Are an out-of-state production company's video, sound, and lighting services taxable in New York, and does it owe use tax on equipment it brings in?

Plain-English summary

An out-of-state company (incorporated in Delaware, headquartered in California, no New York office) advises clients on video, sound, and lighting for large exhibitions and events, then sets up and operates its own equipment during each event. It never transfers control of the gear to the customer and never hands over any recordings. It asked whether its New York event receipts are taxable.

The Office of Counsel concluded the service receipts are not taxable. The consultation is not an enumerated taxable service, and because the company keeps possession and control of its equipment (20 NYCRR 526.7), there is no taxable rental or sale of tangible personal property. The video/sound/lighting work it performs is likewise not on New York's list of taxable services.

But the opinion adds an important catch: compensating use tax applies to the company's in-state use of equipment it bought elsewhere. Once a company becomes engaged in business in New York, the non-resident use-tax exemption (§ 1118(2)) no longer applies to property used in that business. Use tax is generally measured by the equipment's purchase price; if a piece was used elsewhere for more than six months, tax is based on its market value at first New York use (capped at cost); and for equipment used in New York for under six months, tax may instead be based on its fair rental value. The company pays use tax on each item only once and may credit sales/use tax already paid to another state or locality.

What this means for you

Out-of-state event, A/V, and production companies

Keeping control of your own equipment generally keeps your service receipts out of New York sales tax. But the moment you're doing business in New York, plan for use tax on the gear you truck in — even though your customer charges aren't taxable.

Anyone relying on the non-resident exemption

That exemption evaporates once you're engaged in business in the state. Track when each piece of equipment first enters New York and how long it was used elsewhere — that drives whether tax is on cost, market value, or fair rental value.

Accountants and tax professionals

Run the § 1111(b) measure analysis per asset (purchase price vs. >6-month market value vs. <6-month fair rental value), apply the § 1118(7) reciprocal credit, and remember use tax is a once-per-item liability.

Common questions

Q: Why aren't our event production receipts taxable?
A: You keep control of your own equipment, so there's no taxable rental, and the production services aren't enumerated taxable services.

Q: If the service isn't taxable, why do we owe anything?
A: Compensating use tax is a separate tax on your use of equipment in New York that you bought elsewhere, once you're engaged in business here.

Q: How is the use tax calculated?
A: Generally on purchase price; on market value at first New York use if the item was used elsewhere over six months (capped at cost); or on fair rental value for equipment used in New York under six months.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law § 1105(a) (sales tax on retail sales of tangible personal property)
• Tax Law § 1105(c) (enumerated taxable services)
• Tax Law § 1110 (compensating use tax)
• Tax Law § 1111(b), (b)(1), (b)(2) (measure of use tax: purchase price, market value, or fair rental value)
• Tax Law § 1118(2), (7) (nonresident use-tax exemption ends once engaged in business in NY; credit for tax paid elsewhere)
• 20 NYCRR 526.7 (transfer of possession); TB-ST-910; TB-ST-765

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-37s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(37)S
Sales Tax
July 21, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
[ REDACTED ] (Petitioner) asking if sales tax is imposed on its sales receipts for video, lighting,
and sound effect services performed in New York. We conclude that sales tax is not imposed on
these receipts. However, compensating use tax is imposed on Petitioner’s in-State use of
equipment purchased elsewhere while conducting business in New York State.
Facts
Petitioner is incorporated in Delaware and commercially domiciled in California.
Petitioner does not have an office in New York State. Petitioner is engaged in the business of
providing professional consultation services to advise its customers in incorporating optimal
video, sound, and lighting into large commercial and private exhibitions, shows, presentations,
and general entertainment events. In conjunction, Petitioner utilizes its audio/visual and lighting
equipment (“equipment”) to provide audio and visual effects during such an event.
Petitioner begins by advising its customers on the possibilities of video, sound, and
lighting for each unique event. Petitioner then determines its customer’s production objectives
and provides guidance to reach those objectives considering each specific venue and budget.
After event details are finalized, Petitioner is responsible for the placement and operation of
equipment necessary for the event. Petitioner assembles the necessary equipment onsite prior to
each event. Petitioner then operates the equipment itself during each event. Petitioner never
transfers control of the equipment to a customer. Likewise, Petitioner never transfers any other
tangible personal property to its customers, e.g., event recordings.
Analysis
Petitioner provides professional consultation services to advise its customers on the
capabilities of video, sound, and lighting equipment and on its potential within an event. Such
consultation services are not one of the enumerated services on which sales tax is imposed
pursuant to Tax Law § 1105(c). With respect to Petitioner’s provision of audio and visual
equipment during an event production, sales tax is not imposed on Petitioner’s receipts as sales
of tangible personal property under Tax Law § 1105(a) because Petitioner does not transfer
possession or control of its equipment to its customers. 20 NYCRR 526.7. Rather, Petitioner
uses its own equipment to provide video, sound, and lighting services. Those services also are
not enumerated as taxed services pursuant to Tax Law § 1105(c). Accordingly, sales tax is not
imposed on Petitioner’s sales receipts.

-2-

TSB-A-20(37)S
Sales Tax
July 21, 2020

It must be noted, however, that compensating use tax is imposed on Petitioner’s in-State
use of equipment purchased elsewhere. See generally Tax Law § 1110; TB-ST-910. The
compensating use tax exemption afforded to non-residents did not apply to Petitioner after it
became engaged in business in New York State with respect to property used in such business.
See Tax Law § 1118(2). Compensating use tax generally is calculated based on the purchase
price of equipment. See Tax Law § 1111(b). However, if it is affirmatively shown that a piece
of equipment was used elsewhere for more than six months, then compensating use tax would be
collected on the market value of that piece of equipment at the time of its first use within New
York State, not to exceed its cost. See Tax Law § 1111(b)(1). Alternatively, compensating use
tax on equipment used in the performance of a contract for a period of less than six months may
be based on the fair rental value of such equipment for its period of use within New York State.
See Tax Law § 1111(b)(2). Petitioner is liable for compensating use tax on each piece of
equipment only once and may be entitled to a deduction based on sales or use tax paid to another
state and/or locality. See Tax Law § 1118(7); TB-ST-765.
DATED: July 21, 2020

/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE:

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.