept them for release prints or broadcast duplicates bought for resale. The former producer-exemption certificate was no longer applicable; evidence had to substantiate qualified services.

Qualified postproduction remained nontaxable when performed as a subcontractor for another studio rather than directly for the producer.

The letter could not specify which parts of Regulation 1529 would be amended after Senate Bill 1405 because substantial revisions were still under review. It did say the subdivision (c)(2) special-employee provisions were no longer applicable and asked that the recipient be added to the amendment-information list.

Source and live-annotation limits

The letter does not reproduce the September 30, 1989 request or identify the recipient or company. It supplies no qualified motion picture, production or postproduction service, operator, equipment, videotape stock, release print or duplicate, client, producer or studio contract, job, invoice, purchase, acquisition-tax record, resale or producer certificate, audit evidence, tax return, completed transaction, audit, assessment, refund, amendment notice, or later outcome. The source does not resolve its impossible January-header/September-request chronology or explain the live annotation's November date.

The live annotation preserves only the nontaxable film-to-tape/editing/postproduction result, provider-consumer rule for tape stock, and taxable exhibition-or-broadcast duplication result. It omits the recipient and company, September request, Senate Bill 1405, section 6010.6 definitions, equipment-with-service and equipment-only results, no-operator and acquisition-tax conditions, separately sold stock, resale certificates, former producer certificate, required audit evidence, subcontracting, unresolved Regulation 1529 revision and obsolete employee provisions, date conflict, absent records, and later-outcome gap.

What this means for you

Postproduction companies and tax professionals

Separate services, operated equipment, equipment-only rentals, tape stock, and release copies. Keep purchase orders and production records supporting qualified work and accept resale certificates only for actual property sales. Do not rely on the letter's discussion of a regulation it expressly says was under substantial revision.

Common questions

Q: Were film-to-tape and editing charges taxable?

A: No, when performed on qualified motion pictures.

Q: Were broadcast duplicate tapes taxable?

A: Yes.

Q: Could customers issue resale certificates for postproduction services?

A: No, but they could for release copies bought for resale.

Q: Did subcontracting change qualified-service treatment?

A: No.

Q: Did the letter identify which Regulation 1529 provisions would survive revision?

A: No. It could not specify that while review was pending, although it said the special-employee provisions were no longer applicable.

Q: What date does this page use?

A: The live annotation's November 10, 1989 date, because the letter's January 10 header predates its stated September 30 request and the source does not resolve the conflict.

Citations and references

• California Revenue and Taxation Code § 6010.6
• California Senate Bill 1405
• California Sales and Use Tax Regulation 1529, including former subsection (c)(2)(L) and subsection (c)(2)
• September 30, 1989 request — described but not included
• Pictures, services, equipment, stock, copies, certificates, jobs, purchases, and tax records — described or assumed but not documented

Verbatim support

From the official letter:

Generally, when you contract to perform qualified production services, you do not thereby rent out equipment; rather, you use the equipment in performing the services.

No, since you are not selling tangible personal property when you perform qualified production services, you should not accept resale certificates from your customers when you perform post-production services.

The revisions are rather substantial and must go through a series of reviews; therefore, we cannot specify at this time which parts will or will not be amended.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.0970
• Original supporting opinion: 375.0970 PDF

Original ruling text

375.0970

STATE OF CALIFORNIA

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

January 10, 1989

Ms. P--- H--Accounting Supervisor
S---, Inc.
XXX --- Street
--- ---, CA XXXXX
SR -- XX-XXXXXX

Dear Ms. H---:
This is in reply to your September 30, 1989 letter regarding the application of sales tax to charges made by S---, Inc. in light of recently enacted Senate Bill 1405, which added section 6010.6 to the Revenue and Taxation Code. You noted that S--- is in the business of providing videotape production equipment and labor, videotape post-production services (e.g., film to tape transfers), and videotape stock to clients in the motion picture, television, commercial, industrial, and advertising businesses. Given this information, you asked the following questions: “Are we to impose and collect sales tax on: a. Telecine (film-to-tape transfer services). b. Production services where both equipment and labor are rented by our client. c. Production services where only equipment is rented and videotape stock is purchased by our client. d. Duplication services where a videotape is copied onto another videotape without changing the content thereon (e.g. tape editing). e. Editing services whereby the content of a videotape is changed by direction of our client.” Under section 6010.6, “sale” and “purchase” do not include the performance of any qualified production services in connection with the production of a qualified motion picture. The term “qualified production services” generally means any fabrication performed by a person on film, tape, or other audiovisual embodiment in connection with the production of all or part of a

Ms. P--- H---

-2-

January 10, 1989
375.0970

qualified motion picture. Accordingly, sales tax does not apply to your charge for film-to-tape transfer services, editing, and other post-production services you perform on motion pictures. You are the consumer of videotape stock you use in performing qualified production services. On the other hand, if your duplication services results in your manufacturing release prints or duplicate tapes for exhibition or broadcast, sales tax does apply to your retail sale of such tapes. Generally, when you contract to perform qualified production services, you do not thereby rent out equipment; rather, you use the equipment in performing the services. You should pay sales tax reimbursement or timely pay use tax on your purchase of that equipment. Under situation “c” above, we assume that you do not provide an operator. In such case, if you have paid tax on your purchase of the equipment and rent the equipment out in substantially the same form as you acquired it, tax does not apply to your rental receipts. Tax only applies to your sale of videotape stock in that event. “2. May we choose to use the valid State of California Seller’s Permit No. Resale card as a basis for non-collection of state sales tax?” No, since you are not selling tangible personal property when you perform qualified production services, you should not accept resale certificates from your customers when you perform post-production services. You may accept resale certificates from customers to whom you sell release prints and duplicate tapes for exhibition or broadcast for resale. “3. Is the Producer Exemption Certificate as stipulated in Regulation 1529(c)(2)(L) still in force? If so, under what conditions? For example, must we attach a certificate to each and every job. Please be specific.” The Producer Exemption Certificate provided at Regulation 1529, subdivision (c)(2)(L), is no longer applicable. Rather, you should be able to provide evidence to the Board’s audit staff that the nontaxable charges you make are for providing qualified production services to producers of qualified motion pictures. “4.

Is subcontracted work taxable?

We assume that you are asking whether tax applies to your charge for qualified production services you perform for another studio rather than directly for the producer. No, your charges for qualified production services are nontaxable when you perform these services on a qualified motion picture regardless whether you provide these services to the producer of the motion picture or to another studio who is under contract with the producer. “5. Does Senate Bill 1405 completely or partially take the place of Regulation 1529? Please specify which parts and paragraphs of 1529 are still applicable.”

Ms. P--- H---

-3-

January 10, 1989
375.0970

As a result of Senate Bill 1405, Sales and Use Tax Regulation 1529, Motion Pictures, is being substantially revised. The revisions are rather substantial and must go through a series of reviews; therefore, we cannot specify at this time which parts will or will not be amended. Of course, the special employee provisions at subdivision (c)(2) are no longer applicable. By a copy of this letter, we are asking that you name be placed on the list of persons interested in receiving information as to the amendments to the regulation. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Tax Counsel

RLD:sr