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