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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