Would a broadcaster need a seller's permit, and lose occasional-sale treatment for its asset sale, if it transferred commercials to a subsidiary?

Plain-English summary

A television broadcaster made taped commercials and programming and was considering an asset sale. A subsidiary made copies for customers.

Licensing television programs was not classified as a selling activity. For commercials, however, a transfer of title from the parent to the subsidiary was a taxable retail sale. That activity required the parent to hold a seller's permit, so the parent's asset sale would not qualify as an occasional sale.

If the parent transferred possession of a commercial tape without transferring title, there was no sale, no permit requirement, and its asset sale was nontaxable. The same occasional-sale result followed if the subsidiary itself produced and sold the commercials and duplicates, because those activities were not attributed to the parent.

Three correspondence layers, alternative transfers, and source limits

Assistant Chief Counsel Gary J. Jugum answered an unnamed recipient on October 24, 1980. The source refers to three earlier correspondence layers: the recipient's June 20 inquiry, a July 17 Board response, and the recipient's August 6 letter making the hypothetical asset-sale facts more specific. None is included, so the PDF does not disclose the earlier analysis or whether the final hypothetical changed every material fact.

The parent corporation conducted normal television broadcasting. It owned and used cameras, mobile equipment, video recorders, and other technical equipment for live broadcasts and to prepare taped commercials, news, and entertainment. Some commercial customers wanted duplicates for other stations, and the broadcaster might license original programming to stations.

For programming, the letter accepted the recipient's suggestion that sale did not include leasing motion pictures, including television films and tapes. A subsidiary's charge to the parent for making program duplicates was taxable, but the parent's program licenses were not classified as sales activity under the Sales and Use Tax Law. The letter quotes no code section or regulation for that exclusion.

For commercials, original ownership would appear to belong to the parent, which would be viewed as their manufacturer. If the parent transferred title to a commercial, that was a taxable retail sale to the subsidiary, required the parent to hold a permit, and defeated occasional-sale treatment for its asset sale. If the parent transferred possession only, the letter treated that transfer as no sale, required no permit, and treated the parent asset sale as nontaxable.

The current live annotation adds that its possession-only occasional-sale answer assumes the parent makes no charge to the subsidiary and makes no other tangible-personal-property sales. Those two conditions do not appear expressly in the supporting letter's possession-only sentence. This page reports both official sources rather than silently inserting the later wording into the historical letter.

A third alternative placed commercial production with the subsidiary. If it created commercials for advertising customers, furnished them to the parent for broadcast, made duplicates, and sold those copies, its activity was not attributed to the parent. The parent's asset sale would then qualify as occasional.

The PDF does not include the June 20, July 17, or August 6 letters, parent or subsidiary identities, corporate records, broadcast or production agreements, advertising-customer orders, program licenses, original or duplicate tapes, copyright or title evidence, delivery records, intercompany charges, sales invoices, evidence of other parent sales, seller's permit, asset list or sale agreement, consideration, allocation, returns, audit, assessment, payment, refund claim, protest, appeal, or later outcome. It provides hypothetical advice and does not establish which alternative occurred or whether any asset sale happened.

The live annotation preserves commercial manufacture, subsidiary duplicates, planned asset sale, title-transfer and possession-only alternatives, separate subsidiary attribution, permit and occasional-sale outcomes, and October 24, 1980 date. It adds the no-charge and no-other-parent-sales conditions noted above. It omits the three correspondence layers, broadcasting equipment, live production and program licensing, taxable subsidiary-to-parent program-copy charge, conditional original ownership and manufacturer language, subsidiary-created-commercial alternative in full, missing authority citation, copied recipients, missing records, and absent transaction and tax outcome.

What this means for you

Broadcasters and production companies

Document which entity creates the content, owns it, transfers title, and merely handles physical copies. Those distinctions drove both the permit and asset-sale results.

Accountants and tax professionals

Do not treat all parent-subsidiary media transfers alike. The opinion separated program licensing, title transfers of commercials, possession-only transfers, and the subsidiary's own production activity.

Common questions

Q: Did licensing television programs count as a selling activity?
A: No. The opinion said licensing the programs was not classified as a selling activity under the Sales and Use Tax Law.

Q: What happened if the parent transferred title to commercials?
A: The transfer was a taxable retail sale, required a seller's permit, and prevented the parent's asset sale from qualifying as occasional.

Q: Was transferring possession without title a sale?
A: No. The opinion said no permit was required and the parent's asset sale would be nontaxable.

Q: Were the subsidiary's own commercial-production sales attributed to the parent?
A: No. If the subsidiary produced and sold the commercials and duplicates, the parent's asset sale could qualify as a nontaxable occasional sale.

Q: What extra conditions appear on the live annotation page?

A: It says the possession-only result assumes the parent charges the subsidiary nothing and makes no other tangible-property sales. The supporting letter does not state those conditions in that sentence.

Q: Was making program copies tax-free?

A: No. The letter said the subsidiary's charge to the parent for news and other program duplicates was taxable, even though the parent's program licensing was not treated as selling activity.

Q: Did the source establish who owned the commercials?

A: Only conditionally. It said original ownership would appear to be in the parent and that the parent would be viewed as manufacturer under the assumed facts.

Q: Did an asset sale actually occur?

A: The PDF does not establish that. It analyzes a hypothetical and includes no agreement, asset list, consideration, return, audit, assessment, or later outcome.

Citations and references

• Unidentified Sales and Use Tax Law provision excluding a lease of motion pictures, including television films and tapes, from sale — quoted without a citation
• June 20, 1980 inquiry, July 17, 1980 Board response, and August 6, 1980 follow-up — described but not included
• Corporate, commercial and program production, title, license, duplication, intercompany charge, other-sales, permit, asset-transfer, tax, administrative, and outcome records — described or implicated but not included

Verbatim support

From the official October 24, 1980 Assistant Chief Counsel letter:

The subsidiary's charge to the parent for making duplicate copies of news and other programming would be taxable, but the parent's licensing of the programs is not classified as a selling activity under the Sales and Use Tax Law.

If the parent sells (transfers title to) the commercial to the subsidiary, this would be a sale under the sales tax law, and the sale would be taxable as a retail sale.

If, however, the parent transfers only possession of the commercial tape to the subsidiary, then the transfer is not regarded as a “sale,” no permit is required, and the sale of assets by the parent would be nontaxable.

If it is the subsidiary which produces the commercials for advertising customers and furnishes the commercials for broadcasting to the parent, then the activities of the subsidiary in producing the commercial, making duplicates, and selling the duplicates would not be attributed to the parent.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0383
• Original supporting opinion: 395.0383 PDF

Original ruling text

395.0383

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

916-445-3723

October 24, 1980

Dear Mr.
This is in response to your letter of August 6, 1980. We apologize for the delay in our reply. On July 17, in response to your inquiry of June 20, 1980, we advise you as to the sales tax consequences of a hypothetical situation involving a sale of assets used by a television broadcaster. By your letter of August 6 you have sought to make more specific the hypothetical transaction under consideration. As we understand it the parent corporation engages in normal broadcasting activities; that is, it owns and uses television cameras, mobile equipment, video tape recorders, and other technical equipment. It uses the technical equipment for living broadcasting purposes and to prepare taped commercials and taped commercials and taped news or entertainment programs. In the case of commercials, some customers might wish to acquire duplicate copies to be furnished to other television stations. In the case of original programming, --- might wish to license the programs to other stations. With respect to programming, as you suggest, the term “sale” does not include a lease of “motion pictures, including television, films and tapes.” The subsidiary’s charge to the parent for making duplicate copies of news and other programming would be taxable, but the parent’s licensing of the programs is not classified as a selling activity under the Sales and Use Tax Law. With respect to commercials, the original ownership of the commercial would appear to be in the parent. The parent would be viewed as the manufacturer of the commercial under the sales tax law. If the parent sells (transfers title to) the commercial to the subsidiary, this would be a sale under the sales tax law, and the sale would be taxable as a retail sale. This would be an activity which would require the parent to hold a seller’s permit. The sale of the parent’s assets would not qualify as an occasional sale. If, however, the parent transfers only possession of the commercial tape to the subsidiary, then the transfer is not regarded as a “sale,” no permit is required, and the sale of assets by the parent would be nontaxable.

If it is the subsidiary which produces the commercials for advertising customers and furnishes the commercials for broadcasting to the parent, then the activities of the subsidiary in producing the commercial, making duplicates, and selling the duplicates would not be attributed to the parent, and the parent would not be engaged in a selling activity which would require it to hold a permit. The sale of the parent’s assets would then qualify as a nontaxable occasional sale.

Very truly yours,

Gary J. Jugum
Assistant Chief Counsel

J:alicetilton
Bc:

Honorable Richard Nevins
Hollywood – District Administrator