Which of a broadcast studio's twelve charges to a TV-station customer are subject to New York sales tax?

Plain-English summary

A New York City broadcast production studio receives a Japanese TV station's signal, records it to a server, edits in local content/commercials, and rebroadcasts it in the U.S. It bills the station twelve separate charges and asked which are subject to sales tax.

The Office of Counsel concluded that only the charges connected to tangible property are taxable; the production services delivered electronically are not.

Taxable:

• In-Flight -- producing recorded tapes for an airline and delivering/picking them up: a sale of tangible personal property, and the freight and pickup charges are part of that taxable sale. (The studio's blank-tape purchases are purchases for resale -- give the vendor Form ST-120.)
• Equipment Purchase -- replacement studio equipment the studio buys is not bought exclusively for resale (it uses the equipment to perform its services), so it owes tax and must collect from the customer (Michelli). If the customer buys directly, the customer owes tax. A purchase made as a true disclosed purchasing agent can shift the tax to the customer -- but only if the strict agency requirements are met (billing, payment from a special fund, and delivery all run through the principal -- 20 NYCRR 541.5(c)).
• Computer Maintenance -- servicing the customer's equipment is taxable servicing of tangible personal property (Tax Law section 1105(c)(3)).
• U.S. Nippon Communications Network -- providing recorded tapes to a nonprofit station is a taxable sale of tangible personal property unless the nonprofit is a section 1116 exempt organization (get exemption documentation).

Not taxable (services or digital products delivered electronically, not enumerated):

• Broadcasting Studio (operating the studio; the studio adds content, so it's not a passive telecommunications conduit), Anchor (performer/voice-over for programming delivered electronically), Content Production (research/admin work the studio consumes), Caption Production (translation/subtitling delivered electronically), Production Expenses (reimbursed costs of producing electronic programming -- the studio correctly paid tax as the consumer of taxable items it bought), Production and CM Department (producing commercials delivered as a digital product), and World TV (rebroadcasting live channels).

What this means for you

Media / production companies

Charges for content and production delivered electronically (no tape, disc, or other tangible media) are generally not taxable -- they aren't enumerated services. The line flips to taxable the moment you hand over tangible media (tapes), and freight/pickup ride along with that taxable sale.

Buying equipment "for resale"

You can't buy equipment for resale if you use it to perform your services -- you're the consumer and owe tax. A disclosed purchasing-agent structure can move the tax to your customer, but only if you meet all the agency requirements (billing, payment from a special fund, and delivery through the principal).

Servicing equipment

Maintaining/servicing a customer's tangible equipment is taxable under section 1105(c)(3), even when your other charges aren't.

Common questions

Q: We deliver everything electronically -- why is 'In-Flight' taxable?
A: Because that charge involves recorded tapes (tangible personal property). The delivery and pickup of those tapes are part of the taxable sale.

Q: Can we buy replacement studio equipment for resale to the station?
A: Not if you use it to perform your services -- then it isn't bought exclusively for resale and tax applies. A documented disclosed-agent purchase can shift tax to the station.

Q: Is maintaining the station's computers taxable?
A: Yes -- servicing tangible personal property is taxable under section 1105(c)(3).

Q: Are the tapes we give the nonprofit station taxable?
A: Yes, as a sale of tangible personal property, unless the nonprofit is a section 1116 exempt organization and provides exemption documentation.

Citations and references

• Tax Law section 1105(a) (sales tax on retail sales of tangible personal property)
• Tax Law section 1105(c)(1) (information services)
• Tax Law section 1105(c)(3) (servicing tangible personal property)
• Tax Law section 1116 (exempt organizations)
• 20 NYCRR 541.5(c) (purchasing agent; agency relationship)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(45)S
Sales Tax
November 12, 2015

Office of Counsel

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S110627A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTED (Petitioner). Petitioner asks whether it
owes sales tax with respect to twelve types of charges it imposes on its customer (Customer).
We conclude that three of the charges Petitioner imposes on Customer for sales of
recorded tapes, equipment purchases and servicing of equipment are subject to sales tax.
However, most of Petitioner’s charges to Customer are not subject to sales tax because they
constitute receipts from the sale of a service that is not among those subject to sales tax or the
sale of a product that is delivered in non-tangible form.

Facts
Petitioner operates an audio/visual broadcast production studio in New York City.
Petitioner provides services primarily to Customer, a Japanese television station that broadcasts
content in Japan. Customer pays Petitioner to rebroadcast its content in the United States.
Petitioner provides a 24-hour broadcast of the content that is supplied by Customer. The content
provided by Customer is saved to a server for rebroadcast to viewers in the United States without
the use of any tangible storage media such as tape. Occasionally, Petitioner must also produce
original content that is digitally incorporated into the video broadcast.
The equipment at the New York broadcast studio operated by Petitioner is owned by
Customer, which has agreements with cable affiliates in the United States for the broadcast of
content. Customer is not licensed by the Federal Communications Commission. Petitioner does
not receive any revenue from or have any contracts with the cable subscribers receiving the
broadcasts in the United States. The Petitioner’s revenue comes from the service of operating
the studio.
Petitioner’s revenue is derived from 12 types of revenue streams. Petitioner issues
separate invoices for each revenue stream.
1. Broadcasting Studio -- The broadcasting studio charge covers the costs (including
labor) of operating the broadcast studio. The operation entails receiving a broadcast
signal from Japan, digitally recording it to a server, and then rebroadcasting it to cable
operators in the United States. The charge includes the constant monitoring of the
signal (24 hours a day, 7 days a week), as well as the production work for the original
content created at the New York studio that is added to the broadcast. Examples of
production work would be the video editing required to produce and insert a local
weather report into programing, or inserting a stock graphic into the original

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programing before it is rebroadcast. All video editing is done electronically. No
tapes or other tangible media are produced.
2. Anchor -- Petitioner charges Customer for the services performed by an anchor
person it keeps on staff. The anchor hosts a weekly talk show that Petitioner
produces and also does voice-over work for some of Customer’s programming. The
talk show is not broadcast live. It is recorded in the studio and the recording is stored
electronically on Petitioner’s server. All editing is done electronically, although a
backup tape is produced for internal use in case of emergency. The backup tape is
not provided to Customer. The television show is included in the programming that
Petitioner transmits to cable television operators. The anchor person also provides
voice-overs for local commercials produced by Petitioner that are included in
Customer’s programing.
3. Content Production -- Petitioner bills Customer for work performed by a research
assistant employed by Petitioner. The research assistant performs administrative
office work, as well as computer research for some of the content that may end up as
part of the talk show. The charge is listed on the invoice as a “Production Assistant
Fee.”
4. Caption Production -- Petitioner bills Customer for the services of translating
Japanese-language television shows and transcribing English subtitles into
Customer’s programing. This work is all performed electronically.
5. Production Expenses -- Petitioner bills Customer for reimbursement of out-of-pocket
expenses (e.g., food and travel) incurred by Petitioner’s employees while filming on
location. Petitioner pays sales tax on these purchases and then charges Customer for
the expense. Petitioner does not include any type of mark up on the amounts charged.
The on-location filming is done to produce content for Customer’s programing. To
the extent that this content is transferred to or on behalf of Customer, it is done
electronically.
6. Production – Customer is charged for the cost of producing local commercials that
are included in the programing that Petitioner’s transmits on behalf of Customer. The
Japanese programs transmitted by Customer to Petitioner contain Japanese
commercials. Petitioner digitally edits out those commercials and inserts local
commercials that it has produced and recorded. These charges may also include a fee
for dubbing a finished commercial. Petitioner does not have a contract with the
advertiser or receive any revenue from the advertiser. Petitioner is paid by Customer
for producing the local commercials.
7. In-Flight -- Petitioner helps Customer place its programing on airline flights. The
Petitioner downloads content from Customer’s transmissions and then records the
content onto tapes that are transferred to the airline at JFK International Airport.
Customer has a contract with the airline to provide the tapes and pays Petitioner for
producing them. Once the tapes are shown by the airline, they are returned to

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Petitioner. Petitioner imposes a separate charge for delivery of the tapes to JFK.
Petitioner also charges Customer for picking up the used tapes from the airline.
8. Equipment Purchase -- These charges relate to the purchases of equipment used in the
studio. Occasionally, equipment at the studio has to be replaced so that Petitioner can
continue providing its broadcast services. Petitioner states that, in some instances, it
purchases the new equipment, pays the applicable sales tax, and immediately resells it
to Customer at cost. In other instances, Customer directly purchases the equipment
for use in the studio. Petitioner never uses the equipment while it has title to the
property. Alternatively, Petitioner is considering making purchases of equipment as
a disclosed purchasing agent of Customer.
9. CM Department -- CM charges are for activities related to the production of the
commercials, such as graphic editing, voice-over services and music and mixing
services. While the charges are similar to the “Production” category detailed above,
the commercials covered by the CM charges are not produced using local, “in-house”
talent. That is, Petitioner works on commercials transmitted to it by Customer, which
will be broadcast after editing by Petitioner.
10. World TV -- Petitioner charges Customer for broadcasting two live channels. In
order to broadcast in the United States, Customer must use Petitioner’s local station to
transmit the signal. Petitioner provides the real time stream for these stand-alone
channels. Petitioner will also edit out Japanese commercials and insert local
commercials electronically.
11. Computer Maintenance -- Petitioner services and maintains computer equipment
owned by Customer that is located in Petitioner’s studio. The computer equipment
being maintained is not used directly and predominantly in the production or
transmission of programming.
12. U.S. Nippon Communications Network -- A local nonprofit station broadcasts content
from Customer in a 30 minute segment once a week. Petitioner records the content
and provides a tape to the nonprofit. Petitioner then invoices the nonprofit for the
content and the nonprofit pays Petitioner directly. The nonprofit has a contract with
the Petitioner’s Customer to purchase and use the programing.

Analysis
We address the taxability of each of Petitioner’s charges separately below.

Broadcasting Studio
The Broadcasting Studio charge is for a service that is not subject to sales tax. Petitioner
receives electronic transmissions containing programing from Customer and stores the
programing on a server. The programing is then retransmitted as is, or is edited by Petitioner to

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incorporate local content (e.g. a local weather report) before retransmission by Petitioner.
Petitioner does not provide Customer or any other party with copies of the programming on
tangible media as part of this service. Accordingly, we conclude that Petitioner is not selling or
servicing tangible personal property. See TSB-A-98(8)S. Further, Petitioner is not providing a
telecommunication service subject to sales tax because it adds content to the programing
received from Customer and, thus, is not acting as a passive conduit for the transmission of
electronic messages. Id.
Anchor
Anchor charges are charges for a service that is not subject to sales tax (production of
programing delivered to Customer in electronic form). Voice-over services and other charges
billed to a customer for the production of programming transmitted to Customer or its designee
in electronic form are not taxable. See TSB-A-04(26)S; TSB-A-98(8)S. Thus, the fee for having
a performer appear in, or do voice-over work for, recorded programs is not subject to sales tax.
Content Production
Content Production charges are charges for the administrative and research work done
by Petitioner’s research assistant. Therefore, they are charges for a service that is not subject to
sales tax. The Petitioner is the consumer of the assistant’s research. Therefore, the assistant’s
research work does not constitute the sale of an information service because the information
produced by the assistant is not provided to Customer.
Caption Production
Caption Production charges are not taxable because they are the charges for a service
that is not subject to sales tax, i.e. the production of programing delivered to Customer in
electronic form.
Production Expenses
The charge for Production Expenses is not taxable because the charge is a reimbursement
for expenses incurred as a part of the service of producing programing delivered to Customer in
electronic form, which is not a service subject to sales tax. However, Petitioner correctly paid
sales tax on its purchase of expense items, such as restaurant meals and other taxable property
and services, because it was the retail consumer of these items.
Production
Production charges for commercials are not subject to sales tax because Petitioner is
producing a digital product, which is not tangible personal property for purposes of sales tax.
See TSB-A-01(15)S.
In-Flight

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This charge includes Petitioner’s charges for producing recorded tapes and delivering the
recorded tapes to the airline at JFK International Airport. Thus, the charge is subject to sales tax
as a sale of tangible personal property. See TSB-A-2004(26)S. The In-Flight charge also
includes a fee for picking up the used tapes from JFK International Airport. Because Customer
never keeps the tapes and they are routinely returned to Petitioner, Petitioner’s charge for picking
up the used tape is a component of the sale of tangible personal property and subject to sales tax.
See TSB-A-08(64)S. Petitioner’s purchase of blank tapes on which it records the content that
will be delivered to the airline qualifies as a purchase for resale. Therefore, Petitioner’s purchase
of the blank tapes will not be subject to sales tax. In this situation, Petitioner should timely
provide the vendor with a properly completed Form ST-120 – Resale Certificate.
Equipment Purchase
Petitioner described 3 ways in which replacement equipment could be purchased for the
studio: (1) Petitioner purchases the equipment and resells to Customer; (2) Customer purchases
the equipment directly; and (3) Petitioner purchases the equipment as Customer’s disclosed
purchasing agent. When Petitioner purchases replacement equipment for the studio, it does not
qualify for the resale exemption. Only purchases made exclusively for resale come within the
exemption. See Michelli Contracting Corp. v. State Tax Comm’n, 109 AD2d 957 (3d Dep’t
1985); TSB-A-84(15)S. Here, Petitioner uses the equipment in the performance of its services
for Customer. Thus, the equipment is not purchased exclusively for resale to Customer. In these
circumstances, Petitioner would owe sales tax when it makes a purchase, and must collect sales
tax from Customer when it charges Customer for the equipment, unless Customer is entitled to
claim an exemption. Similarly, when Customer directly purchases equipment that is delivered to
the New York studio, it must pay sales tax unless an exemption applies.
If an agency relationship is present, the sale of taxable tangible personal property is
deemed to be a retail sale from the supplier to Customer. See 20 NYCRR § 541.5(c)(2). To
establish an agency relationship, there must be a manifestation that the agent consents to act on
the Principal’s behalf and has authority to bind the Principal. See Matter of Hooper Holmes v.
Wetzler, 152 AD2d 871 (3d Dep’t 1989); Matter of Swet, TSB-D-91(10)S. This requires that
purchases must be billed directly from the vendor to Customer or, if billed to Petitioner, it must
be specified that Petitioner is acting as an agent of Customer. In addition, payment must be
made directly by Customer to the supplier or, if payment is made by Petitioner, it must come
from a special fund created specifically for this purpose. Finally, the purchased items must be
delivered directly to Customer. See 20 NYCRR § 541.5(c). If Petitioner meets the requirements
described above and makes a purchase of equipment as a disclosed purchasing agent for
Customer, Petitioner would pay sales tax to the supplier as Customer’s agent, unless Customer is
eligible for some exemption.
We cannot opine in this Advisory Opinion about whether Customer is eligible for an
exemption. However, if an exemption applies, Customer, or Petitioner, as Customer’s agent,
should timely provide the supplier with a properly completed exemption document. In these
circumstances, Petitioner would not be required to collect sales tax when it charges Customer for
reimbursement of the purchase price of the equipment.
CM Department

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The CM Production charges are charges for services related to the production of
commercials that are received electronically from Customer and broadcast by Petitioner. No
tangible copy of the commercial is provided. Accordingly, these charges are not subject to sales
tax because they are not charges for the sale of tangible personal property or one of the services
subject to sales tax.
World TV
The service of rebroadcasting two live television channels is not among the services
subject to sale tax. Accordingly, the charges for this service are not subject to sales tax.
Computer Maintenance
Petitioner’s maintenance of Customer’s equipment constitutes the servicing of tangible
personal property, which is subject to sales tax under Tax Law § 1105(c)(3).

U.S. Nippon Communications Network
Petitioner’s charges for providing recorded tapes to the nonprofit station constitute
receipts from the sale of tangible personal property, which are subject to sales tax if the tapes are
delivered to the nonprofit station in New York. If the nonprofit station is an exempt organization
under Tax Law § 1116 and is purchasing the recorded tapes directly from Petitioner, Petitioner’s
receipts from the sale of the recorded tapes would be exempt from sales tax. Petitioner should
request exemption documentation from any nonprofit that claims to be an exempt organization
for purposes of New York State and local sales tax.

DATED: November 12, 2015

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.