NY TSB-A-12(10)S Sales Tax 2012-05-14

Are movies a theater receives from studios taxable in NY when delivered by satellite versus on a hard drive?

Short answer: It depends on the delivery medium. Movies a theater receives by satellite transmission or otherwise delivered electronically are not subject to sales tax -- they're treated as sales of intangible property. But movies delivered in a tangible format, such as on a hard drive (or a tape or disk), are taxable as sales of tangible personal property, even though the theater needs a separate electronic key to unlock and play the film. The hard drive is tangible property regardless of the key, so a film delivered to the theater on a hard drive in New York is subject to State and local sales tax.

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

The petitioner operates movie theaters in New York and receives films from studios two ways: (1) on a hard drive loaded into a server, which becomes a viewable movie only after the studio sends an electronic key authorizing a showing window (the drive is then returned); or (2) by satellite transmission, with no tangible property received. It asked whether these are taxable.

The Office of Counsel concluded delivery medium decides:

Satellite / electronic delivery -- not taxable. Movies delivered by satellite or otherwise electronically are sales of intangible property and are not subject to sales tax (Google Inc., TSB-A-08(22)S; Martin R. Timm, 05(34)S; Universal Music Group, 01(15)S; Publication 28, A Guide to Sales Tax for the Film Industry).
Hard drive / tangible format -- taxable. Movies delivered in a tangible format such as a hard drive, tape, or disk are taxable as sales of tangible personal property (Apple Computer, 07(11)S; Stachura, 04(26)S). The hard drive is tangible personal property regardless of the fact that an electronic key is needed to convert the digital information into a viewable movie. So a film delivered to the theater on a hard drive in New York is subject to State and local sales tax (Tax Law 1105(a), 1210(a)(1)).

What this means for you

Movie theaters and content distributors

The same movie is taxed differently depending on how it arrives: a satellite or electronic feed is a nontaxable intangible, while a copy delivered on a physical hard drive, tape, or disk is taxable tangible property. The fact that the file is encrypted and needs a key to play doesn't change the analysis -- if a physical medium changes hands, it's taxable property. To avoid sales tax on film delivery, take delivery electronically.

The delivery-medium rule

New York repeatedly treats electronically delivered content as nontaxable intangibles and the same content on a physical medium as taxable property. The presence of a separate access key or activation step doesn't convert a tangible delivery into an intangible one.

Common questions

Q: We receive movies by satellite -- is that taxable?
A: No. Satellite/electronic delivery is treated as a sale of intangible property and isn't subject to sales tax.

Q: We get a film on a hard drive that needs a key to play -- taxable?
A: Yes. The hard drive is tangible personal property and is taxable even though you need an electronic key to unlock the movie.

Q: Why does the key not make the hard-drive delivery intangible?
A: Because a physical medium (the drive) is transferred to you. New York taxes the tangible delivery regardless of any activation key.

Citations and references

Tax Law section 1105(a) (tax on retail sales/rentals of tangible personal property)
Tax Law section 1101(b)(5) (definition of sale; rental)
Tax Law section 1210(a)(1) (local sales tax)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-12(10)S
Sales Tax
May 14, 2012

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

PETITION NO. S120203A

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 State and local 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 movie theaters in New York State. It receives movies from film
studios in one of two ways.
The first is by receipt of a hard drive that is loaded into a server. The hard drive contains
digital information. 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 then returned to the studio.
The second method by which Petitioner would receive movies is by satellite transmission
from the film studio. In this case, no tangible personal property of any kind will be received by
Petitioner.
Analysis
Petitioner’s rentals of movies delivered to it 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., TSB-A-08(22)S (videos delivered electronically); Martin
R. Timm, TSB-A-05(34)S (photographs delivered electronically); Universal Music Group,
TSB-A-01(15)S (digitized music); Publication 28 (5/05) A Guide To Sales Tax for the Film
Industry, at 11.
Petitioner’s rentals of movies delivered to it in a tangible format such as on a tape or disk
are subject to sales tax as sales of tangible personal property, unless otherwise exempt. See
Apple Computer, Inc., TSB-A-07(11)S; Debra Horn Stachura, TSB-A-04(26)S; Publication 28,
supra. When Petitioner rents a movie from a film studio and the studio delivers the movie to

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TSB-A-12(10)S
Sales Tax
May 14, 2012

Petitioner on a hard drive, Petitioner is purchasing the movie in a tangible format.1 The hard
drive is tangible personal property regardless of the fact that Petitioner must receive an electronic
key to convert the digital information on the hard drive into a viewable movie. Accordingly,
Petitioner’s rentals of movies delivered to it on a hard drive in New York are subject to State and
local sales tax pursuant to Tax Law sections 1105(a) and 1210(a)(1).

DATED: May 14, 2012

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.

Tax Law §1101(b)(5).