Did a portrait customer's copyright interest make a photographer's negative customer-owned property so third-party retouching could be treated as resale work?

Plain-English summary

Audit staff found a business retouching photographic negatives for camera shops, portrait studios, and photographers. The business argued that the photographer's customer owned the negative through copyright and that its retouching was therefore resale work.

The argument relied on a missing Wedding Photographer trade-journal article reporting an attorney's view that the customer owned the negatives under what the article called the Copyright Act of 1978 unless the parties agreed otherwise, while the photographer retained possession and custody. Legal staff discussed 17 U.S.C. sections 201(b) and 202, Public Law 94-553's legislative history, and Bernstein v. Universal Pictures.

The memorandum separated copyright ownership from ownership of the physical object embodying the image. Even accepting its conclusion that the customer obtained an intangible copyright interest, that did not transfer ownership of the tangible negative. The photographer remained the consumer of negatives used to make photographs, so the third party's California retouching charge was generally taxable fabrication.

The source excluded retouching for out-of-state photographers when the retoucher made no prints from the negatives and shipped them out of state in accordance with section 6396. If it made prints in California before shipment, the retouching sale was taxable.

Live annotation and source posture

The current live annotation preserves the copyright/material-object distinction, customer-image premise, photographer-retouching fact, taxable retail-fabrication conclusion and May 10, 1985 date. It omits the March 20 audit memorandum, audited business's trade-journal argument, camera-shop and studio customers, quoted federal provisions and legislative history, verified Bernstein citation, photographer-as-negative-consumer premise, out-of-state section 6396 exception, California-print limitation, and absence of transaction evidence or a final audit result.

The supporting PDF supplies no March 20 memorandum, audited business or customer identity, copy or date of the Wedding Photographer article, attorney identity, photography or retouching contract, written work-for-hire or ownership agreement, negative, image, copyright registration or transfer, retouching invoice, print, California use, out-of-state order, shipment record, section 6396 evidence, audit workpaper, taxable measure, assessment, petition, refund or later outcome. It therefore records Legal staff's answer to reported audit facts, not proof that any specific charge satisfied or failed the interstate conditions.

The source's copyright conclusions are reported as its 1985 reasoning, not current copyright advice. Independent legal research resolved 379 F.Supp. 933 to the named Bernstein v. Universal Pictures, Inc. decision; that verification confirms the printed authority's identity, not the memorandum's broader copyright proposition or its application today.

CDTFA's Annotated Legal Opinions collection says memoranda are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official two-page PDF has a clean native text layer and no embedded raster image, so no OCR was required. Both fresh direct PDF downloads and both live-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

Keep image copyright, physical-negative ownership, negative possession, retouching services, print use and interstate shipment as separate factual questions. Do not infer ownership of the physical negative merely from copyright language, and do not infer the section 6396 result without evidence that the retoucher made no California prints before the documented out-of-state shipment.

Common questions

Q: Did an image copyright itself transfer the physical negative?

A: No under the memorandum's section 202 analysis; ownership of the intangible right and material object were distinct.

Q: Why was California retouching generally taxable?

A: The source treated the photographer as consumer of the negatives used to make photographs, making the third party's retouching taxable fabrication rather than resale work.

Q: When did the source exclude an out-of-state retouching charge?

A: When the out-of-state photographer's negatives were retouched, not used to make prints before shipment, and shipped out of state in accordance with section 6396.

Q: What if the retoucher made prints in California first?

A: The source treated the retouching sale as taxable even though the negatives were later shipped out of state.

Q: Does this page establish current copyright ownership for commissioned photography?

A: No. It reports a 1985 tax memorandum's analysis; current federal law, contracts and facts require separate review.

Citations and references

• 17 U.S.C. §§ 201(b) and 202
• California Revenue and Taxation Code § 6396
• Public Law 94-553 and its legislative history, as quoted in the source
• Bernstein v. Universal Pictures, Inc., 379 F.Supp. 933 — printed citation independently resolved to the named 1974 case
• March 20 audit memorandum, trade-journal article, contracts, negatives, retouching and print records, section 6396 evidence, audit, assessment and outcome — described or implicated but absent

Verbatim support

From the official May 10, 1985 Legal memorandum:

Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied.

It is our opinion that, for sales tax purposes, the fact that the customer obtains an intangible copyright interest in the image of a negative, when the customer's image is reproduced on the negative, does not transfer ownership of the tangible personal property to the customer.

Therefore, it is our opinion that, sales tax generally applies to REDACTED TEXT's sale of negative retouching in California.

Tax does not apply to REDACTED TEXT's sales or retouching to out-of-state photographers where REDACTED TEXT retouches such negatives and does not use the negatives to make prints prior to shipping the negatives out-of-state in accordance with Section 6396, Revenue and Taxation Code.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 420.0448
• Original supporting opinion: 420.0448 PDF

Original ruling text

State of California

Board of Equalization

420.0448

Memorandum
To:

Torrance – Audit (WVW)

From:

Headquarters – Legal (RLD)

Subject:

REDACTED TEXT

Date:

May 10, 1985

This is in reply to your March 20, 1985 memo regarding the application of tax to charges by REDACTED TEXT for negative retouching. Your audit staff discovered the charges during an audit of REDACTED TEXT. You noted that REDACTED TEXT’s customers include in-state and out-of-state customers consisting of camera shops, portrait studios, and photographers. Inasmuch as photographers are considered as the consumer of the negatives which are used to make photographs, the auditor has asserted tax on REDACTED TEXT’s charges for negative retouching. REDACTED TEXT has taken the position that its charges are nontaxable charges for resale and bases its contention on an article published in The Wedding Photographer, a trade journal. The article reports that an attorney who specializes in wedding photography believes that, under the Copyright Act of 1978, “the customer is the ‘owner’ of the negatives except if there is an agreement to the contrary. The photographer, however, has the right to retain possession and custody of the negatives.” We understand that the article’s reference to the Copyright Act of 1978 is to Title 17 of the United States Code as generally revised by P.L. 94-553, effective January 1, 1978. The article is apparently referring to Title 17, U.S. Code, Section 201, subdivision (b), which provides: “In the case of a work made for hire, the employer or other person for whom work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.” Under the law, the “work for hire doctrine” applies when the relationship of the parties is that of the employer-employee, and it is equally applicable where the creator of the work is an independent contractor. (Bernstein v. Universal Pictures, Inc., 379 Fed.Supp. 933.) Therefore, we agree that, under the Copyright Law, when a photographer takes a picture of a customer, the customer obtains a copyright interest in the image embodied on the photographer’s film. However, Title 17, U.S. Code, Section 202 provides that:

Torrance Audit (WVW)

-2-

May 10, 1985
420.0448

“Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.” The legislative history to P.L. 94-553 explains that: “The principle restated in section 202 is a fundamental and important one: that copyright ownership and ownership of a material object in which the copyrighted work is embodied are entirely separate things. Thus, transfer of a material object does not of itself carry any rights under the copyright, and this includes transfer of the copy or phonorecord -- the original manuscript, the photographic negative, the unique painting or statute, the master tape recording, etc. -- in which the work was first fixed. Conversely, transfer of a copyright does not necessarily require the conveyance of any material object. (5 U.S. Code and Congressional Administrative News 1976, p. 5739.) It is our opinion that, for sales tax purposes, the fact that the customer obtains an intangible copyright interest in the image of a negative, when the customer’s image is reproduced on the negative, does not transfer ownership of the tangible personal property to the customer. Therefore, it is our opinion that, sales tax generally applies to REDACTED TEXT’s sale of negative retouching in California. Tax does not apply to REDACTED TEXT’s sales or retouching to out-of-state photographers where REDACTED TEXT retouches such negatives and does not use the negatives to make prints prior to shipping the negatives out-of-state in accordance with Section 6396, Revenue and Taxation Code. On the other hand, where REDACTED TEXT does use the negatives to make prints in California prior to shipping the negatives out-of-state, sales tax applies to REDACTED TEXT’s sale of the retouching. We hope this answers your question, however, if you need further information, feel free to write again. RLD:ba