Were surgical training films qualified motion pictures, and how were intermediate processing, student exhibition prints, reels, cans, and aerospace films treated?

Plain-English summary

A full-service motion-picture laboratory processed surgical-operation training films and aerospace manufacturers' films and asked about film, reels, and cans.

California treated surgical training films as qualified motion pictures because they served educational purposes. Intermediate processing—such as edit copies, dailies, editing, or cutting—was a nontaxable qualified production service. The laboratory consumed and owed tax on property used in that service.

Film prints exhibited to students were taxable release prints, including the film, reel, and can. Manufacturing a master or answer print could qualify as production service work, while manufacturing release prints or duplicate exhibition tapes did not.

The source lacked enough facts to determine whether the aerospace films qualified. It provided general guidance for resale, United States government, and interstate-commerce exemptions but explained that qualified-service consumer treatment still applied when the laboratory itself performed such services, regardless of resale, out-of-state shipment, or a United States government customer.

Source, review, and live-annotation limits

The official PDF begins with an undated memorandum from Gary Jugum to Glenn Bystrom. It says the reviewer examined Bystrom's March 13, 1989 memorandum to Dottie Nardone and agreed with the conclusion that training films qualify. The attached formal document is Bystrom's March 13 letter responding to a redacted laboratory's January 25 request. The PDF does not ground the live annotation's additional May 29, 1996 date, so this page uses the formal source-body date and leaves the later date unresolved.

The PDF does not include the January 25 request, a separate memorandum to Dottie Nardone, the enclosed section 6010.6 or Regulations 1614, 1620, and 1668, or any surgical or aerospace film, laboratory work, contract, reel, can, resale certificate, destination, invoice, return, assessment, refund, or later outcome. The live annotation states only that training films are qualified motion pictures and lists both dates. It omits the review's narrow scope, surgical-film processing and student-print results, aerospace-fact gap, film/reel/can treatment, master and answer prints, resale, government and interstate guidance, missing records, and no-outcome limit.

What this means for you

Film laboratories and tax professionals

Document the film's purpose, whether an output is intermediate or exhibition-ready, the customer's resale or government-sale role, destination, and who consumes film, reels, and cans. The later date printed in the live annotation is not a substitute for a dated source-body review.

Common questions

Q: Were surgical training films qualified motion pictures?

A: Yes.

Q: Were intermediate processing charges taxable?

A: No.

Q: Were prints shown to students taxable?

A: Yes, including the film, reel, and can.

Q: Did the opinion decide the aerospace films?

A: No. The source said the facts were insufficient.

Q: Did the reviewer adopt every conclusion in the March letter?

A: The review memorandum expressly records agreement only with the conclusion that training films are qualified motion pictures.

Q: Why does this page use March 13, 1989 rather than May 29, 1996?

A: March 13 is the formal letter date. The official PDF's review memorandum is undated, even though the live annotation lists the later date.

Citations and references

• California Revenue and Taxation Code § 6010.6
• California Sales and Use Tax Regulation 1614, Sales to the United States and Its Instrumentalities — enclosed but absent
• California Sales and Use Tax Regulation 1620, Interstate and Foreign Commerce — enclosed but absent
• California Sales and Use Tax Regulation 1668, Resale Certificates — cited and enclosed but absent
• January 25, 1989 request — described but not included
• March 13, 1989 memorandum to Dottie Nardone — identified by the review but not separately included
• Films, laboratory work, customer transactions, resale certificates, destinations, invoices, tax records, and outcomes — described but not documented

Verbatim support

From the official combined source:

We are in agreement with his conclusion, as follows

Training Films. Training films are qualified motion pictures. 3/13/89

In other words, your charges for film prints that will be exhibited to students for training (release prints) are subject to tax, including the charge for the film, reel and can.

With respect to your aerospace customers, there is not enough information in your letter to determine if these films are "qualified motion pictures" under Section 6010.6.

Qualified production services include the manufacture of the master or answer print for a qualified motion picture, but do not include charges for the manufacture of release prints or duplicate tapes for exhibition or broadcast.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 375.1065
• Original supporting opinion: 375.1065 PDF

Original ruling text

•

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

To Mr. Glenn Bystrom
From Gary Jugum
Subject Non-Attorney Opinions

I have reviewed your memorandum of March 13, 1989 to Dottie Nardone We are in agreement with his conclusion, as follows

Training Films. Training films are qualified motion pictures. 3/13/89

375.1065

375.1065

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

Telephone (916) 445-0387
March 13, 1989
Dear
Your January 25, 1989 letter to Mr. Joseph Cohen of our Hollywood office has been referred to me for reply. In your letter you asked if laboratory processing charges on surgical operation training films and aerospace manufacturer's films of their planes are subject to tax under Section 6010.6. You also asked if the reel and can on which the film is mounted is exempt from sales tax. Your business is a full service motion picture laboratory. As provided in the enclosed copy of 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 amusements parks, on commercial carriers, etc. for entertainment, commercial, advertising, promotional, industrial or educational purposes. As such, qualified motion pictures include training and educational films. However, qualified motion pictures do not include private non-commerical motion pictures such as weddings, graduations, etc. Training films of surgical operations are qualified motion pictures under Section 6010.6. As such, your charges for processing these surgical films would be nontaxable qualified production services unless you are manufacturing release prints or duplicate tapes for exhibition. In other words, your charges for film prints that will be exhibited to students for training (release prints) are subject to tax, including the charge for the film, reel and can. However, if you process film that is used for an intermediate purpose (i.e. edit copy, daily, etc.) or if you perform intermediate services (i.e. editing, cutting, etc.) your entire charge will be nontaxable and you will be the consumer of any film used in performing this qualified production service. With respect to your aerospace customers, there is not enough information in your letter to determine if these films are "qualified motion pictures" under Section 6010.6. However, I can provide you with some general guidelines concerning the application of tax. If the film being processed is not a qualified motion picture or the film is a release print of a qualified motion picture, your charges will be subject to tax unless otherwise exempt (i.e. resale,

interstate commerce, U.S. Government, etc.). With respect to resales, if your customers are reselling these films to their customers or to the U.S. Government, these sales are exempt sales for resale. In such cases, your customer should provide you with a valid resale certificate as provided in the enclosed copy of Regulation 1668, "Resale Certificates." If you perform qualified production services, as defined in Section 6010.6, your charges will be nontaxable. In addition, when providing qualified production services you are the consumer of any film used regardless of the fact that the film will be resold or shipped out-of-state, or that your customer is the U.S. Government. Qualified production services include the manufacture of the master or answer print for a qualified motion picture, but do not include charges for the manufacture of release prints or duplicate tapes for exhibition or broadcast. With respect to film, reels and cans, tax applies to their sale unless they are transferred pursuant to a contract for qualified production services. If you transfer film, reels and cans under a qualified production services contract, you are the consumer of the film, reels and cans. As a consumer, you should pay tax reimbursement to your suppliers at the time of purchase or report use tax on the cost of these items if they were purchased without tax (i.e. for resale or from an out-of-state vendor). In addition to Section 6010.6 and Regulation 1~68, 'I have enclosed copies of Regulation 1614, "Sales to the United States and Its Instrumentalities" and Regulation 1620, "Interstate and Foreign Commerce" for your reference. I hope this information is helpful. If you have any additional questions, please let me know. Sincerely,

Glenn A. Bystrom
Principal Tax Auditor

GAB:gjm
Enclosure:

cc:
bc:

Section 6010.6
Regulation 1614
Regulation 1620
Regulation 1668

Joseph Cohen - Hollywood District office
Mr. Ron Dick
Mr. Jeff McGuire
Hollywood District office - For your files.
Exemption Letter File - with copy of incoming.