Are custom corporate-video production charges taxable when the video is delivered electronically or on a hard drive, thumb drive, or DVD?

Plain-English summary

A creative-services agency produced corporate videos to each customer's specifications and sold no pre-produced or canned videos. Most were delivered electronically, but sometimes the agency delivered a hard drive, thumb drive, or DVD and separately itemized the video-production service and storage medium.

Using Georgia's custom-software rules by analogy, the Department ruled that custom video production is a nontaxable professional service whether the finished video is delivered electronically or on tangible media. The medium is only an inconsequential way to deliver the custom service unless separately sold.

The storage medium receives different treatment depending on billing:

• No separate medium charge: the agency is the consumer and owes sales or use tax on the medium's purchase price.
• Separate medium charge: the agency may buy the medium tax-free for resale and must collect tax on the stated selling price when the customer receives it in Georgia.
• Separate charge, receipt outside Georgia: the medium sale is not subject to Georgia tax because it is sourced to the customer's out-of-state receipt.

A custom video sold to someone other than the original customer becomes a pre-produced or canned product under the analogy and can be taxable when delivered tangibly.

What this means for you

Video-production agencies

Keep the professional-service charge distinct from physical-media charges. Customization to one client's specifications supports service treatment; repeated sale to other customers changes the analysis.

Billing and fulfillment teams

If media is itemized, collect tax according to where the buyer receives it. If it is included without a separate charge, pay tax when the agency buys or uses the media in Georgia.

Common questions

Q: Is an electronically delivered custom corporate video taxable?

A: No. It is a custom professional service and no tangible property is transferred.

Q: Does delivering the custom video on a DVD make the production fee taxable?

A: No. The professional-service fee remains nontaxable; the DVD is incidental unless separately charged.

Q: What if the DVD or drive is separately itemized?

A: Tax applies only to the medium's charge when received in Georgia, and the agency may buy that medium for resale.

Q: What if the itemized medium is delivered outside Georgia?

A: Its sale is sourced outside Georgia and is not subject to Georgia sales tax.

Q: Can the same custom video be sold to a different customer tax-free?

A: The ruling says a custom video becomes canned or pre-produced when sold to someone other than the customer for whom it was created, changing the tax analysis.

Q: Can another production company rely on this ruling?

A: No. It is limited to the requesting agency's custom videos, billing, media, and delivery facts.

Citations and references

Authorities:

• O.C.G.A. § 48-8-3(22), (91) -- professional-service exemption and custom-software analogy
• O.C.G.A. § 48-8-77 -- receipt-based sourcing
• Ga. Comp. R. & Regs. r. 560-12-2-.111(2)-(4) -- custom software and delivery rules used by analogy
• Ga. Comp. R. & Regs. r. 560-12-1-.14(7)(d) -- service provider as consumer of unbilled property

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2016-21

Original ruling text

Date Issued: October 20, 2016
Georgia Letter Ruling: LR SUT-2016-21
Topic: Professional Services
This letter is in response to your ruling request dated November 21, 2013, concerning the correct application of
Georgia sales and use tax to certain sales made by your company.

Facts as presented by Taxpayer
[Redacted] (“Taxpayer”) is a creative services agency. A significant portion of Taxpayer’s business income is derived
from producing corporate videos. Each product is made to the specifications of a single customer. Taxpayer does not
sell any pre-produced or canned videos.
Most videos are delivered to the customer wholly in an electronic format. On occasion, Taxpayer will deliver videos
to the customer on tangible storage media. When a tangible storage medium is delivered, Taxpayer itemizes charges
on the customer’s invoice for the video production services and the separate tangible storage medium on which the
video is delivered.
Issues
1.

Are Taxpayer’s charges for video production services taxable when Taxpayer produces a corporate video and
delivers it only in an electronic format and not by tangible media?

2.

Are Taxpayer’s charges for video production services taxable when Taxpayer produces a corporate video and
delivers it as an electronic file on a tangible storage medium, such as a portable hard drive, thumb drive, or DVD?

3.

If Taxpayer produces a corporate video through an intermediary (an advertising agency or public relations firm)
that is located and billed in Georgia but the end product is delivered outside Georgia to the intermediary’s client,
are the charges for video production services subject to Georgia sales and use tax?

Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
use, or consumption of tangible personal property and on certain enumerated services. 1 Unlike sales of tangible
personal property, which are generally presumed taxable, sales of services are not taxable unless specifically
designated as such. While Georgia law does not specifically address the taxability of video, it does address the
taxability of software, which, like video, is nontangible property that can be stored on tangible media. 2
Rule 560-12-2-.111, explaining the taxability of software, provides insight into the taxability of video under Georgia
law. The rule states, “Computer software delivered electronically is not a sale of tangible personal property and
therefore is not subject to sales or use tax.” 3 Just as software delivered electrically is not taxable, videos delivered
electronically are not taxable.
Sometimes, however, software and videos are delivered on tangible storage media, such as a hard drive, disc, or thumb
drive. In determining the taxability of software delivered on tangible storage media, Rule 560-12-2-.111 distinguishes
between “prewritten computer software” and “custom computer software,” the former being taxable tangible property
while the latter is a nontaxable professional service.4 The regulation defines “custom computer software” as “computer
software, including custom updates, which is designed and developed by the author to the specifications of a specific
purchaser.”5 Prewritten or “canned” computer software, on the other hand, is not custom-made, but rather is “designed,
prepared, or held for general distribution or repeated use . . . or developed in-house and subsequently held or offered
for repeated sale, lease, license, or use.”6
1

O.C.G.A. §§ 48-8-1, 48-8-30(a).
O.C.G.A. § 48-8-3(91), Ga. Comp. R. & Regs. r. 560-12-2-.111.
3
Ga. Comp. R. & Regs. r. 560-12-2-.111(4)(a).
4
Ga. Comp. R. & Regs. r. 560-12-2-.111(3).
5
Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(e) (internal punctuation omitted).
6
Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(i).
2

Date Issued: October 20, 2016
Georgia Letter Ruling: LR SUT-2016-21
Topic: Professional Services
Page 2 of 3
Like custom software, Taxpayer’s videos are not canned products made for general distribution, but rather are
customized to each customer’s specifications. Applying the principles for the taxation of software, Taxpayer is
accordingly engaged, not in the sale of taxable tangible personal property, but in the sale of nontaxable custom video
production services.
Furthermore, O.C.G.A. 48-8-3(22) specifically provides that sales and use tax does not apply to “[p]rofessional,
insurance, or personal service transactions which involve sales as inconsequential elements for which no separate
charges are made.”7 Applying this general rule to software, Rule 560-12-2-.111explains that the transfer of custom
software to a purchaser in a tangible medium is merely an incidental part of the nontaxable sale of custom software
service.8 As the storage media for video and software cannot be logically distinguished, the storage media used for
transfer of custom videos to purchasers are also an inconsequential, incidental element of the sale of the custom video
production services. Just as the transfer of custom software to a purchaser in a tangible medium does not render taxable
the charges for the professional service of creating the custom software, the transfer of Taxpayer’s custom videos by
tangible storage media does not render taxable Taxpayer’s charge for the custom video production service.
Additionally, sales of multiple copies of a custom video to the original customer are likewise not subject to sales and
use tax.9 However, just as with software, custom video becomes pre-produced or canned video, and consequently
taxable tangible property, when sold to someone other than the customer for whom the custom video was produced. 10
As a service provider, Taxpayer is the consumer of the tangible personal property it uses during the provision of its
service when Taxpayer does not separately charge its customers for such property.11 Thus, in the case at hand, if
Taxpayer does not separately charge for a tangible storage medium, Taxpayer, as the consumer of such items, owes
sales and use tax on the purchase price of the item. If, on the other hand, Taxpayer separately charges for a tangible
storage medium, Taxpayer may purchase said tangible storage medium tax free for resale. Subsequent to purchasing
a tangible storage medium for resale, Taxpayer must remit sales tax on the sales price of that medium when it is sold
to the customer. However, if Taxpayer delivers the medium to a customer outside of Georgia, the medium is not
subject to Georgia tax because the sale of the medium would be sourced to the location where receipt by the customer
occurs.12
Rulings
1.

Charges for the production of a custom video, one produced to the specification of a single customer, are not
subject to sales and use tax, regardless of whether the custom video is delivered to the customer electronically or
by a tangible storage medium as such charges are for professional services that include tangible personal property
only as an inconsequential element.

2.

If Taxpayer does not make an itemized charge for a tangible storage medium in addition to its charge for custom
video production services, Taxpayer is liable for the sales and use tax on the tangible storage medium provided
to the customer. If Taxpayer makes itemized charges for both custom video production services and the tangible
storage medium on which the video is delivered, Taxpayer must collect tax only on the charge made for tangible
storage medium. In such a case where Taxpayer makes itemized charges for both custom video production
services and the tangible storage medium on which the video is delivered, Taxpayer may purchase the tangible
storage medium tax free for resale.

3.

If Taxpayer delivers tangible storage media to a customer outside of Georgia, its sale of the media (assuming the
charge for the media is separately itemized) is not subject to Georgia sales and use tax. If Taxpayer does not make
an itemized charge for the tangible storage medium, Taxpayer, as the end user and consumer of the tangible
medium, is liable for Georgia sales and use tax on the tangible storage medium provided to its customer if
Taxpayer purchases or uses the tangible storage medium in Georgia.

7

O.C.G.A. § 48-8-3(22) (emphasis added).
Ga. Comp. R. & Regs. r. 560-12-2-.111(3)(b)(1).
9
Ga. Comp. R. & Regs. r. 560-12-2-.111(3)(b)(2).
10
Id.
11
Ga. Comp. R. & Regs. 560-12-1-.14(7)(d).
12
O.C.G.A. § 48-8-77.
8

Date Issued: October 20, 2016
Georgia Letter Ruling: LR SUT-2016-21
Topic: Professional Services
Page 3 of 3
The opinions expressed in this ruling are based upon the information contained in your request and limited to the
specific transactions in question. Should the circumstances regarding the transactions change, or differ materially from
those represented, then this ruling may become invalid. In addition, please be 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 tax treatment than those expressed in this response.