Does New York's manufacturing exemption cover a U.S. producer's equipment, tools, and studio-rental purchases used to create English-language 'master recordings' of foreign films, TV series, and music CDs that are then licensed to U.S. distributors?

Plain-English summary

XYZ, Inc. is a New York-based producer and sales agent with exclusive U.S. rights to produce and market its foreign clients' movies, TV series, and music CDs. The original foreign-format product isn't directly marketable in the U.S., so XYZ creates a new "US Recording" — through translation, voice and sound mixing, dubbing, and film/music editing — incurring all production costs itself (split with the client for movies/videotapes). XYZ then licenses the finished US Recording to unrelated U.S. distributors for a fixed term (e.g., 10 years), who get exclusive rights to market, distribute, and adapt it, with all rights reverting to XYZ at the end. XYZ receives a fixed license fee (accounted for as a royalty advance, owed regardless of whether royalties later accrue) plus ongoing royalties. Production costs include studio-time rental, technician wages, and equipment/tools/supplies like recorders, equalizers, compressors, monitoring systems, specialized computers, software, and dubbing equipment.

The Department's threshold move is treating film/video/music production as a manufacturing activity that creates tangible personal property for sale — citing the Department's own published Guide to Sales Tax for the Film Industry — and treating a license agreement transferring that property as a "sale" under the statutory definition. That combination means XYZ, as a producer creating property for sale (its US Recordings, licensed to distributors for a fixed fee), gets the full benefit of New York's manufacturer's exemptions, which extend through post-production work like selecting, editing, dubbing, and mixing — not just the initial capture/creation stage.

That opens up three separate exempt categories: (1) Production equipment, tools, parts, and supplies used predominantly (more than 50%) in producing the US Recordings — recorders, equalizers, compressors, monitoring systems, computers, software, dubbing equipment — are exempt from sales/use tax, with XYZ furnishing Form ST-121 (Exempt Use Certificate) to suppliers. (2) Studio rentals typically bundle equipment with a technician's services — if XYZ can direct the technician or supply its own, the equipment portion of the rental is treated as a taxable rental (unless it separately qualifies as exempt production equipment), but the technician-wage and room-rental portions are untaxed as long as they're reasonable, separately stated, and reflect prevailing wage rates. (3) Materials that physically become part of the US Recording (like the original tape) and services performed on those materials (like negative splicing) qualify for the resale exclusion — since XYZ effectively resells them, incorporated into the licensed master, to the US Distributor — with XYZ furnishing Form ST-120 (Resale Certificate) instead. The ruling also flags that, per standard industry practice, outside editing/dubbing houses are treated as selling tangible personal property to XYZ (not merely servicing XYZ's property), meaning XYZ can buy that output as exempt production equipment/materials rather than paying tax on a taxable fabrication service.

What this means for you

Film, TV, and music production/licensing companies

The manufacturing exemption isn't limited to the initial filming or recording — it extends through the entire post-production pipeline (editing, dubbing, mixing, selecting) as long as the end product is genuinely produced for sale (including via license) to an unrelated distributor.

Companies renting studio space and equipment for production work

Split your studio-rental invoices carefully: get the technician-wage and bare room-rental charges separately stated at reasonable, prevailing-wage-consistent amounts to keep those portions untaxed, even where the equipment portion itself is taxable (unless independently exempt).

Accountants and tax professionals

This is a rich, multi-part citation for the film-industry manufacturing exemption — cite the Department's own Guide to Sales Tax for the Film Industry (Publication 28) alongside this opinion for the "license = sale," "post-production is still production," and "editing houses sell property, not just services" holdings.

Common questions

Q: Does creating a master recording under license (rather than selling it outright) still count as "production for sale"?
A: Yes — a license agreement that transfers tangible personal property is treated as a sale under New York's statutory definition, so licensing a finished master recording to a distributor for a fixed fee counts as production for sale.

Q: Is post-production work like editing and dubbing covered by the manufacturing exemption, or only the initial filming/recording?
A: The manufacturing exemption for film and music producers specifically extends through post-production activities like selecting, editing, dubbing, and mixing — not just the initial creation stage.

Q: How is a studio rental that includes both equipment and a technician taxed?
A: It's typically split: the equipment portion can be a taxable rental (unless independently exempt as production equipment), while the technician's wages and the room-space charge are untaxed if reasonable, separately stated, and consistent with prevailing wage rates.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (retail sale definition); § 1101(b)(5) (sale; license to use)
• Tax Law § 1105(a) (retail sales tax); § 1105(c)(2) (producing/fabricating services); § 1105(c)(3) (installing/maintaining/repairing services)
• Tax Law § 1105-B (parts/tools/supplies for production exemption)
• Tax Law § 1115(a)(12) (manufacturing exemption)
• Tax Law § 1132(c)(1) (exemption/resale certificates; burden of proof)
• 20 NYCRR § 526.6(c) (resale exclusion); § 526.7 (sale/rental definitions; transfer of possession)
• A Guide to Sales Tax for the Film Industry, Publication 28 (8/99)

Prior rulings referenced:

• Frankford/Wayne Mastering Labs, Inc., TSB-A-87(24)C
• Salomon & Leitgeb CPA's, LLP, TSB-A-97(44)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_50s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(50)S
Sales Tax
September 27, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010112A

On January 12, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Deloitte & Touche LLP, Two World Financial Center, New York, NY
10281. Petitioner, Deloitte & Touche LLP, provided additional information pertaining to the
Petition on September 6, 2001.
The issue raised by Petitioner is whether purchases by its client, XYZ, Inc., of equipment,
tools, materials, supplies, and services used in the creation of master recordings of
movies/videotapes, television series, and musical CDs qualify for exemption from sales and
compensating use tax under the production exemption provided by Section 1115(a)(12) of the Tax
Law or as purchases for resale under Section 1101(b)(4) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
XYZ, Inc., a New York based corporation, is a United States (“US”) producer and sales
agent. XYZ, Inc. has been granted exclusive rights to produce and market its clients’ trademark
products in the US, including movies and videotapes, television series, and musical compact discs
(“CDs”). In most instances, XYZ, Inc. does not obtain title to its clients’ products. However, XYZ,
Inc. is currently producing a US marketable television series in which XYZ, Inc. holds title.
The original format received by XYZ, Inc. from its client is not marketable in the US. XYZ,
Inc. creates a master recording (“US Recording”) from the original foreign format. XYZ, Inc. incurs
all expenses associated with the production of the master recording. For movies and videotapes
XYZ, Inc. is reimbursed by its clients for one half of the expenses incurred.
XYZ, Inc. will ultimately license the US Recordings to unrelated third parties (“US
Distributors”) for mass production and distribution, such as theater presentations and videotape
sales. The license is for a specified period of time, e.g., 10 years. The US Distributor will have the
exclusive right to market, distribute, subdistribute, and otherwise exploit the US Recording, and
advertising materials, excerpts, and clips therefrom. Generally, the US Distributor is also granted
the right to make the necessary alterations required to make the US Recording suitable for
exhibition. At the expiration of the term, all rights will revert to XYZ, Inc.
XYZ, Inc. receives from the US Distributors a fixed license fee plus royalties. The fixed
license fee is charged to the US Distributors for the license to use the newly created US Recording.
The fee is always a fixed amount. However, the amount may vary from contract to contract. XYZ,
Inc. accounts for the fixed fee as a royalty advance. However, XYZ, Inc. is entitled to the fixed fee
regardless of whether any royalties accrue.

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XYZ, Inc.’s production process for movies, videotapes, and television series includes
translation, voice and sound mixing, dubbing, and film editing. The production process for creating
master CDs includes the selecting, dubbing, editing, and mixing of existing musical compositions
into a marketable arrangement. Dubbing includes the translation of the musical compositions into
both English and foreign languages.
Expenses incurred by XYZ, Inc. in the production of US recordings include, but are not
limited to, rental of studio time, technician wages, and purchases of production equipment, tools,
parts, and supplies. Production equipment includes various recorders, equalizers, compressors, and
monitoring systems for movies, videotapes, and CDs, and specialized computers, software, dubbing
equipment, and monitoring systems for television series. All of the expenses incurred by XYZ, Inc.
are predominantly used in the production of the US Recordings.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
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(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property. . . .
(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.
Section 1105 of the Tax Law provides, in relevant part:
. . . there is hereby imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.

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(c) The receipts from every sale, except for resale, of the following services:
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(2) Producing, fabricating, processing, printing or imprinting tangible
personal property, performed for a person who directly or indirectly furnishes the
tangible personal property, not purchased by him for resale, upon which services are
performed.
(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . not held for sale in the regular course of
business, whether or not the services are performed directly . . . or by any other
means, and whether or not any tangible personal property is transferred in
conjunction therewith. . . .
Section 1105-B of the Tax Law provides, in part:
(a) Receipts from the retail sales of parts with a useful life of one year or less,
tools and supplies for use or consumption directly and predominantly in the
production of tangible personal property . . . for sale by manufacturing, processing,
generating, assembling, refining, mining or extracting shall be exempt from the tax
imposed by subdivision (a) of section eleven hundred five of this article.
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
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(12) Machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property . . . for sale, by
manufacturing, processing, generating, assembling, refining, mining or extracting,
but not including parts with a useful life of one year or less or tools or supplies used
in connection with such machinery or equipment. . . .
Section 1132(c)(1) of the Tax Law provides, in part:

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For the purpose of the proper administration of this article and to prevent
evasion of the tax hereby imposed, it shall be presumed that all receipts for property
or services of any type mentioned in subdivisions (a), (b), (c) and (d) of section
eleven hundred five . . . are subject to tax until the contrary is established, and the
burden of proving that any receipt . . . is not taxable hereunder shall be upon the
person required to collect tax or the customer. Except as provided in subdivision (h)
or (k) of this section, unless (i) a vendor, not later than ninety days after delivery of
the property or the rendition of the service, shall have taken from the purchaser a
resale or exemption certificate in such form as the commissioner may prescribe,
signed by the purchaser and setting forth the purchaser’s name and address and,
except as otherwise provided by regulation of the commissioner, the number of the
purchaser’s certificate of authority, together with such other information as the
commissioner may require, to the effect that the property or service was purchased
for resale or for some use by reason of which the sale is exempt from tax under the
provisions of section eleven hundred fifteen . . . the sale shall be deemed a taxable
sale at retail. . . .
Section 526.6(c) of the Sales and Use Tax Regulations provides, in part:
Resale exclusion. (1) Where a person, in the course of his business
operations, purchases tangible personal property or services which he intends to sell,
either in the form in which purchased, or as a component part of other property or
services, the property or services which he has purchased will be considered as
purchased for resale, and therefore not subject to tax until he has transferred the
property to his customer.
Section 526.7 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. (1) The words sale, selling or purchase mean any transaction
in which there is a transfer of title or possession, or both, of tangible personal
property for a consideration.
(2) Among the transactions included in the words sale, selling or purchase
are exchanges, barters, rentals, leases or licenses to use or consume tangible personal
property.
(c) Rentals, leases, licenses to use. (1) The terms rental, lease and license to
use refer to all transactions in which there is a transfer for a consideration of
possession of tangible personal property without a transfer of title to the property.
Whether a transaction is a “sale” or a “rental, lease or license to use” shall be
determined in accordance with the provisions of the agreement. . . .

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(e)(4) Transfer of possession with respect to a rental, lease or license to use,
means that one of the following attributes of property ownership has been
transferred:
(i) custody or possession of the tangible personal property, actual or
constructive;
(ii) the right to custody or possession of the tangible personal property;
(iii) the right to use, or control or direct the use of, tangible personal property.
Opinion
The trademark products of XYZ, Inc.’s clients include foreign movies and videotapes,
television series, and musical CDs. XYZ, Inc. produces and markets its clients’ products in the
United States by creating master recordings (US Recordings) of the products through the processes
of translation, voice and sound mixing, dubbing, and editing. The US Recordings are ultimately
licensed by XYZ, Inc. to unrelated third parties (US Distributors) for mass production and
distribution in the US. For the license, XYZ, Inc. receives from the US Distributors a fixed fee.
The creation of feature films, television films, commercials, and similar film and video
productions is considered a manufacturing activity that results in the production of tangible personal
property. Therefore, a person engaged in the production of a film for sale is afforded all of the
exemptions which are available to manufacturers. See A Guide to Sales Tax for the Film Industry,
Publication 28, p.1, (8/99). A license agreement provided in connection with the transfer of tangible
personal property constitutes a sale as defined in Section 1101(b)(5) of the Tax Law. Accordingly,
XYZ, Inc.’s creation of US Recordings licensed to distributors for a fixed fee results in the
production of tangible personal property for sale and XYZ, Inc. is entitled to all of the exemptions
available to manufacturers. See A Guide to Sales Tax for the Film Industry, supra, p. 2.
Machinery or equipment, as well as parts, tools and supplies, used or consumed directly and
predominantly (more than 50%) in the production of XYZ, Inc.’s US Recordings may be purchased
or leased exempt from all sales and use taxes under Sections 1115(a)(12) and 1105-B of the Tax
Law. The manufacturing exemption for film and music producers extends through the post
production activities of selecting, editing, dubbing, and mixing. See A Guide to Sales Tax for the
Film Industry, supra, pp. 5, 18. Accordingly, XYZ, Inc.’s purchases of production equipment
(recorders, equalizers, compressors, monitoring systems, specialized computers, software, and
dubbing equipment), tools, parts, and supplies that are used predominantly in these manufacturing
activities, as well as in the translation process, are exempt from sales and compensating use tax (see
Frankford/Wayne Mastering Labs, Inc., Adv Op Comm T&F, September 25, 1987, TSB-A-87(24)C;
A Guide to Sales Tax for the Film Industry, supra). XYZ, Inc. must furnish a properly completed

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Form ST-121, Exempt Use Certificate, to its suppliers within 90 days of the date of sale to exempt
such qualifying purchases. See Section 1132(c) of the Tax Law.
The renting of a studio typically includes the use of equipment along with the services of a
technician. When XYZ., Inc. has the right either to direct the activities of the technician, or to
supply a technician of its own, possession of the equipment is deemed to have been transferred to
XYZ, Inc. This makes the rental charge for the equipment subject to tax pursuant to Section 1105(a)
and 1101(b)(5) of the Tax Law, unless the equipment qualifies for exemption under Section
1115(a)(12) of the Tax Law as described above. In any case, the portions of the rental charge
allocable to the technician’s wages and rent for the room space itself are not taxable, provided the
charges are reasonable and separately stated on the invoice and the wages reflect prevailing wage
rates. See Salomon & Leitgeb CPA’s, LLP, Adv Op Comm T&F, July 23, 1997, TSB-A-97(44)S.
Materials, e.g., the original tape, and services on these materials, e.g., negative splicing, that
will become a component of the US Recordings, come within the resale exclusion from sales tax
inasmuch as the materials are resold by XYZ, Inc. to the US Distributors. See A Guide to Sales Tax
for the Film Industry, supra, p. 16, 17. Such materials and services may be purchased exempt from
tax provided XYZ, Inc. issues a properly completed Form ST-120, Resale Certificate, to its supplier
no later than 90 days after delivery of the property or service. See Section 1132(c) of the Tax Law.
It is noted that for purposes of usual industry practice, the activities of editing and dubbing by an
editing house result in the creation and sale of tangible personal property rather than the providing
of a service on the property of the producer as described in Section 1105(c)(2) of the Tax Law.
Therefore, XYZ, Inc. may purchase such property as production equipment exempt from tax. See
A Guide to Sales Tax for the Film Industry, supra, pp. 16 - 21.

DATED: September 27, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.