Which mixing, audio-transfer, film-to-tape, videotape, layback, duplicate, and student-film services of a postproduction sound studio were taxable?

Plain-English summary

A sound studio performed postproduction mixing, audio transfers, non-air film-to-tape transfers, videotape-to-videotape work for editing or approval, and non-air laybacks to cassettes, masters, and safety masters.

California treated those services as nontaxable qualified production services when performed on a qualified motion picture. The studio consumed and owed tax on film, tape, or other media used and transferred incidentally.

An exhibition- or broadcast-quality duplicate was presumed to be a taxable sale unless the client provided contrary information. Invoices and purchase orders describing qualified services could substantiate nontaxability; the former producer certificate no longer applied after September 22, 1988.

The same work performed on student films was taxable because the letter did not treat student films as qualified motion pictures.

The studio also asked how to handle transactions on which it may have incorrectly applied tax. The letter sent that question to a district office and provides no answer. In doing so, it refers to transactions after September 27, 1988, although the letter twice identifies September 22 as section 6010.6's effective date.

Source and live-annotation limits

The letter does not reproduce the May 3, 1989 request or identify the recipient or studio. It supplies no commercial or other qualified picture, student film, mixing or transfer work, film or tape, duplicate, client intended-use notice, invoice, purchase order, producer certificate, incorrectly taxed transaction, tax return, district response, audit, assessment, refund, or later outcome. Its “Encl.” notation does not identify or include the enclosure, and the source does not resolve the September 22/September 27 discrepancy.

The live annotation preserves the listed mixing and intermediate-transfer services, provider-consumer and incidental-transfer rules, and student-film result. It omits the studio and commercials, May 3 request, section 6010.6 effective date, uncertain in-house/promotion use, exhibition-or-broadcast duplicate exclusion and taxable presumption, client-notice exception, obsolete producer certificate, invoice and purchase-order evidence, referred incorrect-tax question, date discrepancy, unidentified enclosure, absent records, and later-outcome gap.

What this means for you

Sound studios and tax professionals

Classify each output as intermediate, approval, master, safety, or exhibition-ready; document client use; and preserve invoices and purchase orders describing the qualified work. This letter does not answer how to correct tax already applied.

Common questions

Q: Were mixing and intermediate-transfer charges taxable?

A: No, on qualified motion pictures.

Q: How should an exhibition-quality duplicate be treated?

A: As taxable unless the client provided contrary information.

Q: Was work on student films taxable?

A: Yes.

Q: Did the letter decide how to handle incorrectly applied tax?

A: No. It referred that question to a district office, whose response is absent.

Q: What effective date does the letter state?

A: It twice says September 22, 1988, but later refers to September 27; the source does not resolve the discrepancy.

Citations and references

• California Revenue and Taxation Code § 6010.6(b)(3)-(4)
• California Sales and Use Tax Regulation 1529 Producer's Exemption Certificate
• May 3, 1989 request — described but not included
• Unidentified enclosure
• Pictures, services, media, duplicates, client notices, invoices, purchase orders, and tax records — described or assumed but not documented

Verbatim support

From the official letter:

If you prepare and transfer to a client a duplicate of a motion picture film or videotape, and the duplicate is of a quality suitable for exhibition or broadcast, you should consider the transfer as a sale subject to sales tax unless otherwise notified by the client.

As further evidence, purchase orders you receive from your customers describing your services would also substantiate the nontaxability of your charges.

It is our opinion that student films are not qualified motion pictures as defined in section 6010.6, subdivision (b)(3).

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.0980
• Original supporting opinion: 375.0980 PDF

Original ruling text

375.0980

STATE OF CALIFORNIA

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

July 12, 1989

Ms. E--- K--Accounts Receivable
M--- M--- S--- Services
XXX North --- Avenue
---, CA XXXXX
Dear Ms. K---:
Your May 3, 1989 letter to Assistant Chief Counsel Gary Jugum has been referred to me for reply. You noted that you are a post production sound studio for film and video. Your major type of work is on commercials. You noted that you believe that, in light of the addition of section 6010.6 to the Revenue and Taxation Code effective September 22, 1988, tax does not apply to your charges to a client for the following: “POST PRODUCTION MIXING (STUDIO TIME): “AUDIO TRANSFERS: From one sound element to another: For mixing or editing purposes: “FILM TO TAPE TRANSFERS: (NON-AIR) 35mm to 3/4” & 1/2” cassette: 35mm to 1”C: (Used for our clients to obtain an okay from their clients) “VIDEOTAPE TO VIDEOTAPE: 3/4” & 1/2” to 3/4": (Used for editing or client approval) “VIDEOTAPE LAYBACKS: (NON-AIR) To 3/4" & 1/2” cassettes: (Used for our clients to obtain an okay from their clients) To 1”C masters and safety masters: (Used to make dubs for air)”

Ms. E--- K---

-2-

July 12, 1989
375.0980

We agree that, under section 6010.6, tax does not apply to your charges when you perform such work on a qualified motion picture. We believe that such work qualifies as “qualified production services” as defined in section 6010.6 at subdivision (b)(4). When you perform qualified production services, you are the consumer of film, tape and other embodiment upon which your sound, visual images, or computer-generated graphics are created or recorded. Tax applies to the sale to you of such property, and tax does not apply to your transfer of the property to your client incidental to your performance of the qualified production services. You noted that you are uncertain as to the application of tax to your charge for a transfer of a videotape to another videotape for a client who wishes to have its work on a cassette for in-house use or possible promotion at a later date. Qualified production services do not include work to manufacture release prints or to duplicate tapes for exhibition or broadcast. As you noted, you do not know what use the client will make of the tape. Under section 6010.6, the Producer’s Exemption Certificate provided in Sales and Use Tax Regulation 1529 is not applicable to transactions occurring on and after September 22, 1988. If you prepare and transfer to a client a duplicate of a motion picture film or videotape, and the duplicate is of a quality suitable for exhibition or broadcast, you should consider the transfer as a sale subject to sales tax unless otherwise notified by the client. Generally, statements on your invoice which indicate that the services you provide are qualified production services as defined in section 6010.6 will be sufficient to establish for audit purposes that your charges are nontaxable. As further evidence, purchase orders you receive from your customers describing your services would also substantiate the nontaxability of your charges. You noted that you believe that all of the work listed above which you perform on a student film is subject to tax. We agree. It is our opinion that student films are not qualified motion pictures as defined in section 6010.6, subdivision (b)(3). We hope this answers your questions: however, if you need further information, feel free to write directly to me. We are sending a copy of your letter to the --- District office of the Board for an answer to your question as to how you should handle instance where you may have incorrectly applied tax transactions occurring after September 27, 1988. Very truly yours,

Ronald L. Dick
Tax Counsel
RLD:sr
Encl.
cc:

--- District Administrator
bn: Mr. Joe Cohen: Please ask someone to contact Ms. K--- and explain how you like her to handle her situation as to the first paragraph on page 2.