How did California Staff Counsel answer a commercial artist's questions about advertising-agency purchases, photographers and assistants, reproduction rights, production labor, shipping, video, and production equipment?

Plain-English summary

The requester described a business selling photographic images and videos. Staff Counsel had only its July 21 letter and seller-permit records, so Counsel expressly assumed from those limited facts that the business resembled an advertising agency. The response supplied general rules and answered twelve questions; it did not decide an audit, assess tax, review a completed deal, or report a later outcome.

Advertising-agency framework

An advertising agency could act as its client's agent only if it disclosed the client's name to the supplier, obtained and retained written evidence of agency status before acquisition, billed the client the same supplier price apart from the agency fee, and made no use of the property for another account. An agency acting in that role could not issue a resale certificate: the supplier made the taxable retail sale directly to the client, while the agency's reimbursement and directly related acquisition services were not a second sale.

If the agency bought on its own behalf, it was the purchaser and became the seller of property delivered to the client. It could issue a resale certificate only for property resold before use, including property incorporated into an employee-produced item sold before use. Its retail selling price included production expenses and services even when separately itemized; the source lists supervision, consultation, research, postage, express charges, telephone and telegram messages, travel, model or talent fees, typography and other production services.

Ten still-photography answers

1. Another photographer's actual photograph could be bought for resale if it would be resold or incorporated into the agency's product before use. Copying the acquired photo was a use and made that acquisition taxable.
2. An independent photographer using buyer-furnished materials to produce property that the buyer would resell before use was not technically making a sale for resale, because section 6006(b) reaches fabrication for a consumer. Counsel nevertheless recommended taking a resale certificate to prove the work was not for a consumer. The buyer still could not deduct the outside photographer's fee from its own taxable retail price.
3. The same pre-use rule applied when Photographer A hired Photographer B for an out-of-state client. A could buy ex-tax only if A resold the photos or incorporated them into resale property before use; copying them before selling copies or originals made B's sale to A taxable.
4. Materials intended exclusively for out-of-state resale could be bought under a resale certificate if the photographer made no prior use.
5. Transferring a photo with reproduction rights was a taxable sale if the client did not have to return that same photo. Requiring return made it a lease, but a self-produced finished photo generally was not leased in substantially the same form as the raw film acquired, so rentals remained taxable. A purchased print later leased unchanged could satisfy that form condition.
6. A photographer produced a taxable photograph under section 6006(b) even when the client supplied all materials.
7. Assuming the assistant was not an employee, tax depended on what the assistant did. Producing tangible property for the photographer as consumer could be a taxable retail sale; property resold before use could be acquired ex-tax; and pure services transferring or producing no tangible property were not sales. The photographer's later retail price allowed no deduction for the assistant's service cost.
8. The photographer could not remove assistant labor from the measure of tax on the retail sale.
9. Makeup, production-assistant, model, stylist, electrician and similar costs were expenses of producing the sold property and remained in gross receipts.
10. Handling was taxable. Qualifying transportation from the shipping point directly to the purchaser could be excluded within section 6012(c)(7)'s limits when separately stated. Counsel treated a postage and handling label plus the actual postage shown on the package as a separate statement, allowing exclusion up to the customer's combined charge. Freight incurred while producing the final property remained taxable.

Motion-picture and video answers

The letter separately described then-current Regulation 1529. It said specified transfers of a qualified motion picture before general exhibition or broadcast, and specified transfers to a holder of exploitation rights obtained before that date, were not taxable. Qualified production services performed in making such a picture also were not taxable, while raw film, sound tape, videotape stock, artwork and other tangible inputs sold to a producer or service provider were taxable.

A qualified-production-service provider was the consumer of equipment used in those services and could not buy it for resale. A later lease of equipment bought tax-paid could be nontaxable if the equipment remained in substantially the same form. A producer who always leased rather than used the equipment could elect timely to pay tax on the purchase price; without that election, tax was measured by rentals. A service provider likewise could not issue a resale certificate for raw stock it used, but a person outside that service role could buy property for resale or incorporation before use.

Live annotation and source posture

The current live annotation publishes only the ten still-photography questions and answers. It omits the assumed advertising-agency framework and both motion-picture/video questions. It also condenses important branches: question 3 omits the source's taxable-copying examples; question 5 omits the substantially-same-form distinction between a self-produced image and a purchased print; question 7 omits the express nontaxable pure-service case; and question 10 reduces the source's separate-statement, visible-postage, statutory-limit, post-sale-transportation and production-freight analysis to an actual-postage statement. The live page calls pre-resale incorporation physically incorporating property, while the supporting letter does not use that qualifier in its answer.

The PDF's postage discussion cites Business Taxes Law Guide Annotation 557.0450 with a September 16, 1974 date. A direct request to the exact live 557.0450 URL returned HTTP 404, and the current 557 collection moves from 557.0449 to 557.0452 without listing 557.0450. This page preserves the printed citation rather than substituting another annotation.

The source supplies no July 21 inquiry, permit record, identity, client appointment, agency agreement, supplier disclosure, written agency authorization, supplier bill, photograph, negative, raw film, client-furnished material, assistant agreement, resale certificate, reproduction-right license, return obligation, rent, production invoice, shipping label, postage proof, motion picture, exploitation-right record, equipment lease, raw-stock purchase, broadcast date, return, audit, assessment or final transaction result. It says Regulations 1528, 1529, 1540, 1628, 1660 and 1668 plus two tax-tip pamphlets were enclosed; those materials and Regulation 1686 are cited, but none of the enclosures appears in CDTFA's eleven-page PDF.

CDTFA's Annotated Legal Opinions collection says the letters are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official eight-page PDF has a clean native text layer and one page-one letterhead stencil, not scanned text, so no OCR was required. Two fresh direct PDF downloads and two collection-page downloads were byte-identical, duplicate default PDF text extractions matched, and the original-text section remains byte-identical to its committed version and the fresh extraction after removal of only the extractor's terminal newline and form feed.

What this means for you

Photographers and advertising agencies

Document whether you act as a disclosed agent or buy on your own account, when acquired property is first used, what assistants actually transfer or produce, and whether the client must return the same photograph. Labels such as labor, rights, postage and handling, or out-of-state client do not resolve those factual questions.

Motion-picture and video businesses

Separate transfers and production services covered by the qualified-motion-picture rules from taxable inputs and equipment use. This 1993 source is not evidence that today's definitions, elections or exemptions are unchanged.

Common questions

Q: Did an out-of-state client automatically make Photographer B's sale exempt?

A: No. The answer turned on whether Photographer A resold or incorporated the photos before using them. Copying them first was a taxable use under the source.

Q: Was all assistant labor taxable?

A: No. An independent assistant who neither transferred nor produced tangible property provided a nontaxable service. Fabrication for the photographer as consumer could be taxable, and resale-before-use treatment depended on the stated facts.

Q: Did licensing reproduction rights alone determine taxability?

A: No. Counsel assumed a photograph was transferred and distinguished a nonreturnable photo sale from a returnable lease. The lease analysis then turned on whether the property was leased in substantially the same form as acquired.

Q: Could a seller exclude the entire postage-and-handling charge?

A: Not automatically. Handling remained taxable. The source allowed a transportation exclusion within the statutory limits when actual postage appeared on the package, up to the amount the purchaser paid for postage and handling.

Q: Did the source decide the requester's actual tax liability?

A: No. It answered a questionnaire under an express limited-facts assumption and supplies no transaction records, audit, assessment or later outcome.

Citations and references

• California Revenue and Taxation Code sections 6006(b), 6006(g)(5), 6007, 6010(e)(5), 6010.6(c)(1), 6011(c)(7), 6012(a)(2), 6012(b)(1), 6012(c)(7), 6051, 6201 and 6401 — cited in the letter
• California Civil Code section 1656.1 — cited for contractual sales-tax reimbursement
• California Sales and Use Tax Regulations 1528, 1529, 1540, 1628, 1660, 1668 and 1686 — cited; six regulations were described as enclosures but are absent
• Printed Business Taxes Law Guide Annotation 557.0450 (9/16/74) — exact live URL is 404 and no entry appears in the current 557 collection
• Tax Tips for Advertising Agencies and Tax Tips for The Graphic Arts Industry — listed as enclosures but not reproduced
• July 21 inquiry, permit records, agreements, transaction evidence, tax filings and outcomes — described or implicated but not included

Verbatim support

From the official October 20, 1993 Staff Counsel letter:

From these limited facts, I am assuming that your business is similar to an advertising agency.

If instead, the photographer makes any use of the photos prior to resale, such as copying the photographs; the photographer is using the photos and may not purchase them for resale.

If the assistant does not provide any tangible personal property and does not produce any tangible personal property using materials provided by another person (e.g. the photographer), then the assistant is not selling the tangible personal property and sales tax does not apply to his charges to the photographer.

The charges for handling are part of the retailer's receipts from the sale of tangible personal property and may not be deducted from the measure of tax based on their being separately stated to the purchaser.

It should be noted that only the charges for the transportation of the final product to the purchaser are excluded from the measure of tax.

Under Regulation 1529, a person who performs qualified production services is the consumer of, and not the lessor of, tangible personal property which that person uses in the performance of the services.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 420.0310
• Original supporting opinion: 420.0310 PDF
• Current transportation-charge collection: Annotation 557 collection

Original ruling text

420.0310
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District, Kentfield

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR
Third District, San Diego

October 20, 1993

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

X-----------------------Re:

BURTON W. OLIVER
Executive Director

Application of Tax to Sales of
Photographic Images and Videos

Dear Mr. X------------------,
This is in response to your letter dated July 21, 1993. We apologize for the delay in responding to your request for advice. Your letter consisted of a series of questions related to still photography, motion pictures and video. Below, a brief discussion of the applicable law is provided followed by answers to your specific questions. Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. Although the sales tax is imposed upon the retailer, the retailer may collect sales tax reimbursement (usually itemized on the invoice as "sales tax") from the purchaser if the contract of sale so provides.· (Civ. Code § 1656.1.) When the sales tax does not apply, Revenue and Taxation Code section 6201 imposes a use tax on the storage, use or other consumption of tangible personal property in this state. (Rev.
& Tax. Code § 6401.)
A "retail sale" or "sale at retail" means a sale for any purpose other than resale in the regular course of business in the form of tangible personal property. (Rev. & Tax. Code § 6007.) A purchaser who purchases property for resale in his or her regular course of business may issue the seller a resale certificate. (Regulation 1668 (copy enclosed) . ) Sales and Use Tax Law Applicable to Advertising Agencies Your seller's permit records indicate that you are a commercial artist and that your business sells photographic images and videos. From these limited facts, I am assuming that your business is similar to an advertising agency. The application of tax to the activities of advertising agencies is set forth in Regulation 1540, a copy' of which is enclosed. As explained in Regulation 1540, an advertising agency may act as an agent when it purchases property from a vendor or it may, instead purchase the property on its own behalf for consumption, for resale or for both. If an advertising agency is acting as an agent of its client, then it is not considered a purchaser of that property nor is it considered a seller of that property to its client (i.e., if the agency is an agent of its client, then the client is purchasing the property directly from the vendor and there is no sale as between the advertising agency and its client). On the other hand, if the advertising agency is acting on its own behalf when it acquires property, then it is considered a purchaser. The advertising agency will ·then also be considered a seller if it sells that property to the client.

Property Acquired From Suppliers
When an advertising agency acquires property such as collateral materials, artwork, including photographs, and other production items, the advertising agency will be regarded as having purchased these items on its own behalf, unless it can establish that it was acting as an agent of its client when it made these purchases. Subdivision (a) (2) (A) of Regulation 1540 explains: "To establish that a particular acquisition was made as agent for its client (i) the agency must clearly disclose to the supplier the name of the client for whom the agency is acting as agent, (ii) the agency must obtain, prior to the acquisition, and retain written evidence of agent status with the client, and (iii) the price billed to the client, exclusive of any agency fee, must be the same as the amount paid to the supplier. The agency may make no use of the property for its own account, such as charging the item to the account of more than one client. An advertising agency may not issue a resale certificate to the supplier. It will be presumed that an advertising agency who issues a resale certificate to its supplier is purchasing the tangible personal property on its own behalf for resale and is not acting as an agent for its client." When the advertising agency makes a purchase as an agent of its client, the client is the purchaser directly from the supplier. That retail sale from the supplier to the client is subject to tax, but tax does not apply to the charges made by the agency to its client for reimbursement of the charges by the supplier or for the performance of the agency's services directly related to the acquisition of the property. An advertising agency is not an agent of the client when it purchases property that will be incorporated into the final product to be produced by its employees for the client. (Reg. 1540(a) (2) (B).) If the agency is not acting as an agent for the client, then the agency is the purchaser of the property acquired from the supplier. The agency is the seller of such property which it delivers or causes to be delivered to its client. When the agency is acting on its own behalf, it may issue a resale certificate to its supplier for all property which the agency will resell to its client prior to use (which would include any property incorporated into property produced by the agency and then sold prior to any use). Property Sold by Advertising Agency to its Clients Advertising agencies are regarded as sellers of all tangible personal property produced or fabricated by their own employees. Advertising agencies are not considered agents of their clients when they purchase materials that will be incorporated into. items of tangible personal property prepared by their employees. When the advertising agency bills a client, its charges may include compensation for tangible personal property sold by the agency to the client and compensation for expenses and service costs related to the production of the property. Here, tax applies to the total amount of the retail sale of the property, whether the property, as prepared by employees of the agency or acquired from an outside source. Subdivision (b) (1) of Regulation 1540 states that tax applies to the total amount of the retail sale price of the property even though some of the charges on the billing may represent compensation for expenses incurred in and the service costs related to the production of the property 1 . This includes charges for supervision, consultation, research, postage, express, 1

As an example, if you produce a print advertisement for a client, your charges to the client may consist of a final bill itemizing the expenses you incurred in making the ad, such as labor, models/actors fees, equipment expenses

telephone and telegram messages and travel expenses. Likewise, no deductions may be taken on account of the payment of model or talent fees, or for the cost of typography, or for the cost of other services involved in the producing of such items, even though such costs are itemized in the billing rendered to the client 2 . Given this background, I will answer your specific questions regarding the areas of still photography and motion pictures and video. Still Photography "1) Can one photographer purchase another photographer's photographs using a resale certificate?" Generally, tax applies to sales of photographs. (Regulation 1528 (copy enclosed).} If the actual photograph purchased by the photographer will be resold to the client prior to any use by the photographer or if it will be incorporated into the property produced by the agency that will be resold, then the photographer can purchas0 the property ex-tax by issuing a resale certificate. If instead, the photographer makes any us~ of the photos prior to resale, such as copying the photographs; the photographer is using the photos and may not purchase them for resale. "2) Can one photographer purchase another photographer's labor using a resale certificate?" A resale certificate is used only when you purchase tangible personal property for resale in the regular course of business. A photographer's labor mayor may not be a "sale" or "purchase" for purposes of the Sales and Use Tax Law. Revenue and Taxation Code section 6006(b} defines a "sale" to include" [t]he producing, fabricating, processing, printing, or imprinting of tangible personal property for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing or imprinting." If the assistant is producing tangible personal property for a consumer (such as the photographer), and the consumer will use that tangible personal property, then the assistant is selling tangible personal property at retail subject to sales tax even if the consumer provided all materials used by the assistant to produce the property. If on the other hand, the photographer provides all materials used by the assistant to produce tangible personal property that will be sold to the client prior to any use, then there is no "retail" sale. (For example, if the photographer hires an assistant to take pictures using film provided by the photographer and the film is sold to the client prior to any use by the photographer then the producing of the film by the assistant is not a "sale" and the assistant's charge is not taxable.) To evidence the fact that the tangible personal property was not used prior to resale, the photographer should take a resale certificate from the assistant 3 . As discussed above, the full sale price of your retail sales are subject to sales tax," with no deduction for labor or material costs. Thus, if a photographer does some portion of the work etc. The total amount of the bill will be subject to tax (except transportation charges as discussed below). You may not deduct these expenses before calculating tax. 2 Tax however does not apply to service charges where the service does not represent services that are a part of the sale of the tangible personal property. 3 Since the assistant is not making a sale to the photographer, the assistant is not really making a sale for resale. Nevertheless, the best way to prove that the producing was not for a consumer is to take a resale certificate.

in producing the property you sell to your client, the fees that the photographer charges you may not be deducted from your taxable retail selling price. "3) Photographer A has an out of state client. Photographer A hires Photographer B to shoot photos for this client. Does Photographer B charge Photographer A sales tax?" If the photos will be resold or will be incorporated into the property to be resold, prior to any use, Photographer A may purchase them ex-tax by providing a resale certificate. If instead, Photographer A does not resell them, or uses them prior to resale, Photographer A's purchase of the photos is subject to tax. For example, if Photographer A copies the photos and sells the copies, the sale to Photographer A is a retail sale. Similarly, if Photographer A copies the photos and thereafter sells the copies and the original photos, the sale to Photographer A is a taxable retail sale. "4) Can a photographer use his resale certificate to purchase photographic materials that are to be exclusively sold out of state?" Yes, provided the photographer makes no use of materials prior to the resale. "5) If a client leases the rights to reproduce photographic images, but the photographer maintains possession of the original images, does the photographer charge sales tax to the client?" A lease of tangible personal property in California is a taxable continuing sale and purchase unless the lessor leases the property in substantially the same form as acquired and has paid sales tax reimbursement or use tax to the vendor or makes a timely election to pay use tax measured by the purchase price. (Rev. & Tax. Code §§ 6006 (g) (5), 6010 (e) (5), Reg. 1660 (copy enclosed).) A lease includes a contract under which a person secures for a consideration the temporary use of tangible personal property. (Regulation 1660(a).) In the case of a lease that is a "sale" and a "purchase", the tax is measured by the rentals payable. Generally the applicable tax is a use tax upon the use in this state of the property by the lessee. The lessor must collect the tax from the lessee at the time the rentals are paid and give the lessee a receipt of the kind provided for in Regulation 1686. Under the facts stated, I assume that by saying that "the photographer maintains possession of the original images" you mean that the photographer retains the negatives and transfers to the lessee a photograph, such that some tangible personal property is being transferred. If the lessee is not obligated to return the same photograph provided to the lessor, then the transfer of the photograph is a sale and subject to sales tax. If the lessee must at the end of the lease term return that same photograph, then the transfer would be a lease. However, the transfer here will still be subject to tax under the rules stated above. To be excluded from tax, the lessor must lease the property in substantially the same form as acquired and must have paid sales tax reimbursement or use tax on the purchase price. In the case of a photograph taken by the lessor, it cannot be leased in substantially the same as acquired since it consisted of raw film when it was acquired, and the photographer therefore does not lease it in substantially the same form (as raw film). A photograph can be leased in substantially the same form as acquired if the photographer purchases a print and then leases that very same print. Thus, if the photographer himself buys raw film, takes and prints the photo, then it cannot be leased in substantially the same form as acquired and the lease of ~he photograph will be subject to tax measured by the rentals payable.

"6) If a client supplies all the photographic materials to the photographer, does the photographer charge sales tax for his labor?" As mentioned above, sales of tangible personal property are subject to tax. Revenue and Taxation Code section 6006(b) defines a "sale" to include" [t]he producing, fabricating, processing, printing, or imprinting of tangible personal property for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing or imprinting." Under this definition, the photographer is making a "sale" of the photographs and that sale will be taxable even though all of the materials may have been provided by the client. "7) Does a photographer's assistant have to charge the photographer sales tax for his labor?" I assume that the assistant is not an employee of the photographer. Whether or not sales tax applies depends upon whether the assistant is making a retail sale of tangible personal property to the photographer. If the assistant produces property and then charges the photographer an amount (which includes compensation for his labor/services) then the assistant is making a sale of tangible personal property 4 . If that sale is at retail, then sales tax applies. When the photographer resells property he purchased from an assistant prior to any use by the photographer, the photographer may purchase the property ex-tax for resale. If the assistant does not provide any tangible personal property and does not produce any tangible personal property using materials provided by another person (e.g. the photographer), then the assistant is not selling the tangible personal property and sales tax does not apply to his charges to the photographer. In any event, the photographer's full charge for the sale to his clients is subject to tax, with no deduction on account of the amount paid for the services provided by the assistant in the production of the property. In other words, there is no deduction of labor costs from the sales price. "8) Does the photographer have to collect sales tax on a photographer's assistant's labor?" As stated above, a photographer cannot deduct his labor costs from the selling price before computing sales tax. Sales tax is due on the entire selling price of retail sales of tangible personal property. "9) On a large photography shoot, involving the labor ~of several positions hired by the photographer ( i.e. make-up, production assistant, models, stylists, electricians), does the photographer have to collect sales tax on the labor of all these positions?" As stated earlier, the measure of tax is based upon the gross receipts of a retail sale. Revenue and Taxation Code section 6012 defines "gross receipts" as the total amount of the sale without any deduction for the "cost of the materials used, labor or service cost, interest paid, losses or any other expense." (Rev. & Tax. Code § 6012{a) (2).) These positions are an expense in the creation of the property to be sold to the client and thus their costs are included in the measure of tax. 4

As discussed above, if the photographer provides all materials used to produce the property, the assistant is not technically "selling" to the photographer if the photographer will sell the property prior to any use. For purposes of this discussion, such contracts are equivalent to sales for resale.

This rule is further explained in Regulation 1540 which states that tax applies to the total amount of the retail sale of the property. Tax applies to charges for services rendered that represent services that are a part a sale of the property, or a labor or service cost in the production of the property. "10) Should sales tax be collected on postage and handling? (Postage & Handling includes cost of postage and markup on envelopes and labor.)" Sales or use tax is imposed on all charges related to the sale of tangible personal property except those charges specifically excluded from taxation by statute. A retailer cannot avoid paying or collecting tax on part of the sales price of tangible personal property merely by stating some of them separately, such as overhead expenses of selling tangible personal property passed through to the purchasers, unless those charges are excluded from taxation by statute. Revenue and Taxation Code section 6012(c) (7) excludes from the definition of gross receipts: "Separately stated charges for transportation from the retailer's place of business or other point from which shipment is made directly to the purchaser, but the exclusion shall not exceed a reasonable charge for transportation by facilities of the retailer or the cost to the retailer of transportation by other than facilities of the retailer; provided, that if the transportation is by facilities of the retailer, or the property is sold for a delivered price, this exclusion shall be applicable solely with respect to transportation which occurs after the purchase of the property is made." (See also Rev. & Tax. Code § 6011 (c) (7), Reg. 1628.) The charges for handling are part of the retailer's receipts from the sale of tangible personal property and may not be deducted from the measure of tax based on their being separately stated to the purchaser. (See, e.g., Rev. & Tax. Code § 6012(b) (1) (the charge for services which are part of the sale of tangible personal property are subject to tax).) Charges for handling related to the sale of tangible personal are taxable whether separately stated or not. Thus, a charge for "shipping and handling" is not alone a separate statement of shipping charges. If there is no further itemization, the charge for shipping and handling would not constitute a separate statement of transportation charges and the entire charge would be included in the measure of tax. Although a designation for "shipping and handling" or "postage and handling" is not alone a separate statement of transportation charges, we have considered the designation "postage and handling" coupled with the actual amount of postage placed on the package mailed to a customer to constitute a separate statement of transportation charges excludable from the 101 measure of tax. (Business Taxes Law Guide Annotation 557.0450 0/1. -r (9/16/74) . ) Thus, when you make a charge for "postage and handling" and the cost of the postage is clearly set forth on the package, then the postage charges are excludable from the measure of tax (up to the amount paid by the purchaser for postage and handling). It should be noted that only the charges for the transportation of the final product to the purchaser are excluded from the measure of tax. Transportation charges incurred in the production of the property (e.g.- shipping costs for materials purchased by the agency to be incorporated into the final property) are included in gross receipts (there is no deduction from the selling price for these transportation expenses) . Motion Pictures/Video The application of tax to television commercials is set forth in Regulation 1529, a copy of which is enclosed. Television commercials are included in the definition of a "qualified motion picture." Tax does not apply to the transfer of all or part, or any interest in, a qualified motion

picture (including a commercial) if the transfer is prior to the date that the qualified motion picture is exhibited or broadcast to its general audience or the transfer is to any person holding either directly or indirectly, or by affiliation, any exploitation rights obtained prior to the date that the qualified motion picture is exhibited or broadcast to its general audience. Tax also does not apply to charges for qualified production services performed by any person in any capacity in connection with the production of all or any part of a qualified motion picture. "Qualified production services" are any fabrication performed by any person in any capacity on film, tape, or other audiovisual embodiment in connection with the production of all or any part of any qualified motion picture. Regulation 1529(b) (2) contains a list of other services included within the definition of qualified production services. Tax does apply, however, to the sale of raw film, sound tape, videotape stock, artwork and other tangible personal property to a person who produces a motion picture or performs qualified production services. (Rev. & Tax. Code § 6010.6(c) (1) and Regulation 1529(a).) Your letter asked two specific questions relating to motion pictures/video: "l} Should the producer collect sales tax for equipment he rents from a production or post-production rental facility? ( i.e. cameras, lighting & grip equipment, editing facilities, etc.)" As discussed above, leases of tangible personal property are subject to tax unless the lessor leases the property in substantially the same form as acquired and has paid sales tax reimbursement or use tax to the vendor or makes a timely election to pay use tax measured by the purchase price. (Rev. & Tax. Code § § 6006 (g) (5), 6010 (e) (5) . ) Under Regulation 1529, a person who performs qualified production services is the consumer of, and not the lessor of, tangible personal property which that person uses in the performance of the services. Thus, tax applies to the sale of equipment to a person who provides qualified production services and uses the equipment in providing those services. The person performing the services cannot issue a resale certificate when purchasing the property. However, if that person does thereafter lease such equipment (in addition to or instead of using the equipment when providing qualified production services), the leases would not be subject to tax since that person would have paid tax on purchase price and, I assume, would be leasing the property in substantially the same form as acquired. On the other hand, if the producer always leases the equipment (as opposed to sometimes or always using the equipment to provide qualified production services), his leases are not taxable if he makes a timely election to pay tax measured by purchase price. If he does not do so, his leases are subject to tax measured by the rentals payable. "2) Can a producer use a resale certificate in purchasing motion picture raw stock and raw video tape for resale to either a client or another production company? If not, may he be reimbursed for the sales tax he has paid?" Once again, a resale certificate is properly given when you intend to resell the property in the regular course of your business prior to any use by you. Under subdivision (a) (1) of Regulation 1529, a person who produces a motion picture or performs "qualified production services" is the consumer of, and tax applies to the sale to such

persons, of raw film, sound tape, or videotape stock. Thus, a person performing qualified production services may not issue a resale certificate when purchasing tangible personal property to be used in performing the services. If the person is not providing qualified production services, he may issue a resale certificate when purchasing tangible personal property that will be resold prior to any use or incorporated into the property to be sold prior to any use. For your information, I am enclosing several tax tip pamphlets published by the Board along with copies of the Regulations discussed above. If you have any further questions, please do not hesitate to write again. Sincerely,

Ms. Sukhwinder K. Dhanda
Staff Counsel

SKD:plh
Enclosures

Bc:

-

Regulations 1528, 1529, 1540, 1628, 1660, 1668
“Tax Tips for Advertising Agencies”
“Tax Tips for The Graphic Arts Industry”

Oakland District Administrator - CH