Could a recording company claim Florida's sound-recording-equipment exemption directly on lease payments instead of first paying tax and requesting a refund?

Plain-English summary

The recording system could qualify for the exemption, but only through a refund after tax was paid.

The Department assumed the company used the leased system exclusively and integrally to produce master tapes or records. On those facts, the system met the cited sound-recording-equipment requirements. But section 212.08(5)(f) made the exemption available only as a refund of previously paid taxes, so the Department denied the request to bypass that process.

What this means for you

Qualifying equipment and qualifying use were not enough to claim an upfront exemption under the law applied in this ruling. The producer also had to follow the prescribed refund procedure, including the supporting statements and invoices described in the advisement.

Common questions

Q: Did the leased recording and mixing system qualify as sound-recording equipment? A: Yes, assuming it was used exclusively as an integral part of qualifying production activities.

Q: Could the company stop paying tax on the monthly lease charges? A: No. The exemption was available only through a refund of previously paid taxes.

Q: Could the Department waive the refund requirement because of cash-flow concerns? A: No. It said it lacked authority to waive or mitigate a requirement of general law.

Citations and references

• Fla. Stat. § 212.08(5)(f) — motion-picture, video, and sound-recording equipment exemption
• Fla. Admin. Code r. 12A-1.085(2) — qualifying equipment, production use, and refund procedure
• I.R.C. § 48(a)(1)(A) and (B)(i) — section 38 property definition quoted in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-012

Original ruling text

Apr 05, 1995

Re: Technical Assistance Advisement 95(A)-012 Sales Tax - Motion Picture and Recording Exemption Taxpayer: XXX (Herein the Company") Address: XXX Sales Tax Number: XXX FEI#: XXX Section 212.08(5)(f), Florida Statutes, (F.S.) and Rule 12A-1.085(2), Florida Administrative Code (F.A.C.)

Dear :

This response is in reply to your October 25, 1994 petition for the Department's issuance of a Technical Assistance Advisement ("TAA") pursuant to s. 213.22, F.S. Your petition regards the referenced matter and party. The lease you denote as Exhibit I was not included with your letter. I contacted you on January 12, 1995 and I received the document via facsimile on January 13, 1995. Since receiving this additional information, the Department has carefully examined your petition and finds it to meet the criteria set forth in Chapter 12-11, F.A.C., requisite to issuance of a TAA. Therefore, the Department is by this response issuing the requested TAA.

DISCUSSION OF FACTS

Your letter provides the following:

"Our client has been involved in the [r]ecording [i]ndustry since 1988. On April 1, 1994[,] our client entered into a lease agreement with XXX (See copy of lease attached as Exhibit I) which requires monthly payment of $10,972 for a sixty month term. In addition, the lessor is requesting that the lessee pay sales and use tax of approximately $700 on the monthly lease payments.

"Pursuant to the Florida Administrative Rule 12A1.085(2)(a)[,] our client is exempt from sales and use tax

on the lease. As stated in the rule, the purchase or lease of equipment for use in Florida in the production of master tapes and records is exempt from tax. Our client uses the lease of equipment in the production of master recordings and tapes and thus is exempt from sales and use tax on the lease payments.

"Rule 12A-1.085(2)(g) states that the exemption may only be taken through a refund of previously paid taxes. Our client does not have the cash flow that would financially sustain them through the refund process. We respectfully request the State to issue a TAA granting the taxpayer the sales and use tax exemption on the lease payments without having to be subject to the refund process and file unnecessary paperwork with the State."

"Exhibit I" attached to your letter, provides a lease agreement for tangible personal property, between the XXX hereinafter referred to as the "lessor" and XXX, hereinafter be referred to as the "lessee." The tangible personal property being leased is as follows: XXX, including 96 mainframe, 80 mono modules, total recall automation & ultimation motorized fader system, custom winged mainframe with 10-degree angle sections & remote patchbay." This system will hereinafter referred to as the "system." After I requested further information on the "system", you faxed me an information sheet on XXX." This sheet states: "The XXX provides the highest level of specification of any recording and mixing system." Monthly lease payments of
$10,975.00 are due on the "system" for a lease term of 60 months.

DISCUSSION OF LAW

Section 212.08(5)(f), F.S., provides:

"The sales at retail, the rental, the use, the consumption, the distribution, and the storage to be used or consumed in this state of the following are hereby specifically exempt from the tax imposed by this part.... "(5)(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. "b.Production activities' means activities directed toward the preparation of a: "(I) Master tape or master record embodying sound; or "(II) Motion picture or television production which is produced for theatrical, commercial, advertising, or educational purposes and utilizes live or animated actions or a combination of live and animated actions. The motion picture or television production shall be commercially

produced for sale or for showing on screens or broadcasting on television and may be on film or video tape."(Emphasis Supplied)

Section 48(a)(1)(A) and (B)(i) of the Internal Revenue Code of 1954 provided:

"(a) SECTION 38 PROPERTY.-"(1) IN GENERAL.--Except as provided in this subsection, the term `section 38 property' means-"(A) tangible personal property (other than an air conditioning or heating unit), or "(B) other tangible property (not including a building and its structural components) but only if such property-"(i) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, or..."

Rule 12A-1.085(2), F.A.C., to which you refer, 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. "(b) For purposes of this subsection, aproducer' is any purchaser or lessee who is responsible for and in general charge of the production activities of a motion picture production or television production commercially produced

for sale or for showing on screens or television for theatrical, commercial, advertising or educational purposes, or a sound recording production. As used in this subsection, the term producer' also includessub-producer and co-producer.' "1. A Sub-Producer' is any purchaser or lessee who contracts to make a production for a producer who holds or subsequently acquires a prime contract to make a production. "2. ACo-Producer' is any purchaser or lessee who, in respect to the making of a production, contributes property, literary material, personal services or financing, has a right to share in the receipts of profits of the production, and shares significantly in the responsibility of producing a production.... "(d) Motion picture equipment, video equipment, and sound recording equipment includes: "1. parts 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 parts with a useful life of at least 3 years) which are intended for use with motion picture equipment, video equipment, or sound recording equipment, which are an integral part of such equipment; and "2. accessories meeting the definition ofSection 38 Property' as defined in Section 48(a)(1)(A) and (B)(i) of the Internal Revenue Code (i.e., depreciable accessories with a useful life of at least 3 years) which are essential in the effectiveness of motion picture equipment, video equipment, or sound recording equipment. "(e) Motion picture equipment, video equipment, and sound recording equipment does not include: "1. vehicles or vessels; "2. supplies, tapes, records, film, video tape, or other similar items; "3. general office equipment not specifically suited to production activities; or "4. any item of tangible personal property not 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., tangible personal property with a useful life of less than

at least 3 years)....
"(g) The exemption on account of use afforded motion picture equipment, video equipment, and sound recording equipment in this subsection inures to the producer only through refund of previously paid taxes. Such application for refund may be made on a quarterly calendar year basis or after the completion of the production activities; however, application for refunds must be made within 3 years from the date of payment of the tax. The right to receive any refund is not assignable, except to the executor by the producer or administrator, or to the receiver, trustee in bankruptcy, or assignee in an insolvency proceeding. In addition to the application for refund, the producer must submit the information below and upon approval of a complete application, the Executive Director or ... designee in the responsible division shall, within 30 days, certify to the Comptroller such information necessary for issuance of a refund directly to the applicant of said taxes. "1. A statement executed by the producer declaring the motion picture equipment, video equipment, or sound recording equipment for which the refund is claimed was purchased or leased for use in this state exclusively as an integral part of production activities and for no other purpose. The statement shall include the producer's name, address, and evidence of authority to do business in this state, such as the producer's occupational license number, if applicable, or any other substantial proof to do business in this state. The statement shall be signed and dated by the producer and shall include the following statement `Under the penalties of perjury, I declare that I have read the foregoing and the facts alleged are true to the best of my knowledge and belief.' "2. The primary production location where the items were used for which the refund is claimed. "3. A description of each such item and the purpose for which such item was acquired. "4. Copies of the invoices of items for which a refund is being claimed. No refund will be allowed unless the seller or lessor has executed an invoice as provided in paragraph (h).

"5. A summary schedule of invoices related to the production activity in which the tax was paid by the producer to a dealer or accrued by the producer. The summary schedule shall reflect the county where possession of the equipment was taken, invoice date, invoice number, dealer's name, amount of refund claimed on taxes paid to a dealer, amount of refund claimed on taxes accrued by the producer and the total amount of the refund claimed. "6. Any other information that is required by the Executive Director or her designee in the responsible division in order to verify the authenticity of the refund application. "(h) When a sale or lease is made to a producer who claims to be entitled to the exemption afforded under this section, the seller or lessor shall make out an invoice, which shall contain the information prescribed below. No person may execute an invoice described below except a dealer duly registered with the Department to engage in business pursuant to Part I of Chapter 212, F.S., or an authorized agent thereof. "1. The name and business address of the producer. "2. A detailed description of the item sold or leased. "3. The date on which the purchase or lease was made. "4. The price and amount of tax paid for the item. "5. The name and place of business of the seller or lessor at which the sale or lease was made."(Emphasis Supplied)

CONCLUSIONS OF LAW

Assuming your client is using this equipment exclusively in a qualified production activity, in accordance with Section 212.08(5)(f)2.b., F.S., quoted above, the Department finds the lessee meets the specifications of "production activities" in that the lessee is engaged in the preparation of master tapes or master records embodying sound. The Department further finds that the "system" meets the criteria of Section 212.08(5)(f)2.a., F.S., in that it is sound recording equipment integral to production.

As you will note, however, Section 212.08(5)(f)1., F.S., clearly limits the exemption on the purchase or lease of qualified "sound recording equipment" to be obtained only by

refund. The Department has no authority to waive or mitigate a requirement of general law.

Rule 12A-1.085(2)(g), F.A.C., provides the procedures for obtaining a refund on taxes paid on the sale or lease of qualified motion picture equipment, video equipment, and sound recording equipment. The application for refund may be made on a quarterly basis or after the completion of production. Application for refund must be made within 3 years from date of payment of the tax. The following support documentation is required to be submitted with your refund application:

1. A statement executed by the producer declaring the
   motion picture equipment, video equipment, or sound recording equipment for which the refund is claimed was purchased or leased for use in this state exclusively as an integral part of production activities and for no other purpose. The statement must include the producer's name, address, and evidence of authority to do business in this state, such as the producer's occupational license number. The statement is to be signed and dated by the producer and must include the following statement:

"Under penalties of perjury, I declare that I have read the foregoing and the facts alleged are true to the best of my knowledge and belief."

2. A statement of the primary production location where the
   items were used.
3. A description of each item and the purpose for which the
   item was acquired.
4. Copies of the invoices of items for which a refund is
   being claimed.
5. A summary schedule of invoices related to the production
   activity in which the tax was paid by the producer to a dealer or accrued and remitted by the producer.

In summary, your request that the Department lessee an outright exemption and bypass the refund process must be denied.

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,

Carol Schwarz
Tax Audit Specialist III

Control No. 18454