Could a nonprofit FCC-licensed radio network exempt master-tape production charges and equipment used for radio and syndicated television production?

Plain-English summary

The nonprofit network qualified for the master-tape and production-service exemption, but not the production-equipment exemption.

Full-time nonprofit operation did not exclude the network from the recording and television production industries, so the cited invoices for master tapes and production services were exempt. But because the network was FCC-licensed for radio broadcasting, the ruling taxed its motion-picture, video, and sound-recording equipment—including equipment used only to produce television shows that other outlets broadcast.

What this means for you

The ruling separated the tax treatment of produced masters and services from the equipment used to make them.

Common questions

Q: Did nonprofit status prevent the master-tape exemption? A: No.

Q: Was radio-broadcast equipment exempt? A: No.

Q: Was television-production equipment exempt because the network did not directly broadcast the TV shows? A: No. The Department applied the FCC-license exclusion to all covered equipment purchased, leased, or used by the broadcaster.

Citations and references

• Fla. Stat. § 212.08(12) — partial exemption for master tapes and production services
• Fla. Stat. § 212.08(5)(f) — production-equipment exemption
• Fla. Admin. Code r. 12A-1.085(1), (2) — production exemptions
• Fla. Stat. §§ 212.21 and 213.22 — strict construction and Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-006

Original ruling text

Feb 16, 1995

Re: TAA 95A-006
Video Production Charges
Section 212.08(5) & (12), F.S.
Rule 12A-1.085(1) & (2), F.A.C.
Taxpayer: XXX

Dear :

Your letter of September 7, 1994, requested a Technical Assistance Advisement, on behalf of XXX (hereinafter referred to as "Network") concerning master tapes and sound recording equipment. Along with your request, you submitted three invoices for video production charges from XXX (hereinafter "Productions"). This response constitutes a Technical Assistance Advisement (TAA) under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

STATEMENT OF FACTS

Your letter states in pertinent parts:

"[Network] is an organization exempt from income taxes under IRC s. 501(c)(3). It is a satellite radio network which transmits shows it produces internally. These shows are transmitted via satellite and are carried by over 200 affiliates nationwide. The show is also broadcast via shortwave radio. Anyone with the proper reception equipment may receive the signal. There is no charge to affiliates for rebroadcasts. Individuals with their own satellite receivers may also receive the signal directly from the satellite transmissions as the signal is not encoded. The shows are aired live and are taped. Listeners may call in to receive a cassette tape recording of the show. For the more popular shows, the cassette master tapes are retained for a period of time. Less popular tapes are erased within weeks of the air date.

"[Network] is arranging to also produce a television broadcast to complement its radio broadcasts. These shows will be syndicated and distributed via video tapes to nationwide affiliates and/or cable television systems. A video production technician has been contracted to produce these video tapes."

"... Since [Network] is a not-for-profit charitable organization, it is engaged in these activities for eleemosynary purposes, not for a livelihood or a profit'. However, since [Network] is involved in the activities on a full time basis, with a staff of over 50 employees, broadcasts radio shows it produces, and also syndicates its television show, it is evident that [Network] is not engaged in these activities as a mere hobby. The sole distinction separating [Network] from others in the industry is that the content of its broadcasts, much like those of National Public Radio and the Public Broadcasting Corporation, is aimed at charitable and educational purposes and not for a livelihood or a profit. Is the definition ofrecording industry' and of `motion picture industry' meant to distinguish between those engaged in the activities merely as a hobby from those engaged in the activity as a full time endeavor, or is the definition to be taken literally to exclude not-for-profit organizations?"

You further state:

"... [Network] is licensed by the Federal Communications Commission for its radio show broadcasts, however, [its] television shows are syndicated and not aired directly by
[Network]....

"The equipment which would be used to produce the master video tapes (such as video cameras, etc.) would be used exclusively for that purpose. The equipment used to produce the radio show (such as satellite uplink equipment, satellite transmission and receiving antennas, microphones, sound boards, etc.) is used exclusively for that purpose."

You also state that Network does not hold a Consumer's Certificate of Exemption.

According to our telephone conversation of December 30, 1994, Network has now purchased video cameras and editing and various other equipment, and is producing their own television tapes. Network will not broadcast the tapes, but will continue to distribute them to television networks and cable television systems.

REQUESTED ADVISEMENT

Your request presents the following questions:

"1. Does [Network] meet the criteria under Rule 12A1.085(1)(b)[,] F.A.C.[,] for the reduced measure of tax with respect to the purchase and production of master tapes? In other words, even though [Network] is a not-forprofit organization, does it still qualify as a member of the recording industry and/or the motion picture industry and would the charges assessed it by a recording studio for master tapes therefore be taxable only on the tangible elements?"

"2. Does [Network] meet the criteria under Rule 12A1.085(2)[, F.A.C.,] for exemption from tax on its qualifying tangible personal property and if so, what of the tangible personal property could be considered qualified for the exemption? It appears, based on the wording of this rule, that the property used to broadcast the radio shows would not be exempt. Is this conclusion correct? Since the television show is not broadcast by
[Network] directly, its television production is not subject to the Federal Communications Commission license in the same manner that its radio broadcasts are subject. Therefore, would those assets which are used to produce the television show be considered exempt from the sales tax under these guidelines?"

RELEVANT AUTHORITY

The following passages quoted from the Florida Statutes and the Florida Administrative Code are pertinent to your request.

Section 212.08(5), Florida Statutes (F.S.), provides in part:

"(f) Motion picture or video equipment used in motion picture or television production activities and sound recording equipment used in the production of master tapes and master records. "1. Motion picture or video equipment and sound recording equipment purchased or leased for use in this state in production activities is exempt from the tax imposed by this chapter upon an affirmative showing by the purchaser or lessee to the satisfaction of the department that the equipment will be used for production activities. The exemption provided by this paragraph shall inure to the taxpayer only through a refund of previously paid taxes. Notwithstanding the provisions of s. 212.095, such refund shall be made within 30 days of formal application, which application may be made after the completion of production activities or on a quarterly basis. Notwithstanding the provisions of chapter 213, the department shall provide the Department of Commerce with a copy of each refund application and the amount of such refund, if any. "2. For the purpose of the exemption provided in subparagraph 1.: "a. Motion picture or video equipment' andsound recording equipment' includes only equipment meeting the definition of "section 38 property" as defined in s. 48(a)(1)(A) and (B)(i) of the Internal Revenue Code that is used by the lessee or purchaser exclusively as an integral part of production activities; however, motion picture or video equipment and sound recording equipment does not include supplies, tape, records, film, or video tape used in productions or other similar items; vehicles or vessels; or general office equipment not specifically suited to production activities. In addition, the term does not include equipment purchased or leased by television or radio broadcasting or cable companies licensed by the Federal Communications Commission...." (Emphasis supplied)

Section 212.08(12), F.S., provides:
"(12) PARTIAL EXEMPTION; MASTER TAPES, RECORDS, FILMS, OR VIDEO TAPES. "(a) There are exempt from the taxes imposed by this part the gross receipts from the sale or lease of, and the storage, use, or other consumption in this state of, master tapes or master records embodying sound, or master films or master video tapes; except that amounts paid to recording studios or motion picture or television studios for the tangible elements of such master tapes, records, films, or video tapes are taxable as otherwise provided in this part. "(b) For the purposes of this subsection, the term: "1. Amounts paid for the tangible elements' does not include any amounts paid for the copyrightable, artistic, or other intangible elements of such master tapes, records, films, or video tapes, whether designated as royalties or otherwise, including, but not limited to, services rendered in producing, fabricating, processing, or imprinting tangible personal property or any other services or production expenses in connection therewith which may otherwise be construed as constituting asale' under s. 212.02. "2. Master films or master video tapes' means films or video tapes utilized by the motion picture and television production industries in making visual images for reproduction. "3.Master tapes or master records embodying sound' means tapes, records, and other devices utilized by the recording industry in making recordings embodying sound. "4. Motion picture or television studio' means a facility in which film or video tape productions or parts of productions are made and which contains the necessary equipment and personnel for this purpose and includes a mobile unit or vehicle that is equipped in much the same manner as a stationary studio and used in the making of film or video tape productions. "5.Recording studio' means a place where, by means of mechanical or electronic devices, voices, music, or other sounds are transmitted to tapes, records, or other devices capable of reproducing sound.

"6. Recording industry' means any person engaged in an occupation or business of making recordings embodying sound for a livelihood or for a profit. "7.Motion picture or television production industry' means any person engaged in an occupation or business for a livelihood or for profit of making visual motion picture or television visual images for showing on screen or television for theatrical, commercial, advertising, or educational purposes."

Rule 12A-1.085(1), Florida Administrative Code (F.A.C.), provides:

"(1) MASTER TAPES, MASTER RECORDS, MASTER FILMS, OR MASTER VIDEO TAPES. "(a) The producing, fabricating, or processing of a master tape, demo tape, or any kind of tape or record for a consideration for consumers who furnish, either directly or indirectly, the tape, record, or materials used in the producing, fabricating, or processing is taxable. The dealer should collect the tax from his customer based upon the total amount charged by him for producing, fabricating, or processing his customer's tangible personal property, including any charge which he makes for musicians, use of the recording studio, musical instruments, services of an engineer and any other services, whether the services are actually performed by the dealer or others. "(b) However, effective July 1, 1984, the measure of tax with respect to the sale or lease of master tapes or master records embodying sound by a recording studio to the recording industry, which are utilized by the recording industry in making reproductions of recordings embodying sound; or the sale or lease of master films or master video tapes by motion picture or television studios to the motion picture or television production industry which are utilized by the motion picture or the television production industry in making reproductions of visual images for showing on screens or television, is limited to the tangible elements. The measure of tax with respect to sale or lease of such master tapes or master records embodying sound, or master films or master video tapes by recording

studios or motion picture or television studio to the recording industries or motion picture or television production industry does not include amounts paid for copyrightable, artistic, other intangible elements, whether designated as royalties or otherwise, including, but not limited to, services rendered in producing, fabricating, processing, or any other services or production expenses whatever. "1. Recording Industry' means any person engaged in an occupation or business of making recordings embodying sound for a livelihood or for a profit. "2.Motion picture or television production industry' means any person engaged in an occupation or business, for a livelihood or for a profit, of making visual motion picture or television visual images for showing on screen or television for theatrical, commercial, advertising or educational purposes. "3. Recording studio' means a place where, by means of mechanical or electronic devices, voices, music, or other sounds are transmitted to tapes, records, or other devices capable of reproducing sound. "4.Motion picture or television studio' means a facility in which film or video tape productions or parts of productions are made and which contains the necessary equipment and personnel for this purpose and includes a mobile unit or vehicle that is equipped in much the same manner as a stationary studio and used in making film or video tape productions. "(c) The total charge that a recording studio or motion picture studio or television studio makes to its customer for the sale of additional copies of tapes, records, films or video tapes, including any charge for handling and mailing, is taxable, unless purchased for resale. "(d) The recording studio, motion picture studio, or television studio is the consumer of and is liable for tax on all tangible elements, including but not limited to, blank tapes, record blanks, labels and containers used or consumed by it in producing, fabricating, or processing a master tape, master record, master film or master video tape."

Rule 12A-1.085(2), F.A.C., provides in part:

"(2) MOTION PICTURE EQUIPMENT, VIDEO EQUIPMENT, AND SOUND RECORDING EQUIPMENT. "(a) Effective July 1, 1984, the purchase or lease for use in this state of motion picture equipment, video equipment, and sound recording equipment, equipment meeting the definition of `Section 38 Property' as defined in Section 48(a)(1)(A) and (B)(i) of the Internal Revenue Code, (i.e., depreciable equipment with a useful life of at least 3 years) is exempt from tax, if such equipment is used exclusively by the producer as an integral part of production activities directed toward the preparation of master tapes and master records embodying sound, or toward the preparation of motion pictures or television productions commercially produced for sale or for showing on screens or broadcasting on television.
...
"(c) The purchase, lease, or use of motion picture equipment, video equipment, or sound recording equipment by television, radio broadcasting, or cable companies licensed by the Federal Communications Commission is subject to tax."

DISCUSSION/RESPONSE

Your questions will be restated, with our responses following.

"1. Does [Network] meet the criteria under Rule 12A1.085(1)(b)[,]F.A.C.[,] for the reduced measure of tax with respect to the purchase and production of master tapes? In other words, even though [Network] is a not-for-profit organization, does it still qualify as a member of the recording industry and/or the motion picture industry and would the charges assessed it by a recording studio for master tapes therefore be taxable only on the tangible elements?"

Response

The partial exemption from sales and use tax on master tapes is

provided by Section 212.08(12), F.S., and interpreted in Administrative Rule 12A-1.085(1)(b), F.A.C. Pursuant to that subsection and rule, the exemption is granted on the sale, lease, storage, use, or consumption of master tapes or master records embodying sound to the recording industry and master films or master video tapes by motion picture or television studios to the motion picture or television production industry. Amounts paid for the tangible elements of such master tapes, records, films, or video tapes are subject to tax. "Recording Industry" means "any person engaged in an occupation or business of making recordings embodying sound for a livelihood or for a profit." "Motion picture or television production industry" is described in Section 212.08(12)(b)7., F.S., and Rule 12A1.085(1)(b)2., F.A.C., as "any person engaged in an occupation or business, for a livelihood or for a profit, of making visual motion picture or television visual images for showing on screen or television for theatrical, commercial, advertising or educational purposes."

Pursuant to your letter, Network is involved full-time in the business of producing and broadcasting radio shows and of producing a syndicated television show, and that business is licensed by Federal Communication Commission for its radio broadcasts. Network employees 50 staff members in the conduct of these activities. The Department agrees that Network is not engaged in these actives "... as a mere hobby." Further, it is our position that not-for-profit organizations are not specifically excluded from the exemption provided by Section 212.08(12), F.S., for the purchase and production of master tapes. Therefore, Network would qualify for the partial exemption provided by that subsection.

Along with your request, you included copies of various invoices from Productions. Although you did not specifically address the taxability of these invoices in your letter, it was learned during our telephone conversation that one of the invoices, number 400, was for the purchase of master tapes and the remainder were for purchases of production services. Pursuant to my response in the previous paragraph, the charges for the master tapes and production services would be exempt from tax when purchased by Network. Accordingly, no tax would be due on

these invoices.

"2. Does [Network] meet the criteria under Rule 12A1.085(2)[, F.A.C.,] for exemption from tax on its qualifying tangible personal property and if so, what of the tangible personal property could be considered qualified for the exemption? It appears, based on the wording of this rule, that the property used to broadcast the radio shows would not be exempt. Is this conclusion correct? Since the television show is not broadcast by
[Network] directly, its television production is not subject to the Federal Communications Commission license in the same manner that its radio broadcasts are subject. Therefore, would those assets which are used to produce the television show be considered exempt from the sales tax under these guidelines?"

Response

Section 212.08(5)(f), F.S., described in Rule 12A-1.085(2), F.A.C., provides an exemption for the purchase or lease of motion picture equipment, video equipment, and sound recording equipment. Pursuant to Sub-subparagraph 212.08(5)(f)2.a., F.S., the exemption provided does not extend to purchases or leases of equipment by television, radio broadcasting, or cable companies licensed by the Federal Communications Commission. Your letter states that Network is licensed by that agency for its radio broadcasts. Therefore, you are correct in your assumption that property used to broadcast the radio shows would not be exempt under Section 212.08(5)(f), F.S.

Regarding the property used by the Network for television production, Section 212.21, F.S., makes it clear that it is the legislative intent that exceptions or exemptions from sales and use tax are to be strictly construed and not expanded beyond their express terms. Furthermore, the courts have consistently held that exemptions contained in taxing statutes are special favors granted by the Legislature and should be strictly construed against the taxpayer. Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981); State ex rel. Szabo Food Services, Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973); Wanda

Marine Corp. v. Dept. of Revenue, 305 So.2d 65 (Fla. 1DCA 1974). Section 212.08(5)(f), F.S., as explained in Rule 12A-1.085(2), F.A.C., specifically provides that if a radio broadcaster is licensed by the FCC, then any motion picture, video, or sound recording equipment purchased, leased, or used by the broadcaster is taxable. There is no requirement that both the radio and television broadcasts made by such broadcaster be subject to FAA regulation in order for tax to be imposed on the motion picture, video, or sound recording equipment purchased, leased, or used. Therefore, it is the Department's position that Network would not qualify for the exemption provided in Section 212.08(5)(f), F.S., and described in Rule 12A-1.085(2), F.A.C. It is not the Legislative intent to extend the exemption for motion picture, video, or sound recording equipment provided by Section 212.08(5)(f), F.S., to television or radio broadcasters, or cable companies licensed by the Federal Communications Commission for any or all of their broadcast activities. Consequently, those assets purchased or leased for producing the television show would also be subject to tax.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect confidential information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or this response. Sincerely,

Delores Overcash
Technical Assistant

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