When did a 1995 California letter treat photograph retouching, restoration, and replacement-print charges as taxable?

Plain-English summary

The February 17, 1995 letter distinguished taxable work completing a new photograph from nontaxable repair of an existing used photograph.

Retouching a new photograph was taxable labor used to prepare it for sale, including processing a customer's new photograph. Repair labor was nontaxable only when the customer supplied a used, damaged photograph and the business repaired and returned that same photograph. Creating a new copy made the entire charge taxable.

The taxpayer described digitally opening a closed eye, sending a computer file to an out-of-state company for a negative, and using a photo lab to make a finished print. Because the business sold a new print rather than merely repairing the supplied photograph, the letter taxed the entire customer charge. Its resale analysis expressly assumed that the photo-lab print was the final product resold.

Under that assumption, the business could give the photo lab a resale certificate after obtaining a seller's permit. The letter treated equipment, computer disks and the out-of-state negative as production inputs rather than resale property, and required the business to report the negative's cost when its vendor did not collect California use tax.

The letter quoted section 6396 and distinguished an in-state delivery to an out-of-state customer from contractually required shipment outside California by the retailer or through a qualifying carrier. It still treated the business's use of the negative as taxable when the final print sale qualified for the shipment exemption.

Live annotation and source posture

The current live annotation says retouching a new photograph is taxable and restoration that returns a photograph to its original condition is nontaxable. It does not preserve the source's narrower used-and-damaged requirement, the requirement to return the same photograph, or the rule taxing the full charge when a new copy is made.

The live page also omits the closed-eye example, the assumed final-product resale, the production-input and use-tax analysis, the vendor-registration condition, and the interstate-shipment discussion. Those are historical results of the supporting letter, not added facts from the shorter annotation.

The fourth source page visibly prints Tax applies not apply in the sentence about a contractually required out-of-state shipment. This page preserves that wording rather than silently correcting it. The quoted section 6396 language and the surrounding contrast disclose the subject of the sentence, but the official source supplies no correction.

The four-page PDF references a December 1, 1994 inquiry, two versions or passages of Pamphlet No. 68, and Regulation 1526 and Regulation 1620 enclosures. None is included. It supplies no customer invoice, seller's permit, resale certificate, vendor registration, negative invoice, tax return, carrier record, contract, audit, assessment, refund claim, or applied outcome.

CDTFA's Annotated Legal Opinions collection says these letters are summarized as annotations and statutory law controls over an inconsistent annotation. The official PDF has a clean native text layer and only one small page-one letterhead image, so no OCR was required. Two fresh direct PDF downloads and two live-page downloads were byte-identical; duplicate default text extractions also matched.

What this means for you

Identify what the customer receives. The letter's repair exclusion required work on the customer's same used, damaged photograph. Delivering a newly produced print changed the result, and buying a print for resale did not turn the business's own equipment, disks or negative into resale property.

Common questions

Q: Was every restoration charge nontaxable?

A: No. The source excluded only labor repairing and returning the customer's same used, damaged photograph.

Q: Why was the closed-eye job taxable?

A: The business created a computer-generated image, negative and finished new print instead of merely returning a repaired original.

Q: Could the photo-lab print be bought for resale?

A: Yes, under the letter's express assumption that it was the final product sold to the customer and after the business obtained a seller's permit and issued a resale certificate.

Q: Did an exempt out-of-state print shipment eliminate tax on the negative?

A: No. The letter separately treated the business's use of the purchased negative as taxable.

Missing evidence and references

• December 1, 1994 taxpayer inquiry — described but absent
• Pamphlet No. 68, including the cited pages 3 and 6 — described but absent
• Regulation 1526 and Regulation 1620 enclosures — described but absent
• Customer, vendor, photo-lab, resale, use-tax and shipment records — implicated but absent
• Audit, assessment, refund and later agency outcomes — not supplied

Verbatim support

From the official February 17, 1995 Senior Staff Counsel letter:

If a customer has a used photograph which the photographer merely repairs or restores, the photographer’s charge for the repair labor is nontaxable.

Of course, this is the application of tax only when the photographer performs repair work on the customer’s damaged photograph and returns that same photograph to the customer.

If the photographer instead creates a new copy of the photograph for the customer, tax applies to the entire charge.

We assume that the print you purchase from the photo lab is the final product you sell to your customer.

However, tax does apply to the use by you of the negative you purchase from the out-of-state vendor regardless that you make an exempt sale of the final product in interstate commerce.

Citations and references

• California Revenue and Taxation Code § 6396
• California Sales and Use Tax Regulation 1525
• California Sales and Use Tax Regulation 1526 — referenced enclosure absent
• California Sales and Use Tax Regulation 1620 — referenced enclosure absent
• Historical Pamphlet No. 68 — cited material absent

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 420.0650
• Original supporting opinion: 420.0650 PDF

Original ruling text

420.0650

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)

DEAN ANDAL
Second District, Stockton

Telephone No.: (916) 445-6540
Fax No: (916) 323-3387

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

February 17, 1995

KATHLEEN CONNELL
Controller, Sacramento
────────

Ms. S--- K--- D--F--- F--XXX --- --- #XXX
---, CA XXXXX-XXXX

BURTON W. OLIVER
Executive Director

SR -- XX-XXXXXX
Dear Ms. D---:
This is in reply to your December 1, 1994 letter regarding the application of sales tax to charges by your computerized photograph restoration business. You noted that page 6 of Pamphlet No. 68, Tax Tips for Photographers, Photo Finishers and Film Processing Laboratories, discusses retouching of customer-owned prints. The pamphlet states that, if the retouching is to improve the quality of the print, the charge is taxable. On the other hand, tax does not apply if the retouching is only for the purpose of repairing and restoring. You note you understand this to mean that, if you retouch a photograph that has some dust spots on it, or some other defect that occurred during the printing process, then this is improving the print and is taxable. If you retouch spots, cracks, stains, or other damage that occurred after the printing process, you are bringing the photo back to its original condition, and your charge is not taxable. Your general analysis is correct. If a photographer retouches a new photograph for a customer, the charge is includible in the photographer’s taxable gross receipts, because the charge is for labor to prepare the photograph for sale. If that processing is done on a customer’s new photograph, the charge is subject to tax as part of the labor to complete the finished photograph. If a customer has a used photograph which the photographer merely repairs or restores, the photographer’s charge for the repair labor is nontaxable. Of course, this is the application of tax only when the photographer performs repair work on the customer’s damaged photograph and returns that same photograph to the customer. If the photographer instead creates a new copy of the photograph for the customer, tax applies to the entire charge. Enclosed is a copy of

Ms. S--- K--- D---

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February 17, 1995
420.0650

Sales and Use Tax Regulation 1526, Producing, Fabricating, and Processing Property Furnished by Customers--General Rules, for your further information.

Ms. S--- K--- D---

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February 17, 1995
420.0650

You note an example where a customer provides you with a photograph of his wife in which one of his wife’s eyes was closed, and he wanted it to look open. You created a computer-generated image, opened the eye, and printed the image to photographic film. You used the negative to make a finished print to sell to the customer. In that case, tax applies to your entire charge, including the charge for labor to alter the customer’s print, because you did not merely repair the customer’s defective print; rather, you sold a new print. Your letter goes on to state that, to make the computer-generated images, you send the computer file on disk to an out-of-state company which creates a negative and sends the negative to you. You then send the negative to a photo lab to make the finished print. You pay the photo lab for its charges. We assume that the print you purchase from the photo lab is the final product you sell to your customer. As noted above, tax applies to the entire charge you make to the customer for the print. Tax does not apply to the sale of tangible personal property to a person who purchases the property for resale or to incorporate as an ingredient or component part of the property sold. (Sales and Use Tax Reg. 1525, Property Used In Manufacturing.) Therefore, when you obtain a seller’s permit, you may issue a resale certificate to the photo lab in order to purchase the print ex tax. On the other hand, you may not purchase for resale any tangible personal property which you use to manufacture the final product. For example, tax applies to the sale to you of your equipment, computer disks, and the negative you purchase from the out-of-state vendor. If the out-of-state vendor of the negative is not registered to collect California use tax from you, you are responsible for reporting the cost of the negative on line 2 of your Sales and Use Tax Return. There is a discussion of “Purchases by Photographers” on page 3 of the enclosed revised edition of Pamphlet No. 68. As you noted, there is an exemption from sales tax for certain sales in interstate commerce. Revenue and Taxation Code section 6396 provides: “There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property which, pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer by means of: (a) facilities operated by the retailer, or (b) delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point. “For purposes of this section, the term ‘carrier’ shall mean a person or firm engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term ‘forwarding agent’ shall mean a person or firm engaged in the business of preparing property for shipment or arranging for its shipment.”

Ms. S--- K--- D---

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February 17, 1995
420.0650

Enclosed is a copy of Sales and Use Tax Regulation 1620 for your further information. Tax applies to your sale of a photograph in this state to an out-of-state customer. Tax applies not apply to your sale of a photograph which, pursuant to your contract, you are required to ship and do ship outside this state to your out-of-state customer. However, tax does apply to the use by you of the negative you purchase from the out-of-state vendor regardless that you make an exempt sale of the final product in interstate commerce. We hope this answers your questions; however, if you need further information feel free to write again. Very truly yours,

Ronald L. Dick
Senior Staff Counsel
RLD:sr
Encs.
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