NY TSB-A-10(27)S Sales Tax 2010-06-29

When a theater receives movies from studios, is the rental taxable -- and does it matter whether they come by satellite or on a hard drive?

Short answer: It depends on how the movie is delivered. Movies the theater receives by satellite transmission or otherwise delivered electronically (with no tangible property changing hands) are NOT subject to sales tax -- these rentals are treated as sales of intangible property (Google, Universal Music, etc.). But movies delivered on a hard drive ARE subject to sales tax as rentals of tangible personal property under Tax Law 1105(a): the hard drive is tangible personal property regardless of the fact that the theater must also receive a separate electronic 'key' to unlock and play the movie for a set period.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A multi-screen movie theater receives films from studios in two ways and asked whether either rental is taxable:

By satellite transmission (or otherwise electronically), with no tangible property received -- NOT taxable. These rentals are treated as sales of intangible property, consistent with rulings on electronically delivered videos, photographs, and digitized music (Google, TSB-A-08(22)S; Timm, TSB-A-05(34)S; Universal Music Group, TSB-A-01(15)S; Publication 28). No tangible personal property changes hands, so there's nothing to tax under 1105(a).
By hard drive loaded into the theater's server -- TAXABLE. When the studio sends a hard drive (which the theater then unlocks with a separate electronic key to show the movie for a designated period, and later returns), the theater is renting tangible personal property. The hard drive is tangible personal property under 1101(b)(6) regardless of the fact that a separate key is needed to convert the digital data into a viewable movie. So the rental is taxable under Tax Law 1105(a) (Apple, TSB-A-07(11)S; Stachura, TSB-A-04(26)S).

The distinction is purely about the delivery medium: a transmission is intangible (not taxed); a physical drive is tangible (taxed), even when paired with a digital activation key.

What this means for you

Content delivered to businesses (film, music, video, images)

Whether a rental or sale is taxable can turn entirely on how the content arrives. Pure electronic delivery (satellite, download, streaming) of this kind of content is treated as intangible and isn't taxed as TPP. The moment the content arrives on a physical object -- a hard drive, disc, or tape -- it's a taxable sale/rental of tangible personal property, and a separate "unlock key" doesn't change that.

Common questions

Q: We receive movies by satellite -- do we owe sales tax on those rentals?
A: No. Electronically delivered movies with no tangible property are nontaxable intangibles.

Q: A film arrives on a hard drive but needs a separate key to play. Taxable?
A: Yes. The hard drive is tangible personal property, so the rental is taxable under 1105(a) regardless of the activation key.

Citations and references

Tax Law section 1105(a) (sales of tangible personal property)
Tax Law section 1101(b)(6) (tangible personal property)
TSB-A-08(22)S (Google Inc.) (videos delivered electronically)
TSB-A-05(34)S (Martin R. Timm) (photographs delivered electronically)
TSB-A-01(15)S (Universal Music Group) (digitized music)
TSB-A-07(11)S (Apple Computer, Inc.); TSB-A-04(26)S (Debra Horn Stachura)
Publication 28, A Guide to Sales Tax for the Film Industry

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(27)S
Sales Tax
June 29, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S100422A

On April 22, 2010, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether movies received by Petitioner from
film studios and distributors by satellite or other electronic means are subject to sales tax.
We conclude that movies received by satellite are not subject to sales tax. Movies received in a
tangible format are subject to tax.
Facts
Petitioner operates a multi-screen movie theater in New Hartford, New York. It receives movies
from film studios in one of two ways.
The first is by satellite transmission from the film studio. In this case, no tangible personal
property of any kind is received by Petitioner either within or without New York State.
The second is by receipt of a hard drive that is loaded into a server. The hard drive contains
digital information only. This digital information is converted into a viewable movie only after the
theater receives an electronic key from the film studio that enables the movie to be shown for a designated
period of time. The hard drive is returned to the studio, sometimes before the end of the designated
period.
Analysis
Petitioner’s rentals of movies delivered by satellite transmission or otherwise delivered
electronically are not subject to sales tax. These rentals are considered to be sales of intangible property.
See Google Inc., Adv Op Comm T&F, May 2, 2008, TSB-A-08(22)S (videos delivered electronically);
Martin R. Timm, Adv Op Comm T&F, September 27, 2005, TSB-A-05(34)S) (photographs delivered
electronically); Universal Music Group, Adv Op Comm T&F, April 18, 2001, TSB-A-01(15)S (digitized
music); Publication 28 (5/05) A Guide To Sales Tax for the Film Industry, at 11.
Rentals of movies in a tangible format such as tapes or disks are subject to sales tax as sales of
tangible personal property, unless otherwise exempt. See Apple Computer, Inc., Adv Op Comm T&F,
April 12, 2007, TSB-A-07(11)S; Debra Horn Stachura, Adv Op Comm T&F, November 22, 2004,
TSB-A-04(26)S; Publication 28, supra. When Petitioner rents a movie from the film studio by receipt of
a hard drive, Petitioner is purchasing the movie in a tangible format. The hard drive is tangible personal
property regardless of the fact that Petitioner must receive an electronic key to convert the digital

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TSB-A-10(27)S
Sales Tax
June 29, 2010

information on the hard drive into a viewable movie. Accordingly, rentals of movies to Petitioner by
delivery of a hard drive to Petitioner in New York are subject to sales tax under Tax Law §1105(a).

DATED: June 29, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
An Advisory Opinion is issued at the request of a person or entity. It is limited to
the facts set forth therein and is binding on the Department only with respect to
the person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued
or for the specific time period at issue in the Opinion.