Were an event producer's charges taxable when it staged corporate shows with temporary rented property but transferred nothing to the client?

Plain-English summary

A company created corporate employee meetings and shows using freelance artists, costumes, props, projected graphics, lighting, sound, sets, decorations, and rented equipment. Its staff controlled setup, operation, teardown, and return of the property. The client received the event itself and kept none of the property afterward.

The opinion treated the company's true object as providing the event-production service. Because the company never transferred possession of the sets or equipment to its client, it was the consumer of all tangible property used to stage the show. Tax applied when the producer bought or rented that property, including tax measured by taxable rental payments.

The result depended heavily on the absence of a property transfer. The source compared the arrangement to a fireworks display and a parade-float service in which the provider retained and operated the property.

What this means for you

Event producers

Retaining control and possession of temporary sets, props, and equipment supports service treatment, but the producer bears tax as the consumer of those items.

Corporate event clients

The source treated the client as buying the live event, not the equipment used to produce it.

Accountants and tax professionals

Confirm who rents, controls, operates, receives, and keeps every item before classifying an event contract.

Common questions

Q: Were the event producer's client charges treated as taxable property sales?

A: No. On these facts, the producer rendered a service and transferred no tangible property to the client.

Q: Who owed tax on rented lighting, sound, projection, and other equipment?

A: The event producer, as consumer, owed tax on its purchases or taxable rentals.

Q: Did temporary sets and props make the client charge taxable?

A: No, because the producer retained possession and the client kept none of them.

Q: Could the unnamed client rely on the opinion?

A: No. Counsel specifically said the undisclosed client could not rely on the letter under section 6596.

Citations and references

• California Revenue and Taxation Code §§ 6006, 6007, 6010, 6051, and 6596
• California Sales and Use Tax Regulations 1501 and 1660(c)(1)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0978
• Original supporting opinion: 515.0978 PDF

Original ruling text

515.0978

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION - MIC 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone No.: (916) 324-2655
Facsimile No.: (916) 323-3387

JOHAN KLEHS
First District, Hayward
DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

July 3, 1995

KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

D--- H. W--President
D--- H. W--- Associates, Inc.
XXXX --- Plaza, Suite XXX
--- ---, CA XXXXX
Re: Sales and Use Tax Regulation 1501
Dear Mr. W---:
This letter is in reply to your March 9, 1995, letter regarding the application of sales tax to your client's charges for producing what you called "events." In your letter you state: One of my clients (Company X) produces corporate communications in the form of events and video. I understand that if the video is in the form of a motion picture it is covered by Regulation 1529. However, I would like to address the application of sales and use tax to the events. The events produced by Company X for its clients are employee meetings held to introduce new products or corporate messages or to reward employees for performance. The meetings (or shows) range in audience size from twenty-five to one thousand attendees. Company X's internal staff of producers create and produce these shows using freelance artists and other vendors. Company X's involvement is total from initial concept to final execution. Company X contracts and manages elements for these events/shows that may include any or all of the following:
•

Meeting concept and creative development

•

Skits and actors, costumes, props

D--- H. W---

-2-

•

Computer graphic projections (visual support for
executive speakers)

•

Stage lighting

•

Sound reinforcement (microphones, speakers, etc.)

•

Sets and set decorations

•

Projection equipment for videos and computer
graphics

•

Labor to set up and operate equipment during
rehearsals and performance

July 3, 1995
515.0978

A typical show is set up in a hotel ballroom, or other suitable location, and uses rented equipment that Company X specifies, contracts and pays for. Set ups are temporary and use labor contracted by Company X. When the show is over, rented equipment is returned and sets are either destroyed or returned to the rental facility. No part of the show remains or is given to the client after the performance. We take the position that Company X is the consumer of all items of TPP and related services that were purchased in order to produce the event or show. Company X pays sales or use tax on those purchases. The "true object" of the contract between Company X and its clients is the show or event, not the actors, sets or equipment used to stage the show. We believe that tax does not apply to the services billed to the clients of Company X for producing events or shows under the conditions outlined above. You ask if your understanding of sales and use tax application to your client's production of these events is correct. Section 6051 of the Revenue and Taxation Code imposes the sales tax on retailers for the privilege of selling tangible personal property at retail in this state. The measure of tax is the gross receipts from the retail sales in the state of tangible personal property. Section 6007, in part, provides that a retail sale means a sale for any purpose other than resale in the regular course of business in the form of tangible personal property. Any lease of tangible personal property in any manner with exceptions not relevant here for a consideration is a "sale" as defined in section 6006 and a "purchase" as defined in section 6010 of the Revenue and Taxation Code. The tax on such a "sale" is measured by the rentals payable. (Sales and Use Tax Regulation 1660(c)(1).)

D--- H. W---

-3-

July 3, 1995
515.0978

Sales and Use Tax Regulation 1501 provides that persons who are engaged in the business of rendering service are consumers, not retailers, of the tangible personal property which they use incidentally in rendering the service. Tax applies to the sale of the property to them. The basic distinction in determining whether a particular transaction involves a sale of tangible personal property or the transfer of tangible personal property incidental to the performance of a service is one of the true object of the contract; that is, is the real object sought by the buyer the service per se or the property produced by the service. A fireworks company's charge for presenting a fireworks display is not subject to sales tax when the fireworks company retains title to and possession of the fireworks, and its employees explode the fireworks. In such a case, the fireworks company performs a service and is the consumer of the fireworks so furnished. (Sales and Use Tax Annot. 515.0990, 10/7/81.) Similarly, where a decorating company contracts not only to build a float, but also to enter, display, operate the float in a parade, and furnish the driver and vehicle, the decorating company is the consumer of the material which it makes into the floats, since it does not transfer possession of the float to the customer. (Sales and Use Tax Annot. 515.1000, 10/21/54.) You state that Company X uses tangible personal property during the course of performing its contracts for its clients. In some instances property is rented by Company X specifically for use in the particular event. Company X also uses freelance artists and vendors for the production of the various events. Company X does not transfer possession of the tangible personal property to its clients either before, during, or after the event. Company X's employees operate, set up, tear down and return the property to the rental company. Further, Company X's clients do not retain any of the tangible personal property used during the event. The facts you described are similar to those in the two annotations cited above. That is, the property is used by the company providing the event, and the client does not take possession of the property. Company X is the consumer of all tangible personal property it uses to produce the events, and tax applies to the sale or rental of that property to Company X. Since you have not disclosed the name of your client, your client may not rely upon the contents of this letter for purposes of Revenue and Taxation Code section 6596. If you have any further questions, please advise. Sincerely,

Anthony I. Picciano
Staff Counsel

AIP:es